20-F 1 u10506e20vf.htm 20-F e20vf
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
     
(Mark One)
 
   
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12 (B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  or
x
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  For the fiscal year ended: 31 December 2010
 
  or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  For the transition period from: _____________ to _____________
 
  or
o
  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  Date of event requiring this shell company report _____________
     
Commission file number: 1-10533   Commission file number: 001-34121
     
Rio Tinto plc   Rio Tinto Limited
ABN 96 004 458 404
(Exact Name of Registrant as Specified in Its Charter)   (Exact Name of Registrant as Specified in Its Charter)
     
England and Wales   Victoria, Australia
(Jurisdiction of Incorporation or Organisation)   (Jurisdiction of Incorporation or Organisation)
     
2 Eastbourne Terrace
London, W2 6LG, United Kingdom
  Level 33, 120 Collins Street
Melbourne, Victoria 3000, Australia
(Address of Principal Executive Offices)   (Address of Principal Executive Offices)
Julie Parent, T: 514-848-8519, E: julie.parent@riotinto.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
             
    Name of Each Exchange       Name of Each Exchange
Title of Each Class   On Which Registered   Title of Each Class   On Which Registered
American Depositary Shares*
  New York Stock Exchange        
Ordinary Shares of 10p each**
  New York Stock Exchange        
7.125% Notes due 2013
  New York Stock Exchange   7.125% Notes due 2013   New York Stock Exchange
5.875% Notes due 2013
  New York Stock Exchange   5.875% Notes due 2013   New York Stock Exchange
6.500% Notes due 2018
  New York Stock Exchange   6.500% Notes due 2018   New York Stock Exchange
7.125% Notes due 2028
  New York Stock Exchange   7.125% Notes due 2028   New York Stock Exchange
1.875% Notes due 2015
  New York Stock Exchange   1.875% Notes due 2015   New York Stock Exchange
3.500% Notes due 2020
  New York Stock Exchange   3.500% Notes due 2020   New York Stock Exchange
5.200% Notes due 2040
  New York Stock Exchange   5.200% Notes due 2040   New York Stock Exchange
8.950% Notes due 2014
  New York Stock Exchange   8.950% Notes due 2014   New York Stock Exchange
9.000% Notes due 2019
  New York Stock Exchange   9.000% Notes due 2019   New York Stock Exchange
*   Evidenced by American Depositary Receipts. Each American Depositary Share Represents one Rio Tinto plc Ordinary Shares of 10p each.
 
**   Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission
Securities registered or to be registered pursuant to Section 12(g) of the Act:
     
Title of Class   Title of Class Shares
None
   
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
     
None   None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
                         
Title of each class     Number       Number     Title of each class
Ordinary Shares of 10p each
    1,529,003,871       435,758,720     Shares
DLC Dividend Share of 10p
    1       1     DLC Dividend Share
Special Voting Share of 10p
    1       1     Special Voting Share
Indicate by check mark if the registrants are well-known seasoned issuers, as defined in rule 405 of the Securities Act.
             
 
  Yes x   No o    
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
             
 
  Yes o   No x    

 


Table of Contents

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:
             
 
  Yes x   No o    
          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*   Yes x   No o
* This requirement does not apply to the registrant until its fiscal year ending December 31, 2011.
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
                 
 
  Large Accelerated Filer x   Accelerated Filer o   Non-Accelerated Filer o    
Indicate by check mark which basis of accounting the registrants have used to prepare the financial statements included in this filing:
                 
 
  US GAAP o   International Financial Reporting Standards as issued by the International Accounting Standards Board x   Other o    
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrants have elected to follow:
             
 
  Item 17 o   Item 18 o    
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
             
 
  Yes o   No x    
          This document comprises the annual report on Form 20-F and the annual report to shareholders for the year ended December 31, 2010 of Rio Tinto plc and Rio Tinto Limited (the 2010 Form 20-F). Reference is made to the cross reference to Form 20-F table on pages i to iii hereof (the Form 20-F Cross reference table). Only (i) the information in this document that is referenced in the Form 20-F Cross reference table, (ii) the cautionary statement concerning forward-looking statements on page v and (iii) the Exhibits, shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into the Registration Statement on Form F-3 File No. 333-151839, and Registration Statements on Form S-8 File Nos. 33-46865, 333-8270, 33-64380, 333-7328, 333-10156, 333-13988, 333-147914 and 333-156093 and any other documents, including documents filed by Rio Tinto plc and Rio Tinto Limited pursuant to the Securities Act of 1933, as amended, which purport to incorporate by reference the 2010 Form 20-F. Any information herein which is not referenced in the Form 20-F Cross reference table, or the Exhibits themselves, shall not be deemed to be so incorporated by reference.
 
 

 


Table of Contents

Form 20-F Cross Reference Table
                 
Item Number Number Description   Report section reference        
 
1.
  Identity of directors, senior management and advisors   Not applicable        
 
2.
  Offer statistics and expected timetable   Not applicable        
 
3.
  Key Information            
A
  Selected financial information   Performance highlights     2-3  
 
      Five Year review     74  
 
      Dual listed companies structure Dividend rights     269  
 
      Exchange rates     274  
B
  Capitalisation and indebtedness   Not applicable        
C
  Reasons for the offer and use of proceeds   Not applicable        
D
  Risk factors   Risk factors     25-28  
 
4.
  Information on the company            
A
  History and development of the company   Striving for global leadership     V  
 
      Shareholder information        
 
     
Operational structure
    262  
 
     
Nomenclature and financial data
    262  
 
     
History
    262  
 
      Registered offices     279  
 
      Acquisition and divestments     75  
 
      Capital projects     76-77  
B
  Business overview   Strategic context     14-15  
 
      Group strategy     18-21  
 
      Product overview     6-7  
 
      Key performance indicators     22-23  
 
     
Group overview
    4-5  
 
      Corporate governance        
 
     
Governmental regulations
    111  
C
  Organisational structure   Financial statements        
 
     
Notes 37-40
    223-225  
D
  Property, plant and equipment   Metals and minerals production     80-83  
 
      Ore reserves     84-93  
 
      Mines and production facilities     94-101  
 
      Financial statements        
 
     
Note 13-property, plant and equipment
    193  
 
4A.
  Unresolved staff comments   None        
 
5.
  Operating and financial review and prospects            
A
  Operating results   Operating review        
 
     
Aluminium
    42-45  
 
     
Copper
    46-49  
 
     
Diamond & Minerals
    50-53  
 
     
Energy
    54-57  
 
     
Iron Ore
    58-61  
 
     
Financial review
    66-73  
 
      Sustainable development     29-30  
B
  Liquidity and capital resources   Financial review        
 
     
Cash Flow
    71  
 
     
Statement of financial position
    71  
 
     
Financial risk management
    71  
 
     
Liquidity and capital management
    72  
 
      Financial statements        
 
     
Note 33-financial risk management
    210-215  
C
  Research and development, patents and licenses   Exploration     62-63  
 
      Technology & Innovation     64-65  
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Item Number Number Description   Report section reference        
 
D
  Trend information   Product Overview     4-5  
 
      Chairman’s statement     8-9  
 
      Chief executive’s statement     10-11  
E
  Off-balance sheet arrangements   See item 5.A        
 
      Financial review        
 
     
Off balance sheet arrangements and contractual commitments
    73  
 
      Financial statements        
 
     
Note 35-contingent liabilities and commitments
    221-222  
F
  Tabular disclosure of contractual obligations   Financial review        
 
     
Off balance sheet arrangements and contractual commitments
    73  
 
6.
  Directors, senior management and employees   Board of directors     102-105  
A
  Directors and senior management   Executive committee     106-107  
B
  Compensation   Remuneration report     128-155  
C
  Board practices   Board of directors     102-105  
 
      Executive committee     106-107  
 
      Corporate governance     114-127  
D
  Employees   Financial statements        
 
     
Note 4-employment costs
    183  
 
     
Note 36-average number of employees
    222  
E
  Share ownership   Remuneration report        
 
     
Table 3
    147  
 
7.
  Major shareholders and related party transactions            
A
  Major shareholders   Shareholder information        
 
     
Substantial shareholders
    274  
 
     
Analysis of ordinary shareholders
    275  
 
     
Twenty largest registered shareholders
    275  
B
  Related party transactions   Financial statements        
 
     
Note 44- related party transactions
    232  
C
  Interests of experts and counsel   Not applicable        
 
8.
  Financial Information            
A
  Consolidated statements and other            
 
  Financial information   See Item 18 below        
 
      Financial statements        
 
     
Note 35-contingent liabilities and commitments
    221  
 
      Shareholder information        
 
     
Dividends
    262-263  
B
  Significant changes   Financial statements        
 
     
Note 48-events after the statement of financial position date
    233  
 
9.
  The offer and listing            
A
  Offer and listing details   Shareholder information        
 
     
Market listings and share prices
    263-265  
B
  Plan of distribution   Not applicable        
C
  Markets   Shareholder information        
 
     
Market listings and share prices
    263-265  
D
  Selling shareholders   Not applicable        
E
  Dilution   Not applicable        
F
  Expenses of the issue   Not applicable        
 
10.
  Additional Information            
A
  Share capital   Not applicable        
B
  Memorandum and articles of association   Shareholder information        
 
     
Material contacts
    268-271  
 
     
Articles of association and constitution
    271-272  
C
  Material contracts   Shareholder information        
 
     
Material contracts
    268-271  
ii   Rio Tinto 2010 Annual report


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Item Number Number Description   Report section reference        
 
D
  Exchange controls   Shareholder information        
 
     
Exchange controls and foreign Investment
    268  
E
  Taxation   Shareholder information        
 
     
Taxation
    266-268  
F
  Dividends and paying agents   Not applicable        
G
  Statement by experts   Not applicable        
H
  Documents on display   Shareholder information        
 
     
Market listings and share prices
    265  
I
  Subsidiary information   Not applicable        
 
11.
  Quantitative and qualitative disclosures about market risk   Financial review     66-73  
 
      Cautionary statements about share prices     V  
 
12.
  Description of securities other than equity securities   Shareholder information        
 
     
Market listings and share prices
    263-264  
 
13.
  Defaults, dividend arrearages and delinquencies   Not applicable        
 
14.
  Material modifications to the rights of security holders and use of proceeds   Not applicable        
 
15.
  Controls and procedures   Corporate governance        
 
     
Financial reporting
    126-127  
 
16.A
  Audit committee financial expert   Corporate governance        
 
     
Audit committee report
    119-120  
B
  Code of ethics   The way we work     16  
 
      Corporate governance        
 
     
Global code of conduct
    123-124  
C
  Principal Accountant fees and services   Director’s report        
 
     
Principal auditor-audit and non audit fees and services
    112-113  
 
      Corporate governance        
 
     
Governance process
    119  
 
     
Auditors and internal assurance
    125-126  
 
      Financial statements        
 
     
Note 43-Auditors remuneration
    231  
D
  Exemptions from the listing standards for audit committees   Not applicable        
E
  Purchases of equity securities by the issuer and affiliated purchasers   Directors’ report        
 
     
Share capital
    109-110  
 
     
Purchase of shares
    110  
F
  Change in Registrant’s Certifying Accountant   Not applicable        
G
  Corporate Governance   Corporate governance        
 
     
Compliance with national governance codes and standards in 2010
    127  
 
17.
  Financial statements   Not applicable        
 
18.
  Financial statements   Report of the independent auditors     257  
 
      Consolidated financial statements     156-254  
 
19.
  Exhibits            
 
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    (RIO TINTO LOGO)
  2010 Annual report

This report is available online
Visit ww w.riotinto .com/annualreport2010
 

Striving
for
global
sector
leadership

iv   Rio Tinto 2010 Annual report


Table of Contents

Striving for global sector leadership
Rio Tinto is a leading global business delivering value at each stage of mineral and metal production. Our 77,000 people work in over 40 countries. Our commitment to the health, safety and prosperity of our people is at the heart of our operations. So is our determination to maintain the environmental integrity of what we do. We achieve all of this by managing our business globally with a well established strategy and a single set of standards and values. Our approach, coupled with our diverse portfolio of quality assets, positions us for growth on a global scale.

More information
Website ww w.riotinto.com
The “Shareholders” section of ww w.riotinto.com provides financial and corporate information about the Group as well as Rio Tinto share price charts and data, an events calendar, dividend information and the latest presentations by management for investors and financial analysts.
The contents of the Company’s website should not be considered to form a part of or be incorporated into this report.
Results presentations
Our results presentations are available live on webcast. A playback of the most recent presentation is downloadable at ww w.riotinto.com
Messaging service/Rio Tinto news alert
Receive news alerts about Rio Tinto via text or email by subscribing to our messaging service on ww w.riotinto.com/newsalerts



The Annual report and Auditors’ report comply with the Australian and UK reporting requirements.
Copies of Rio Tinto’s shareholder documents are available on the website at ww w.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. These statements are forward looking statements within the meaning of Section 27A of the Securities Act of
1933, and Section 21E of the Securities Exchange Act of 1934. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, or similar expressions, commonly identify such forward looking statements.
Examples of forward looking statements in this Annual report include those regarding estimated ore reserves, anticipated production or construction dates, costs, outputs and productive lives of assets or similar factors. Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this document that are beyond the Group’s control. For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include
the ability to produce and transport products profitably, demand for our products, 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.


Sustainable development
Sustainable development is integral to the way we work. Within this report we have provided our 2010 sustainable development performance highlights.
(IMAGE)  
The “Our approach” section of our website contains details of our programmes to deliver on our commitment to sector leading sustainable development and more comprehensive data on our progress.


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Inside this report
 
(SIDE BAR)
Overview
A description of our business and markets, the Group’s strategy and the outlook for 2011
         
    16  
    18  
    22  
    24  
    25  


 
Performance
How we did by product group and function, together with a review of progress in sustainable development
         
    29  
    42  
    46  
    50  
    54  
    58  
         
    62  
    64  
    66  
    74  
    75  
    76  


 
Production, reserves and operations
Information tables and details of our assets
         
    78  
    80  
    84  
         
    94  


 
Governance
Introducing the board of directors and senior management, with an explanation of our approach to corporate governance and remuneration
         
    102  
    106  
    108  
         
    114  
    128  


 
Financial statements
Detailed financial information


 
Additional information
Other useful information
         
    262  
    276  
         
    278  
    279  
 EX-8.1
 EX-12.1
 EX-13.1
 EX-15.1
 EX-99.1


 
Symbols used within this report
(IMAGE)   More content online at ww w.riotinto.com
 
 
(IMAGE)   Key performance indicators within this report
 


(IMAGE)   More content within this report


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Performance highlights
Record financial and operational performance
 
     

Strong financial performance
  Record underlying earnings of US$14.0 billion, 122 per cent above 2009
 
  Record cash flows from operations of US$23.5 billion, up 70 per cent
 
  Record underlying EBITDA of US$26.0 billion, up 82 per cent on 2009
 
  Net debt decreased from US$18.9 billion to US$4.3 billion at the end of 2010
Exceptional operational delivery
  18 per cent decrease in all injury frequency rate from 2009
 
  Production at, or above, capacity at many operations
 
  Record annual production of iron ore
 
  Annual hard coking coal production up 20 per cent on 2009
 
  Bauxite production up nine per cent
Growth potential across the business
  US$11 billion of major capital approvals in 2010, with
 
    US$13 billion of capital expenditure expected in 2011
 
  US$5.6 billion committed in 2010 on Pilbara expansion (100 per cent basis) to grow production by more than 50 per cent
 
  The Oyu Tolgoi copper-gold project came under Rio Tinto’s management, with a pathway to increase ownership of Ivanhoe Mines Ltd to 49 per cent
 
  US$1 billion approved to modernise hydropower based aluminium portfolio in Canada
Continuing progress on sustainable development
  Reduced greenhouse gas (GHG) emissions intensity by 3.7 per cent from 2008
 
  43 per cent decrease in the rate of new cases of occupational illness from 2009
 
  Community contributions of US$166 million, up 40 per cent on 2009
Dividend
                                         
Dividend declared   2010     2009     2008     2007     2006  
 
US cents
    108.00       45.00       111.22       111.23       85.07  
UK pence
    67.35       28.84       67.49       56.20       44.22  
Australian cents
    111.21       51.56       146.22       125.72       110.69  
 
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 182. 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 pages 2 and 3
 
(a)   The accounting information in these charts is based on IFRS accounting information.
 
(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 2010 financial statements. Both net earnings and underlying earnings deal with amounts attributable to owners of Rio Tinto. However, IFRS requires that the profit for the year reported in the income statement should also include earnings attributable to non-controlling interests in subsidiaries.
(BAR GRAPH)
      


2   Rio Tinto 2010 Annual report


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(GRAPH)
 
(BAR GRAPH)


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(MAP)
Group overview
Opportunities for long term growth
 
     

Major global operations
Our assets are ideally positioned to serve our customers worldwide. The majority of our operations are in Australia and North America, but we also have businesses in South America, Europe, southern Africa and Asia. While our operating heartland is in OECD (Organisation for Economic Co-operation and Development) countries, much of our sales are to emerging economies – which are driving the anticipated growth in metals and minerals demand. To meet rising demand, we will continue to pursue value-adding organic growth, plus targeted small to medium sized acquisitions.
Our five product groups (below) are supported by our Exploration and Technology & Innovation groups.
 

Aluminium
We are a global leader in the aluminium industry. Our closely integrated facilities include high quality bauxite mines and alumina refineries, as well as some of the world’s lowest cost primary aluminium smelters.
Products
  Bauxite, alumina, aluminium
Key strengths
  Effective portfolio management, improving our already strong position and moving assets further down the cost curve.
 
  Largest bauxite producer in the industry.
 
  Self generated hydroelectricity at many facilities.
 
  Global scale gives the group the ability to seize opportunities and support customers worldwide as markets continue their recovery.
 
  One of the best growth project pipelines in the aluminium industry, supported by our management expertise and proprietary AP Technology™.
Copper
With diverse assets and leading technology, our Copper group is uniquely positioned to supply growing global demand. In 2010, we produced 678 thousand tonnes of copper, making us the world’s fifth largest supplier. We also produced 772 thousand ounces of gold and 13 thousand tonnes of molybdenum as by-products of our copper operations.
Products
  Copper, gold, molybdenum, silver, nickel
Key strengths
  Participation in and ownership of several world class operating assets. Management of the Oyu Tolgoi project, scheduled to be a top ten copper producer and a significant gold producer.
  Investment in a substantial growth profile.
 
  Industry leading technology and innovation.
Diamonds & Minerals
The Diamonds & Minerals group comprises mining, refining and marketing operations across three sectors. Rio Tinto Diamonds is one of the world’s leading diamond producers, active in mining and sales and marketing. Rio Tinto Minerals is a world leader in borates and talc, with mines, processing plants, commercial and research facilities. Rio Tinto Iron & Titanium is an industry leader in high grade titanium dioxide.
Products
  Diamonds, borates, titanium dioxide feedstocks, talc, high purity iron, metal powders, zircon, rutile
Key strengths
  Poised to benefit from late-cycle demand growth.
 
  Substantial brownfield and greenfield development pipeline.


Contribution to Group underlying earnings (a) (b)
(PIE CHART)
(IMAGE) Full operating review on page 42
Contribution to Group underlying earnings (a) (b)
(PIE CHART)
(IMAGE) Full operating review on page 46
Contribution to Group underlying earnings (a) (b)
(PIE CHART)
(IMAGE) Full operating review on page 50


(a)   Items excluded from net earnings to arrive at underlying earnings are explained in note 2 to the 2010 financial statements.
 
(b)   Aggregate product group underlying earnings contribution of 107 per cent is reduced to 100 per cent by negative amounts for Other items and Net interest.
      


4   Rio Tinto 2010 Annual report


Table of Contents

     
(MAP)

 
 
 

Energy
We are a leading supplier of thermal and coking coal to the Asian seaborne market and are one of the world’s largest uranium producers, serving electric power utilities worldwide. Our Energy portfolio includes: Rio Tinto Coal Australia; a coal mine at Colowyo in Colorado, US; Energy Resources of Australia, which produces uranium oxide from its Ranger operation; and Rössing, a Namibian uranium oxide producer.
Products
  Thermal coal, coking coal, uranium
Key strengths
  Strong customer relationships and high quality assets located in close proximity to growing Asian markets.
 
  Emphasis on operational excellence, thereby reducing waste and greenhouse gas emissions and engaging our people.
Contribution to Group underlying earnings (a) (b)
(PIE CHART)
() Full operating review on page 54
Iron Ore
We are the second largest producer supplying the global seaborne iron ore trade. After a decade of dramatic expansion in Australia, and more recent growth in both Australia and Canada, we believe we are well positioned to benefit from the continuing demand surge in China and other Asian markets. We are driving performance through effective project management and enhanced operational efficiency.
Products
  Iron ore, salt
Key strengths
  Proximity of the expanded Pilbara operations to the world’s largest and fastest growing markets.
 
  Success in increasing operational efficiency and controlling costs.
 
  Vast potential of brownfield developments near existing infrastructure.
Contribution to Group underlying earnings (a) (b)
(PIE CHART)
() Full operating review on page 58
Exploration
Exploration is one of the Group’s core activities – largely paying for itself through the sale of non core discoveries.
Potential Tier 1 discoveries (see page 62) are retained for development and operation. These have included 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.
() Full operating review on page 62
Technology & Innovation
Our centralised team of specialists focuses on improving current technologies and operations, with emphasis on project development, execution and evaluation. The Group’s Innovation Centre concentrates on step changes that will give us competitive advantages in developing the orebodies of the future. A special Energy & Climate Strategy Centre is dedicated to improving the Group’s use of energy, reducing greenhouse gas emissions and understanding the effects of climate change on our operations and prospects.
() Full operating review on page 64


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Product overview
Touching your life every day
 
Major global commodities
Few people around the world can spend a day without using a metal or mineral in some way. In the production and supply of metals and minerals, Rio Tinto is one of the world’s most diversified companies. Major products are aluminium, copper, diamonds, coal, iron ore, uranium, molybdenum, gold, borates, titanium dioxide, salt and talc.
 
Aluminium
(IMAGE)
Bauxite, alumina, aluminium
Rio Tinto is a leading global supplier of bauxite, alumina and primary aluminium. In a closely integrated value chain, the mineral bauxite is refined into alumina which is smelted into aluminium metal. Aluminium is one of the most widely used metals and its largest markets are transportation, building and construction.
 
Copper
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Copper
About two thirds of copper production is used in electrical applications due to its high conductivity. It helps power our lives, in homes and factories, cars, computers, phones and equipment. Further major uses are in air conditioning and refrigeration, plumbing and roofing.
Molybdenum
Molybdenum is a metallic element frequently used in alloys with stainless steel and other metals. It enhances the metal’s toughness, high temperature strength and corrosion resistance. We produce molybdenum as a by-product from the Kennecott Utah Copper operations.
Gold
Gold has enjoyed a mystique and value unrivalled by other metals. Most gold that is not stored as bullion for investment purposes goes into jewellery. Gold’s conductivity and non corrosive properties make it a vital fabrication material in technology, electronics, space exploration and dentistry. We produce gold as a by-product from our copper mines.
Silver
Silver is a good conductor of electricity and does not corrode. It is used in many electrical and electronic applications, such as photovoltaic cells, and is the principal ingredient of x-ray film. Silver is also a metal of beauty, used to make lasting products for the home and person. Rio Tinto produces silver as a by-product of its copper production.
 
Diamonds & Minerals
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Diamonds
Diamonds share the role with gold as an important component in jewellery that ranges from top end jewellery through to more affordable pieces. Rio Tinto is able to service all diamond jewellery markets as it produces the full range of diamonds in terms of size, quality and colour distribution including whites, champagnes, cognacs, greys, blues and greens and the rarest of all, pink diamonds.
Borates
Refined borates are used in hundreds of products and processes. They are a vital ingredient of many home and automotive applications, and are essential nutrients for crops. They are commonly used in glass and ceramic applications including fibreglass, television screens, floor and wall tiles, and heat resistant glass.
      


Segmental analyses of sales revenue by product and by destination have been included in note 32 to the 2010 financial statements.
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Titanium dioxide
The minerals ilmenite and rutile, together with titanium slag, can be transformed into a white titanium dioxide pigment or titanium metal. The white pigment is a key component in paints, plastics, paper, inks, textiles, food, sunscreen and cosmetics. Titanium metal’s key properties of light weight, chemical inertness and high strength make it ideal for use in medical applications and in the aerospace industry.
Talc
Talc is hydrated magnesium silicate and is the softest rock in the world. It is an important ingredient in the manufacture of paper, paints, moulded plastics for cars and other familiar products. Rio Tinto produces various grades of talc for niche markets.
 
Energy
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Coal
Coal is plentiful, relatively inexpensive, and safe and easy to transport. We are a large producer in the export thermal coal market. Thermal coal is used for electricity generation in power stations. We also produce higher value coking, or metallurgical, coal which, when treated into coke, is used in furnaces with iron ore to produce steel.
Uranium
Uranium is one of the most powerful natural energy sources known, used in the production of clean, stable, base load electricity. After uranium ore is mined, it is milled into uranium oxide, the mine product that is sent away for further processing into fuel rods for nuclear power stations.
 
Iron Ore
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Iron ore
Iron is the key ingredient in the production of steel, one of the most fundamental and durable products for modern day living, with uses from railways to paperclips. Our mines are located in Australia and Canada.
Salt
Salt is one of the basic raw materials for the chemicals industry and is indispensable to a wide array of automotive, construction and electronic products, as well as for water treatment, food and healthcare.


Marketing channels
All sales and marketing activity is conducted by Rio Tinto’s product groups who utilise a range of sales and marketing channels to interact with customers. These channels include direct sales, sales via distributors and sales via agents. No customer facing sales and marketing activity is handled outside of the product groups.
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Chairman’s statement
A year of record results
 
   
Our commitment to operational excellence has seen us capitalise on improved conditions in the external environment.
(PHOTO OF JAN DU PLESSIS)

Jan du Plessis
Rio Tinto had an outstanding 2010. After responding to the challenges of the global financial crisis, and taking steps to stabilise and strengthen our organisation, we are now concentrating on, and delivering, operational excellence. This focus has allowed us to benefit from opportunities that have arisen in the more favourable external environment, and to deliver record results in 2010.
The exemplary performance of Rio Tinto’s people was fundamental to our success in 2010. Their efforts enabled us in many cases to work our assets throughout the year at, or above, nameplate capacity, while also improving our safety performance. In 2010, we set a new Group record in the annual production of iron ore.
We achieved record underlying EBITDA of US$26.0 billion, and record underlying earnings of US$14.0 billion, up 82 per cent and 122 per cent on 2009, respectively. Net earnings were US$14.3 billion compared with US$4.9 billion in 2009.
We remain committed to efficient capital management. It is our belief that the long term creation of shareholder value requires a balanced approach to investing in growth and returning excess capital to shareholders, while maintaining a strong balance sheet. Our confidence both in our own portfolio and in future demand
(BAR GRAPH)
for our products has allowed us to increase our annual dividend by 20 per cent compared with our previous commitment. We are also proceeding with a US$5 billion share buy-back, which we intend to complete by the end of 2012, subject to market conditions.
Improved global economy
The world’s major developed economies gradually stabilised during 2010, in response to government fiscal and monetary stimulus packages. Most were experiencing renewed GDP growth by the third quarter of 2009. China saw a sharp rebound in GDP growth, up from an annualised rate of nearly six per cent in 2009 to over ten per cent in 2010.
This economic stimulus has helped trade to recover from the low point of the global crisis, and thanks to our stronger balance sheet, we have been well positioned to benefit from this recovery. We have sharpened our focus on our programme of organic growth and, for 2011, we envisage continuing this focus, with capital expenditure set to increase to US$13 billion.
We believe we are well prepared for the key challenges facing the mining industry as we grow to meet rising demand. We will need to overcome skills shortages as we compete for new talent not only with other mining companies, but also with other expanding sectors, such as oil and gas. This trend will become more apparent as we move into new, riskier geographies. There will be new technical challenges as we develop more remote and complex orebodies, and increased competition from new players in our sector. Although we anticipate continued volatility in our markets, we will need to look beyond the peaks and troughs of a cycle and be prepared to expand through volatile times.




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Sustainable development
As the world becomes more reliant on the metals and minerals we produce, we are increasingly challenged to grow and to find new, more efficient ways of providing our markets with the raw materials they demand. And as we grow, we are able to share more of the sustainable benefits of our activities with those around us.
Rio Tinto’s commitment to sustainable development permeates our entire business. It is integral to our daily operations, to our legacy, and to our future. By maintaining our reputation as a responsible employer, neighbour, partner and citizen, we are constantly renewing our licence to operate. This approach gives us continuing access to the people, capital and resources we need.
We are recognised as a leader in sustainable development, as evidenced by our continued listing on the FTSE4Good, the Dow Jones Sustainability Indexes and the Carbon Disclosure Leadership Index. Our reputation helps us forge robust alliances with other organisations that lead the way in sustainable development, such as the three year partnership we formed with the International Union for Conservation of Nature in 2010. By sharing knowledge and best practice with our partners, we seek to continue to deliver sustainable benefits to the people and places where we work.
Governance and risk
To achieve our vision of global sector leadership, we must continue to maintain the highest standards of corporate governance. These standards are underpinned by ethical guidance in the form of our global code of conduct, The way we work; the application of best practice; and continually striving for excellence to create value for our shareholders. Based upon our agreed strategic framework, Rio Tinto’s board supports and oversees the Group’s management in its delivery of sustained operational excellence as well as growth opportunities, whether organic or through prudent corporate activity.
The board recognises that risk is an integral and unavoidable part of doing business and that while risk carries threats, it also offers opportunities. Our processes for handling risk effectively are embedded throughout our organisation and are essential for maintaining our competitive advantage. There is a more detailed discussion of risk management on page 24.
Board succession planning is an essential component of effective corporate governance and the continued success of our business. In 2010, we strengthened our board through the appointment of two new non executive directors, Ann Godbehere and Robert Brown.
We also saw two retirements from the board. Sir David Clementi, who was chairman of the Audit committee, stepped down in May 2010, as did David Mayhew. In accordance with a provision of the new UK Corporate Governance Code, all of the Directors will stand for re-election by shareholders annually with effect from the 2011 annual general meetings. As previously indicated, Yves Fortier, formerly chairman of the board of Alcan Inc and also Sir Rod Eddington, will not be standing for re-election by shareholders in 2011. Yves and Rod have each made significant contributions to the board during their tenure with Rio Tinto and I would like to express my personal appreciation of the tremendous support they have given to me over the years. Meanwhile, Andrew Gould, Senior Independent Director and chairman of the Remuneration committee, has announced that he will be leaving the Board at the conclusion of the 2012 annual general meetings.
On behalf of the board, I continue to lead the succession and routine refreshment of directors to ensure the most appropriate balance of skills and experience, and to drive effective decision making.
Outlook
Urbanisation and industrialisation in populous parts of the world will continue to provide a strong platform for increasing demand for metals and minerals. Although long term fundamentals for growth are strong, there are downside risks in the short term, and potential for medium term volatility due to persistent economic imbalances. Financial systems remain fragile, particularly in OECD countries. The increase in sovereign debts, and government measures to address fiscal imbalances, are likely to temper short term growth.
We constantly seek to assess the potential impact of these factors on the Group’s plans, and to enhance our capabilities to predict demand and understand our markets.
Our people’s commitment
It is inspiring to see the way our global team of people works together and strives for ways to improve our collective performance. Throughout the year, their commitment, talent and integrity have led to the delivery of remarkable results.
On behalf of the board, I would like to thank all of our people for their hard work during the past year. Our thanks also go to our shareholders, whose continued support of Rio Tinto has helped us achieve record levels of performance in 2010.
-s- Jan du Plessis
 
Jan du Plessis, chairman


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Chief executive’s statement
Strong momentum and value adding growth
 
   
From a position of increased strength and with growth firmly on our agenda, we are making significant progress towards our vision of global sector leadership.
(PHOTO OF TOM ALBANESE)

Tom Albanese

2010 saw Rio Tinto move steadily towards its vision of global sector leadership, recording exceptional performance and creating a clear pathway for sustainable growth.
We are now financially stronger and have greater optionality, thanks to significant progress with our divestment programme, efficiencies derived from our business transformation initiatives and record annual production in our iron ore business.
Improved pricing and market conditions also enhanced our flexibility and enabled us to approve US$11 billion in major capital projects during 2010. Growth is firmly on our agenda.
These achievements are a credit to the 77,000 employees who work for Rio Tinto across the world and I would like to thank them for their ongoing commitment.
In 2010, we increased our focus on operational efficiency and risk management, with a particular emphasis on compliance and continuous improvement. Running operations which are safe, reliable and injury and illness free is our number one priority. We are proud to have improved our safety record, with an 18 per cent decrease in the all injury frequency rate. However, I must record with sorrow the deaths of three people in our managed facilities.
We have increased our focus on process and contractor safety, remaining absolutely committed to safety in the workplace. We are determined to achieve zero harm in all of our operations.
(BAR GRAPH)
Strategy
Our strategy has remained absolutely consistent – to invest in and operate large, long term, cost competitive mines and assets, driven not by the choice of commodity but rather by the quality of each opportunity.
To achieve this, we focus on a portfolio of Tier 1 assets diversified by commodity, market and geography. This approach has underpinned our ability to overcome the challenges of previous years. I am greatly encouraged by the Group’s performance, which is a testament to our focus on creating shareholder value in the long term.
2010 objectives
As a result of the investments announced during the year, we have significantly enhanced our global presence in key operational areas.
In 2010, to support the execution of our strategy, we focused the business on five short term priorities: operational delivery; prudent balance sheet management; pursuing our growth path; completing the proposed Western Australian iron ore production joint venture; and strengthening our relationship with China.
I am pleased to say we made significant progress in almost all of these areas.
Our focus on operational delivery helped us break production records. We took steps to optimise our financial position and, as a result, our balance sheet is stronger. We grew organically, reflecting confidence in our business and the outlook for our markets.
The cessation of our plans to form a Western Australian iron ore production joint venture with BHP Billiton was a disappointment, but we respect the regulators’ views. We remain focused on a more than 50 per cent expansion of our iron ore business in the Pilbara, leveraging our world class assets and organisational capability.
We began 2010 with a difficult period in China, but went on to make significant progress in developing stronger ties there. In March 2010, four employees based in Shanghai were convicted of receiving bribes and obtaining commercial secrets. This disappointing and unacceptable behaviour violated the Group’s strong ethical culture as well as Chinese law, hence their employment was terminated. The independent forensic investigation found that any illegal activities were conducted entirely outside the Group’s systems.




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We also looked towards the future. In July, we signed a joint venture agreement with Chalco for the development and operation of the Simandou iron ore project in Guinea and we continue to have discussions with the Government of Guinea. At the end of the year, we signed a memorandum of understanding with Chinalco to establish a landmark exploration joint venture in China, and also agreed to extend our Channar Mining joint venture in the Pilbara with our partner, Sinosteel Corporation.
In a year of considerable progress across the Group, several projects stand out: our iron ore expansion plans in the Pilbara; our increased interest in the Oyu Tolgoi copper-gold project in Mongolia and the signing of an agreement to become the development and operating manager of Oyu Tolgoi; and progress towards modernising and expanding our Canadian aluminium portfolio. At the end of the year we announced a recommended offer for Riversdale Mining Limited, which, if successful, would provide us with a substantial Tier 1 coking coal development pipeline in Mozambique. This is an example of the small to medium sized acquisitions that we are currently focused on.
A strong framework for sustainable development
Wherever we operate, whatever we do, sustainable development underpins our vision. Our sustainable development approach gives governments confidence that we will develop resources in a way that will benefit their economies and communities and will protect their environments.
The mining and natural resource sector occupies an increasingly strategic and exposed position in the thinking of governments and other stakeholders. While these factors can lead to tensions, with effective management, new opportunities will emerge. Through proactive leadership, and by building relationships with all our stakeholders, we can turn this area of challenge and complexity into a source of competitive advantage.
We will continue to show leadership in areas such as employee health and safety; community engagement; and in global issues vital to the future of the world’s environment such as carbon, water use and biodiversity.
Well placed to meet rising demand
Prices for many of our products recovered during the year driven principally by demand growth in China and the OECD countries. Iron ore and copper prices were particularly strong. While government stimulus measures generally supported a gradual return to normalised global trade, the improvement in developed economies faded slightly during the latter part of 2010.
We believe the recovery momentum of the major economies will remain uncertain and volatile as the impact of the fiscal and monetary stimuli fades. Therefore, we remain cautious about the short term view of the economy. Globally, we expect GDP growth in 2011 to continue at broadly healthy levels of around 4.5 per cent. However, the pace of economic recovery will vary between the different markets we supply.
In the longer term, we believe the fundamentals are strong, but we will not be complacent. Much of the anticipated growth in demand for minerals will be driven by China and other emerging economies. Implementation of our established strategy will enable us to take advantage of increasing demand from these fast growing regions.
Financial recovery
We will meet that demand from a strong financial position. In the past year we have transformed the Group’s balance sheet. Our robust operating performance, including record annual production in iron ore, led to record cash flows and underlying earnings in 2010. We completed a number of disposals, making asset sales totalling US$4.2 billion in 2010. This takes the total divestments completed since 2008 to more than US$11 billion and largely completes the disposal programme launched in 2007.
Achieving our vision
With a focus on organic growth, we will also consider strategic merger and acquisition opportunities of moderate size that fit our overall direction and help us achieve our vision.
As we move into 2011 we have established a longer term vision for global sector leadership, reflecting the long term nature of our business. Our strategy and business model are explained in detail on p18.
The people who make it all happen
We are fortunate in the Group that our geographic spread gives us access to the skills and talents of a highly diverse workforce. But there is much more we have to do and we have set ambitious plans to foster greater diversity.
It is our policy to offer our employees career opportunities that are rewarding and stimulating with real opportunities for personal and professional development. For example, training and recruitment programmes are under way in a number of countries in which we have embarked on major development opportunities. These include Madagascar, Mongolia and Guinea.
We recognise that given our ambitious growth plans, our recruitment challenge will be substantial, particularly in some of our more competitive labour markets. We will not fulfil this requirement without a concerted effort to make Rio Tinto the employer of choice, something we are committed to achieving.
I want to take this opportunity to thank our shareholders, my leadership team and all of our employees across the world. It has been a year of exceptional performance and momentum, which was truly a team effort. I am looking forward to building on this success in 2011.
In a world of increasing commodity demand and growing sustainable development challenges I believe Rio Tinto will set itself apart through its leadership in operational delivery, exploration, technology and innovation and sustainable development to become the preferred industry partner and developer.
-s- Tom Albanese
 
Tom Albanese, chief executive


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Chief financial officer’s statement
Sustainable growth in shareholder value
 
   
Rio Tinto is once again able to invest in its high quality value adding growth programme, maintain a strong balance sheet and deliver capital returns to shareholders.
()

Guy Elliott

Record breaking financial performance
Record underlying earnings of US$14.0 billion were 122 per cent higher than 2009 driven by the continuing recovery in commodity prices and strong operational performance. Record cash flows from operations of US$23.5 billion demonstrated the exceptional cash generation capabilities of our Tier 1 assets.
Strong operational performance during 2010 allowed us to benefit fully from the strong price environment. The broader global recovery meant that we began to face pressures on our costs that are likely to continue in the coming year. In particular, labour and contractor costs in some geographies such as Western Australia are expected to rise. However, we are focusing on productivity improvements, effective procurement and operating efficiency to help to offset these input cost pressures.
The markets for our products are increasingly complex, with the introduction of new pricing mechanisms in the bulk commodity markets, the continued emergence of base metals as a financial asset class and the volatile macroeconomic environment in which we continue to operate. To navigate these challenges effectively Rio Tinto has formed a Marketing Leadership team. This team will support our marketing vision of optimising the value of our resources, enabling our sales and marketing teams to become increasingly nimble and customer focused.
(BAR GRAPH)
Restoration of balance sheet strength
We transformed our balance sheet in 2009 and we further improved on that position during 2010. Through strong cash flows from operations and the completion of US$4.2 billion in divestments, we reduced our net debt from US$18.9 billion to US$4.3 billion.
In addition to reducing net debt, we have also improved our medium term debt maturity profile and reduced our weighted average interest cost. In October 2010 we successfully issued US$2 billion in bonds with five, ten and 30 year maturities at record low interest rates for the metals and mining industry. The proceeds were used in a successful tender for US$1.9 billion of bonds due in 2013.
These actions are part of a prudent approach to managing the balance sheet. This has been rewarded by an improvement in our overall credit rating.
A strong balance sheet will allow Rio Tinto to invest at all points of the commodities cycle in our first class growth projects. It may help us to withstand sudden large shocks to the global economy that could arise from the significant imbalances that currently exist, enabling us to take advantage of value creating opportunities as they arise.
The investment environment
Over the long term we expect industrialisation and urbanisation in developing economies, including China and India, to continue to drive underlying growth in demand for the commodities that we produce. In Europe and North America high levels of government debt will mean difficult decisions for governments as they rebalance their economies. These worldwide discontinuities introduce the risk of unexpected shocks in the global economy. Our outlook is therefore for strong underlying growth for our products but with a potentially high degree of volatility.
It is important that we have a stable environment within which we can invest. A key to successful mineral development is a culture of trust, transparency and mutual benefit to all parties. Australia’s proposed Resource Super Profits Tax and its subsequent replacement with the Mineral Resource Rent Tax proposal highlighted that resources and resource nationalism are now major items on the political agenda




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in many countries. Rio Tinto is committed to working constructively with all host governments to ensure that tax policy development does not create a hostile environment for investment.
Within this context our strategy remains to invest in Tier 1 resources – those with the potential for a long life, that are cost competitive and that have options to expand. We do not prioritise investment in any particular commodity and do not limit ourselves to those commodities in which we currently operate. Similarly, we do not target or avoid specific geographies. By focusing on identifying and investing in Tier 1 assets which will add value to our shareholders, regardless of the commodity concerned, we will remain a diversified natural resources group.
Investing in organic growth
We have a very strong pipeline of high quality organic projects and a mineralisation position which allows sustainable long term growth. Because the quality of our projects is high, we will maintain our position as a large, cost competitive producer.
We have continued to invest in the business with capital expenditures in 2010 of US$4.6 billion. During the year we approved US$11 billion for new major projects including expansion of our iron ore infrastructure and mines in Western Australia and Canada, the first phase of an aluminium smelting plant in Quebec using our new AP60 technology, and the modernisation of the Kitimat aluminium smelter in British Columbia.
The approval of these and other projects in 2010 together with ongoing projects such as the expansion of Yarwun alumina refinery and the Kestrel coking coal mine will drive the allocation of capital in 2011, when we expect capital expenditure of approximately US$13 billion.
In 2010 we began to reinvigorate our exploration and evaluation programmes. The Group has a long history of finding high quality assets through exploration. We are funding feasibility and pre-feasibility studies on projects such as the further expansion of our Pilbara operations, Simandou, La Granja, Resolution, and the Kennecott Utah Copper extension. This work will develop the next generation of Tier 1 assets.
Rio Tinto has a very substantial inventory of projects which have not yet reached the stage of development approval. These projects provide us with valuable growth potential over the longer term.
Business development
Since the beginning of 2008 we have realised over US$11 billion of gross cash proceeds from the sale of non core assets. The majority of the divestments identified during the strategic review in 2007 are now complete, including nearly all of the Alcan downstream businesses. However, we will continue to review the portfolio of assets to identify those that are no longer consistent with our strategy, with a particular focus on higher cost aluminium assets.
We are also constantly reviewing the market for potential opportunities to add to our portfolio through small to medium sized acquisitions and other business combinations.
In December we announced a recommended cash offer for Riversdale Mining. This is a good fit with Rio Tinto’s strategy of focusing on small to medium sized acquisitions that provide access to large, long term, cost competitive assets.
In December we signed an agreement with Ivanhoe Mines, the owner of 66 per cent of the world class Oyu Tolgoi copper-gold project in Mongolia, whereby Rio Tinto will become the development and operating manager of that project. We have now increased our ownership interest in Ivanhoe Mines to 42.1 per cent and secured the right to increase this further to 49 per cent.
We will continue to look for further innovative opportunities to enter into new joint ventures with various parties. In the past we have gained access to new resources, new geographies and special expertise through such vehicles and will look to continue to do so in the future.
We continue to employ a disciplined approach to investing in growth opportunities. Investments in projects and business combination opportunities must continue to meet our strict criteria of investing in high quality large, long term, cost competitive and expandable assets at good value.
The return of capital to shareholders
Our first priority for allocation of capital has always been, and remains, to make value adding investments in our business in order to optimise shareholder value. We are committed to achieving and maintaining a single A credit rating.
A further priority is our dividend. We were pleased to announce a final dividend of 63 US cents per share. The total dividend in respect of 2010 was 108 US cents per share, 20 per cent higher than the dividend commitment we had made to shareholders at the time of the rights issues in June 2009. This will form the basis of a progressive dividend policy, so that we expect the US dollar value of ordinary dividends will increase over time. The interim dividend is set at one half of the total dividend for the previous year and is therefore expected to be 54 US cents per share in 2011. Under the progressive dividend policy the final dividend for each year is expected to be at least equal to the previous interim dividend.
We recognise that during times of high cash generation a progressive dividend policy alone will not return excess cash to shareholders. Therefore, we are undertaking a US$5 billion share buy-back programme over 2011 and 2012, subject to market conditions. This commitment will still leave us with the flexibility to make significant investments in our business while remaining committed to achieving a single A credit rating.
Rio Tinto is once again able to invest in its high quality value adding growth programme, maintain a strong balance sheet and deliver capital returns to shareholders. Our established strategy, financial discipline and leadership in project execution all mean that we are well positioned to continue creating sustainable growth in shareholder value over the coming decades.
-s- Guy Elliott
 
Guy Elliott, chief financial officer


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Strategic context
A global perspective for metals and minerals
 

(LINE GRAPH)
Competitive environment
Rio Tinto is a major producer in most 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. 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, on 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.
Global economy
The introduction of large fiscal and monetary stimuli by governments around the world started to take effect towards the middle of 2009. Global trade started to recover during the second half of the year, led by activity in Asia. Major developed economies gradually stabilised with most experiencing renewed GDP growth by the third quarter of 2009.
The recovery continued into 2010, although with marked differences in the pace and sustainability of growth between OECD and emerging Asian countries. The emergence of a two-speed economy reflects the fact that financial excesses leading to the global crisis had developed primarily in advanced economies, which now face a significant adjustment process. However, it is also a reminder that many of the global imbalances that had accumulated over the past decade remain, and in some cases, have become more acute.
The recovery in the OECD has so far been dependent on government stimulus and an initial phase of inventory rebuilding, with the growth momentum built since the middle of 2009 fading slightly in the latter part of 2010. Sovereign debts in advanced economies have increased significantly as a result of the financial crisis and governments in several countries are now faced with tough decisions to address fiscal imbalances by reducing spending and raising taxes, with likely negative consequences for short term growth. Financial systems remain fragile implying scope for volatile outcomes ahead.
(LINE GRAPH)
Although the short term prospects for emerging economies are much brighter, Asian countries continue to rely strongly on demand from advanced economies. The reform process required to boost domestic consumption is likely to be lengthy. In the meantime, growth in China has become even more dependent on investment than before the global financial crisis, with fixed capital formation now accounting for over 40 per cent of China’s GDP. Such imbalances are likely to remain key challenges for the global economy in coming years. However the key underlying trends of urbanisation and industrialisation in populous parts of the world will continue to provide a strong platform for growth.
China
The sharp rebound in China’s economic growth since the first quarter of 2009 resulted from the Chinese Government’s rapid response to the collapse of global trade as well as a reversal of tightening policy introduced during 2008 to combat an overheating property market. The RMB4 trillion stimulus package introduced in late 2008 and the accompanying surge in bank lending spurred the development of infrastructure projects and a quick turnaround in housing construction activity. Having fallen to an annualised pace of nearly six per cent in early 2009, China’s GDP growth exceeded ten per cent in 2010.
With the growth momentum firmly back on track, the Chinese Government renewed its attempts to quell rising house prices through a series of policy interventions. The key challenge is for the Government to successfully contain inflation and asset bubbles in an environment of excess liquidity. The Government is also pushing for more incremental structural reforms to boost household consumption.
As the Chinese economy transitions towards its 12th five year plan, it is likely to focus increasingly on development strategies and institutional reforms aimed at reducing some of the growing domestic imbalances. This should translate into a stronger focus on technology and services as well as policies targeting the development of inland and rural areas. Although such reforms could ultimately lead into a phase of economic growth that is less commodity intensive than over the past ten years, investment and the development of infrastructure projects should remain an important aspect of the Chinese economy in the medium term. China consumed 400kg of steel per capita in 2009, about half the levels seen in Japan at its peak, with significant scope for further increases in coming years.
      


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Commodity markets
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 rebound in commodity prices. Chinese imports of metals and minerals soared to new highs during 2009 as a result of recovering underlying demand, restocking, scrap shortages, closure of high cost domestic capacity and some speculative activity facilitated by rising liquidity. As a result China’s share of global demand in 2009 increased to between 35 and 50 per cent for several commodities and up to two thirds for traded iron ore.
China’s strong appetite for commodities continued into 2010 in combination with resurgent demand from OECD economies. Although minerals and metals consumption in advanced economies remained below pre-crisis levels, the demand trends contributed to a further tightening in some markets and a return to prices seen in mid 2008 for commodities such as copper and iron ore. In a significant shift in energy markets in 2009, China became a net importer of thermal coal. This continued into 2010, absorbing supply from traded Asian seaborne coal and keeping upward pressure on prices. Meanwhile, the aluminium market has moved closer to balance during 2010 benefiting from strong demand from the recovering automotive sector. However, overall stock positions remain high compared to historical levels.
For bulk commodities, a key development during 2010 has been a further step away from previous benchmark price settlement mechanisms and towards more market oriented and shorter term pricing arrangements. These movements reflect changing market dynamics, with China being the main catalyst through rapid demand growth and greater fragmentation of the demand and supply sides. Pricing periods for coking coal and iron ore have moved towards quarterly cycles and, in the case of iron ore, references to published price indices started to appear in term contracts. Although still relatively underdeveloped, these new pricing arrangements are attracting the attention of financial institutions with the establishment of financial tools such as futures contracts for iron ore.
The growing influence of financial investors is also being felt in the already well developed base metals markets, with discussions during 2010 focused on plans to introduce physically backed Exchange Traded Funds for aluminium and copper. Low interest rates are already facilitating the financing of stock positions in
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the aluminium market where a large proportion of on and off LME inventories are currently understood to be tied into financing deals. Such activities are likely to continue in a context of further quantitative easing, the major effects of which are to reduce real interest rates, weaken the US dollar, raise inflation expectations and increase asset prices, especially for assets leveraged to growth in developing countries such as commodities.
Despite the greater participation of an increasing web of financial players in the commodity markets, physical fundamentals remain key in driving price dynamics. In a context of renewed strong demand, cost inflation is starting to creep up again across the mining industry with potential supply side challenges as a consequence.
Outlook for 2011
Forecasters have become more cautious about the strength in OECD economies in 2011 but the IMF is still predicting global growth above four per cent and Chinese GDP is expected to grow above nine per cent. Historically global growth at these levels has provided a strong basis for commodity demand allowing Rio Tinto to run its operations at full capacity.
Some risks to the near term outlook include an inevitable reduction in the level of fiscal and monetary stimulus, much of which is commodity intensive. Another key risk is linked to sovereign debt crises, especially in Europe, and the potential impact that these could have on the stability of global financial markets as well as implications for investor and consumer confidence.
Looking to the longer term, increasing prosperity in developing countries including China and India, with associated industrialisation and urbanisation, will continue to drive underlying growth in demand for commodities. At the same time, it is apparent that global imbalances might take many years to resolve. This points to a high average growth setting for our markets but also one characterised by potential strong volatility. Rio Tinto, and the mining industry in general, are responding to the rapid demand recovery and stronger prices with reinvigorated capital expenditure expansion plans. This is in turn putting renewed pressure on skills, equipment and key raw material availability with implications for cost escalation and project schedules.


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The way we work
Our global code of conduct
 
   
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The way we work defines how we conduct ourselves as a business. It is underpinned by our values, our approach to sustainable development, and by effective corporate governance.

 
Chairman’s introduction
Four values define Rio Tinto: accountability, respect, teamwork and integrity.
They guide everything we do and are expressed through the principles and standards of conduct as set out in a global code of conduct called The way we work (available on our website at ww w.riotinto.com/library).
The way we work defines the way we manage the economic, social, political, environmental and governance challenges of our operations. It also frames a unified approach to complying with the regulatory obligations of our stock exchange listings in the UK, Australia and the US. Everyone in the Group is required to take training on The way we work.
But most important of all, our values help the Group to fulfil our commitment to shareholders to maximise total returns whilst also fulfilling our commitment to contribute to sustainable development. This is because, as a company
(IMAGE)
with a reputation for acting responsibly, we will be welcome as investors, partners and members of the local community wherever in the world we operate.
This will hold true even as expectations and regulations surrounding corporate governance change following the global financial crisis and our business evolves.
We regularly review our practices to make sure they are aligned with changing regulations and that they continue to support the principles and values contained in The way we work.
-s- Jan du Plessis
 
Jan du Plessis, chairman
 
 
Related information online at ww w.riotinto.com
() ww w.riotinto.com/library
() ww w.riotinto.com/ourapproach
 
Related sections within this report
         
() Report on corporate governance
    p114  
() Risk management
    p24  
() Sustainable development review
    p29  
 


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Governance
The role of the board
Rio Tinto plc and Rio Tinto Limited have a common board of directors who are responsible for the Group’s success and accountable to shareholders for our performance.
Consistent with accepted good practice, the board consists of a mix of executives and independent non executives, the majority being independent non executives. This combination balances innovative thinking with business knowledge and experience.
The board has established committees responsible for audit, executive remuneration, executive and non executive succession, social and environmental matters and assisting the board to deliver its responsibilities. Each plays a vital role in underpinning how we work.
To ensure their relevance and continuing adherence to best practice, the committees annually review their terms of reference. More detailed descriptions of the board and its committees are on pages 118 and 122.
Managing risk
Rio Tinto recognises that risk is an integral component of its business, and that it is characterised by both threat and opportunity. The Group fosters a risk aware corporate culture in all decision making. Through skilled application of high quality, integrated risk analysis and management, we enhance opportunities and reduce threats, and so achieve and maintain competitive advantage.
The Group’s Risk standard guides the process by providing an overall methodology and structure for the handling of risk within the organisation. The Group seeks to provide the board and senior management with a consistent, Group wide perspective of the key risks. Reports are submitted to the board twice per year and include assessment of the likelihood and impact if risks materialise, along with risk management initiatives.
Sustainable development
As a company, we naturally meet the needs of customers, but we seek to do this without compromising the ability of future generations to meet their needs. That is what we mean by sustainable development. It is good business as well as good sense.
Our continuing financial success depends on the Group’s ability to gain access to the land, people and capital we need. To do that, we put our economic, social, environmental and technical expertise to work to harness these resources. This process creates prosperity that is shared among shareholders, employees, communities, governments and business partners.
But there is more to it than that. Sustainable development also demands rigorous environmental stewardship. If we cannot always prevent harm, we can minimise and remediate any negative environmental effects of the Group’s operations. To ensure this, we have developed high standards that we maintain by implementing a wide range of practical programmes. These apply to issues that include air quality, ecosystems, biodiversity, climate change, the use of energy, land and water, waste disposal and facility closures.
This focus on environmental stewardship also delivers financial benefits. For example by improving energy efficiency we not only reduce our environmental impact, we also reduce our operating costs.
Social wellbeing is another fundamental aspect of our approach to sustainable development. This involves providing a safe and healthy workplace in which people, treated with fairness and decency at all times, can develop their full potential.
And going beyond the workplace, our idea of social wellbeing extends to our neighbours. With them, we seek long term partnerships characterised by the mutual respect that leads to trust.
However, good intentions are never enough. So for us strong governance systems are a vital part of putting sustainable development into practice. These systems ensure that we continue to manage our business with openness and accountability.
Values
Our reputation stems from our four core values, which define the essence of who we are and who we will be: accountability, respect, teamwork and integrity.
The first of these values – accountability – is about taking ownership of our performance and decisions, and the impact that they have on the business. We also support the accountability that others have in their own areas of work.
We demonstrate respect through our approach to sustainable development, and by recognising our people’s contributions to the business. We care for each other’s health, safety and wellbeing.
By working as a team, we can focus our collective efforts on where they deliver the best outcome for the Group. We believe good team members trust in the commitment and capability of others.
And finally, we work with integrity, treating all our stakeholders with fairness, honesty and openness.


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Group strategy
Striving for global sector leadership
 
Our strategy
How Rio Tinto is achieving its vision, creating and preserving value, and exercising
its strategic advantage.
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Our vision and how we will achieve it
Our vision is to become the sector leading global mining and metals company.
As we work to achieve this vision, we will maximise shareholder return by sustainably finding, developing, mining and processing natural resources.
We will do this through a strategy of investing in and operating large, long term, cost competitive mines and businesses, driven not by choice of commodity but by the quality of each opportunity.
Rio Tinto’s diverse portfolio includes some of the world’s best assets. The high calibre of our people, our expertise in exploration, technology, innovation and marketing, and our commitment to sustainable development have given us a proven track record in successful project execution and operational excellence. We believe these qualities and achievements position us well for becoming the global leader in our sector.
As a highly capable organisation with global reach, we believe we are well placed to respond to rising demand for metals and minerals which is being driven strongly by emerging economies. The breadth and scale of our business means that we can supply key metals and minerals needed by worldwide markets at various stages of their economic development, from the raw materials needed for basic infrastructure to the products needed to manufacture hi-tech consumer goods.
Effective procurement and supply integration across our Group helps ensure we run an efficient supply chain, maximising production across our products to meet customer needs with reliability of supply.
The way we work is equally important to achieving our vision, as we integrate sustainable development practices into everything we do, wherever we operate: building on improvements to health and safety performance and extending leadership in areas such as community and government engagement, biodiversity and management of land, carbon, energy and water.
Success in these areas helps strengthen our licence to operate. We are recognised as a socially responsible developer, and one that builds strong relationships that bring lasting benefits to our
neighbours and to the places where we work. Our approach gives us improved access to land, people and capital – all of which are essential to our future success.
Collectively, our strengths provide us with our strategic advantage. And this advantage is allowing us to meet responsibly the needs of a wide variety of customers while generating superior returns for our shareholders.
Strategic drivers
Five strategic drivers help us achieve the Group’s strategy.
Financial and operational excellence
We have a Group wide focus on financial and operational excellence, which involves constantly improving safety, productivity, operational efficiency and cost control at every stage of our business.
Many of our assets already operate in the first or second quartile of their industry cost curves. And we continue to seek operating and cost efficiencies by identifying and implementing leading practices across the Group.
A few of our assets are higher cost. We aim to transform these businesses into more competitive performers, for instance by introducing new technologies, by gaining efficiencies through incremental volume enhancements, or through more effective procurement practices. We continually review our portfolio to ensure that all assets are a good strategic fit with our business.
Our focus on financial performance also includes the prudent management of our balance sheet to achieve and maintain a single A credit rating. A strong balance sheet provides greater resilience against volatility in the global economy and the effect this might have on short term commodity prices.
By operating our own mines, we are able to take advantage of performance improvement initiatives generated by our own employees – people who genuinely understand the facilities where they work.
In all of our operations we have a relentless focus on safety leadership. Our aim is to create an environment in which 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.




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Licence to operate
Rio Tinto aspires to be the industry partner of choice in working with governments, joint venture participants, communities, customers and other stakeholders.
Our Group wide values of accountability, respect, teamwork and integrity guide our approach. We are recognised for building mutually beneficial relationships with our stakeholders based on active partnership and long term commitment. We are also regarded as a company that brings long term benefits to our local communities and host countries. Our strong reputation in these areas is a source of significant strategic advantage.
More widely, we are continuing to improve relations with local, regional and national governments. Key to successful mineral development is a culture of trust, transparency and mutual benefit to all parties. This is established through honest engagement with all stakeholders, including governments and local communities.
Equally important is our determination to minimise the Group’s environmental footprint, particularly when it comes to carbon, water and biodiversity.
We are refreshing our approach to sustainable development to ensure it remains focused on the social, environmental, economic and governance risks most relevant to delivering our business strategy. By building relationships with our stakeholders, and by applying risk analysis and management effectively throughout our business, we can create opportunities out of external challenges, and extend our licence to operate.
Growth
We believe the first and best use of our strong balance sheet and cash flows is to invest in our strong pipeline of organic growth opportunities. Our strategy prioritises growth that adds value to our business, either through increased production capacity, or through extended mine life. The adherence to our strategy over the years has resulted in a succession of value-creating investment decisions, which in turn have led to superior long term performance.
We have a very strong pipeline of organic growth projects and a mineralisation position that allows sustainable long term growth. Our projects include brownfield expansions and new
greenfield projects. In many cases, our opportunities to expand are the consequence of wise investment decisions made years ago.
Many of our greenfield opportunities are in regions where we do not have a long established presence, but our proven ability to develop operations in new countries in a responsible and sustainable manner allows us to gain stakeholder buy-in.
We also review opportunities to add shareholder value through small to medium sized acquisitions or other business combinations. We have a strict, value-focused approach to mergers and acquisitions, and seek opportunities that will give us entry to Tier 1 assets.
All growth opportunities are assessed using our rigorous investment approval process based on detailed modelling of discounted cash flows, and are subject to comprehensive internal but independent reviews. Only the best projects that are expected to deliver value over the long term are approved.
Globalising the business
The global spread of our operations is one of the Group’s greatest advantages and also gives us access to a wide range of markets.
As the Group expands in terms of both size and geography, we are working to build a more diverse, engaged, agile and flexible workforce – one that reflects our growth potential and one that is capable of reacting quickly to changing market opportunities and challenges.
Helping to develop the talent of our employees in emerging markets and providing them with continued growth opportunities will help ensure that we have future leaders that reflect the increasingly diverse regions and cultures in which we operate. Through our scholarship and bursary programmes, and by offering internships and summer placements, we reach out to, and encourage, our future leaders during their academic lives.




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Group strategy continued
 


Technology and innovation
Innovative technologies will lead to dramatic improvements in our operating business and the way we develop new mines. These technologies can also put us ahead of the competition.
An example of this is Rio Tinto’s Mine of the Future™ programme, which we believe will deliver heightened efficiencies in terms of both production and costs, as well as a safer working environment with reduced impact on the environment.
Mine of the Future™ involves collaborative partnerships with leading universities and equipment producers to expand the potential of automation and remote operations.
Such advances have enabled the opening of the Perth Operations Centre from which Rio Tinto people can control iron ore mining and infrastructure at our Pilbara operations, more than 1,000km away.
Another key focus of Group innovation is underground tunnelling and shaft sinking. At our Northparkes copper and gold mine in Australia we will test a system designed to allow us to excavate at more than double the rate of conventional methods. Success there will enable us to apply the technology for the next generation of block cave mines. This will increasingly be a strategic differentiator, as future ore deposits, especially copper, are often located at deeper depths.



Delivering our strategy –
adding value across the cycle
We create and preserve value through investing in and operating large scale, long term, cost competitive mines and businesses. The nature of our business means that the lifecycle of an orebody may last for many decades. Throughout the life of a business, from initial exploration to final closure and restoration, we commit to the highest standards of sustainable development.

Investing
Explore and evaluate
Rio Tinto has an experienced in-house exploration team with a proven track record for the discovery of Tier 1 orebodies. In addition to exploration, we create value through expansions and extensions of existing assets. Rio Tinto’s orebody knowledge process allows us to evaluate value enhancing approaches to developing, operating and growing our resources.
() More information on page 62
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Bunder, India
Analysing drill core samples at the diamond project in Madhya Pradesh.
Develop
Rio Tinto develops orebodies with long term value delivery in mind. Following the discovery of a resource, it must be thoroughly studied to identify the optimal configuration for development of the orebody and delivery of the product to the market. As studies are undertaken, economic modelling confirms value. Once we have obtained internal and external approvals, the project moves to implementation and construction.
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Oyu Tolgoi, Mongolia
Mine shaft construction at the copper-gold mine.




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The Group takes the threat of climate change seriously. Technological advances are enabling us to improve the efficiency of our aluminium smelting facilities while lowering their carbon output. We are also looking into the potential benefits of widespread carbon capture and sequestration.
In the long term our commitment to technology and innovation should have a positive impact in attracting new employees to the Group and should help us supply a wider range of customers and markets more sustainably than ever.
Key performance indicators
Rio Tinto uses a number of key performance indicators (KPIs) to monitor our financial and non financial performance.
These KPIs are a measure of how well we are achieving our strategy, and they link clearly to our strategic drivers.
Our KPIs give senior management a means to evaluate the Group’s overall performance in operations, growth and sustainable development. They provide managers and their teams with clarity and focus on areas critical to our success.
The KPIs also give guidance to the Remuneration committee in framing our remuneration policy. Some of the KPIs are directly linked to executive remuneration.
() See p.22 for more information on our KPIs.


()
Operate
Rio Tinto creates value through operating its large, long term, cost competitive assets safely and efficiently. As a capable, global organisation, we employ standard operating and maintenance practices across the Group, and invest in our world class assets throughout their lifecycles. An efficient process reduces the use of consumables, increases equipment operating time and optimises the extraction of ore – all of which results in higher production levels, reduced costs and optimisation of value.
() More information on page 42
 
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World class assets
Iron ore loading facility, Western Australia.
  Mine
Rio Tinto moves millions of tonnes of material every day. We have world class technologies and processes to plan, operate and maintain our mining equipment and activities.
 
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Leading technologies
Operations centre in Perth, Western Australia.
  Process
Our leading proprietary technologies, such as that for aluminium smelting, ensure that recoveries are maximised and our processes are as efficient as possible. We produce material that is of the right quality for our customers.
 
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Global presence
Serving customers worldwide.
  Market
We sell our products directly to our customers, the end users. We seek out long term partnerships to maximise product value and constantly create new products that add further value.
 
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Infrastructure network
Transporting products from mine to market.
  Deliver
In many cases, Rio Tinto is responsible for delivering finished product to our customers. We do this in a variety of ways, efficiently, reliably and cost effectively.
Close down and restore
When a resource reaches the end of its life, we are committed to high standards of close down and restoration. Integrating closure planning in the early stages of project development and through an asset’s lifecycle helps us to leave a positive legacy of sustainable development, minimise financial impacts and ensure stakeholder expectations are met. Our closure standard covers the design, development, operation and closure of all our operations.
() More information on page 40
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Barneys Canyon, US
Rehabilitating waste rock dumps into a wildlife habitat.


()


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Key performance indicators
Measuring our performance
 

Our key performance indicators (KPIs) give us a means to measure our financial and sustainable development performance. Their relevance to our strategic drivers, and our performance against these measures in 2010, is explained on these pages.
             
 
KPI trend data
The Group’s performance against each KPI is covered in more detail in later sections of this Annual report. Explanations of the actions taken by management to maintain and improve performance against each KPI support the data.
KPIs used as a key measure in the remuneration of executives are identified with this symbol: ®
() See the Remuneration report on p.128
  (COLUMN CHART)
 
           
 
Relevance to strategic drivers
  Our commitment to zero harm means that the AIFR is one of the Group’s most important non financial KPIs. Safety is a leading indicator of management performance. It is central to our focus on operational excellence and our licence to operate. A reputation for being a safe employer and neighbour helps us to gain access to the people and resources we need.   Underlying earnings is a measure that provides insight into the underlying business performance of the Group’s operations and is the key financial performance indicator used across the Group. This KPI provides insight to cost management, performance efficiency and production growth. It is therefore an indicator of financial and operational excellence and growth.   TSR measures the Group’s performance in terms of shareholder wealth generation through dividends and changes in the share price. As a measure of how we maximise shareholder return, this KPI measures our performance against our strategy as a whole. Relative TSR is also monitored, which gives insight into our performance against our peers.
 
           
 
Definition
  AIFR is calculated based on the number of injuries per 200,000 hours worked. This includes medical treatment cases, restricted work day and lost day injuries for employees and contractors.   Items excluded from net earnings to arrive at underlying earnings are explained in note 2 of the 2010 financial statements.   TSR combines share price appreciation and dividends paid to show the total return to the shareholder.
 
         

 
 
Performance
  Our AIFR has improved 39 per cent over the last five years, with an 18 per cent improvement from 2009.   Underlying earnings in 2010 of US$13,987 million were US$7,689 million above the comparable measure for 2009. This was largely due to the strong recovery in prices during the year.   The Group’s average total shareholder return for the year ended 31 December 2010 was 32.6 per cent reflecting a combination of strong commodity markets and excellent operational performance. These translated into higher operating cashflows which, together with divestment proceeds, enabled the Group to pay down US$14.6 billion of debt during the year and pay dividends totalling US$1.8 billion.
 
 

 
       
 
 
  () More information on p.31   () More information on p.250   () More information on p.137
 
Notes
 
(a)   The accounting information in these charts is drawn up in accordance with IFRS.
 
(b)   Underlying earnings is the key financial performance indicator which management uses internally to assess performance. It is presented here a measure of earnings to provide greater understanding of the underlying business performance
    of the Group’s operations. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 to the 2010 financial statements. Both net earnings and underlying earnings deal with amounts attributable to the owners of Rio Tinto. However, IFRS requires that the profit for the year reported in the income statement should also include earnings attributable to non-controlling interests in subsidiaries.




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(GRAPH)
 
           
 
A strong balance sheet gives us resilience in a volatile global economy. Net debt is a measure of how we are managing our balance sheet and capital structure, and is closely linked to our financial and operational excellence strategic driver.
  Our capital expenditure KPI connects to our growth strategic driver. It measures our level of investment in protecting and maintaining our existing assets, as well as our investment in the growth projects that will be our future Tier 1 operating assets. The geographic distribution of our capital expenditure is also a measure of how we are globalising the business.   Operating cash flow is a complementary measure to underlying earnings. It is employed as a measure of business performance and links to two of our strategic drivers: growth, and financial and operational excellence.   We use greenhouse gas (GHG) emissions intensity as a KPI because of the urgent need for climate action, and because it is one of the most widely recognised environmental issues. The KPI links to our licence to operate and our technology and innovation work, which are key drivers of our strategy.
 
           
 
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 comprises the net cash outflow on purchases less disposals of property, plant and equipment, capitalised evaluation costs and purchases less disposals of other intangible assets.   Operating cash flow represents the cash generated by the Group’s operations, before payment of interest, taxes, capital expenditure, and cash flows relating to financing activities. The measure is equivalent to “cash flows from operations” in the Group cash flow statement.   Our GHG emissions intensity measure is the change in total GHG emissions per unit of commodity production relative to a base year. Total GHG emissions are direct emissions plus emissions from imports of electricity minus electricity and steam exports and net carbon credits purchased from, or sold to, recognised sources.
 
           
 
During 2010, net debt decreased from US$18.9 billion to US$4.3 billion due to strong operating cash flows and proceeds from the divestment programme. Net debt to total capital was significantly reduced to 6.2 per cent at 31 December 2010, compared with 29.1 per cent at 31 December 2009.
  Capital expenditure was US$4,553 million in 2010, a decrease of US$803 million from 2009. Capital expenditure included the Brockman 4 iron ore mine development in Western Australia, the expansion of the Yarwun alumina refinery, the commissioning of the Clermont coal mine and the extension and expansion of the Kestrel coking coal mine.   Operating cash flows, including dividends from equity accounted units, were US$23,530 million, 70 per cent higher than 2009 primarily as a consequence of higher commodity prices.   Since 2008 our GHG emissions intensity has reduced by 3.7 per cent. This is largely a result of the Ningxia aluminium smelter divestment in 2009. The impact of closure or reduced production at older aluminium smelters that had low GHG emitting power sources offset some intensity reductions achieved during 2009.
 
           
 
(IMAGE) More information on p.199
  (IMAGE) More information on p.252   (IMAGE) More information on p.159   (IMAGE) More information on p.34
 
Notes
 
(c)   Amounts include 100 per cent of subsidiaries’ capital expenditures and Rio Tinto’s share
of the capital expenditure of equity accounted units.


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Risk management
Managing risk effectively
 


Rio Tinto recognises that risk is an integral component of its business, and that it is characterised by both threat and opportunity. The Group fosters a risk aware corporate culture in all decision making. Through skilled application of high quality, integrated risk analysis and management, we manage risk in order to enhance opportunities and reduce threats, and so sustain competitive advantage.

     
Risk management overview
   
 
   
The Group is committed to the effective management of risk through proactive, competent risk management. Effective risk management requires quality risk analysis to inform the decisions taken throughout the organisation. The responsibility for identifying and managing risks lies with Rio Tinto’s managers and business leaders. Risk analysis and management is applied to all facets of the business, by management at appropriate levels, following the principles set out in the Group’s Risk policy and standard.

This standard sets out a uniform process that each area within the Group is required to follow in analysing and managing risk. The process reflects global leading practice and contains the minimum requirements to ensure consistency and quality across the Group. By providing an overall methodology and structure for
  the handling of risk within the organisation, the Group seeks to provide the board and senior management with a consistent, Group wide perspective of the key risks. Reports are submitted to the board twice per year and include assessment of the likelihood, and impact should risks materialise along with risk management initiatives.

During the year, a review of the Group’s approach to managing risk resulted in the introduction of a new risk management committee and the appointment of a new head of Group risk. The risk management committee is chaired by the chief executive and reports to the Executive committee.

The Group provides a central organisation to support the risk standard and wider process, see below.
 
   
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Risk factors
Principal risks and uncertainties


 
      


      
Rio Tinto’s business units and functions assess the potential economic and non economic consequences of their respective risks using a predefined framework provided by the Group’s Risk policy and standard. Principal risks and uncertainties are identified when the Risk management committee, business unit or function determines that the potential consequences are of sufficient materiality to be considered significant at a Group level or where the risk triggers a succession of events that in total become material at a Group level. Once identified, each principal risk and uncertainty is reviewed by the relevant internal experts and the Risk management committee.
The following describes all known principal risks and uncertainties that could materially affect Rio Tinto. There may be additional risks unknown to Rio Tinto and other risks, currently believed to be immaterial, which could turn out to be material. These risks, whether they materialise individually or simultaneously, could significantly affect the Group’s business and financial results. The risks outlined below omit detail on how each is managed and mitigated, or how some risks could result in either a positive (upside) or negative (downside) impact. An explanation of the Group’s process for managing these, and all other risks to which it is exposed, is given in the section entitled Risk management on page 24. The principal risks and uncertainties should be considered in connection with any forward looking statements in this document and the cautionary statement on the inside front cover.
     
External
   
 
   
 
 
   
Commodity prices and global demand for the Group’s products are expected to remain uncertain, which could affect the Group’s business.
  Commodity prices and demand for the Group’s products are cyclical and strongly influenced by world economic conditions, particularly with respect to key customers, in the US and Asia (notably China). There is potential volatility in short to medium term commodity prices due to persistent economic imbalances. 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 has signed agreements with almost 50 per cent of its iron ore customers in Asia for pricing on a quarterly basis. This is a shift away from the previous annual benchmark pricing. Sales are being made to other iron ore customers on the same basis.

If a major economic downturn were to occur in China impacting the demand and price for iron ore or the Group’s other products, or if 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 affect its overall business results.
  The US dollar is the currency in which the great majority of the Group’s sales are determined. It is also the most appropriate currency for holding surplus cash, financing its operations, and presenting 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 changes in the places where the Group operates could affect the Group’s reputation, future development opportunities, and/or the viability of its operations.
  The Group has operations in jurisdictions with varying degrees of political, legal and commercial stability. Commercial instability in some jurisdictions can be influenced by bribery and corruption in their various guises. Political and administrative change, policy reform, and changes in law or government regulation can result in expropriation, or nationalisation. Renegotiation or nullification of existing agreements, leases and permits; changes in fiscal policies (including increased taxes or royalty rates); changes in government ownership of operations; currency restrictions; increased regulation and significantly increased costs or impediments to operation are also possible consequences. Such consequences could have an adverse effect on the profitability, the ability to finance or, in extreme cases, the viability of an operation.
 
   
 
  Political instability and uncertainty or government changes to the fiscal terms covering the Group’s operations may discourage future investments in certain jurisdictions. This may have an adverse impact on the Group’s ability to access new assets, potentially reducing future growth opportunities.
 
   
 
 
   
Community disputes in the countries and territories in which the Group operates could affect the viability of its operations or its reputation.
  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 expectations are typically complex with the potential for multiple inconsistent stakeholder views that may be difficult to resolve. Stakeholder opinion and community acceptance can be impacted by external events beyond the Group’s control, including events that may occur in related industries or similar operations outside of the Group and events relating to the local, regional or national affairs of the places where the Group operates. Furthermore our operations may be a focus for civil unrest or criminal activity. Community reaction could have an adverse impact on the cost, profitability, and 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.
 
   
 
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Risk factors continued
 
      


     
 
 
   
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 can be protracted and costly to resolve, 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
   
 
   
 
 
   
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. If significant variations in commodity prices or demand for its products occurs, the Group may reduce its capital expenditure, which may negatively impact the timing of its growth and future prospects.
 
   
 
  With the volatility of the commodity markets, the Group’s ability to benefit from 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. Exploration is not always successful, moreover there is a high degree of competition for opportunities to develop such orebodies. Certain competitors, 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.
 
   
 
 
   
Failure of the Group to make or successfully integrate acquisitions, or to complete divestment agreements, 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. The Group may also be liable for the past acts, omissions or liabilities of companies, businesses or properties that it has acquired, which may be unforeseen or greater than anticipated. In addition, the Group may retain liabilities for divested entities if the buyer fails to honour all commitments.
 
   
 
 
   
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. Other long lived assets are tested when impairment indicators exist.
 
   
 
  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.
 
   
 
     


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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 judgments 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 some reserves ceasing to be economically viable or others in becoming 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, financial condition, and reputation.
 
   
 
 
   
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. Failure of the Group’s technology systems to realise the anticipated benefits could result in increased costs, interruptions to supply continuity, failure to realise production or growth plans, or some other adverse effect on operational performance.
 
   
 
 
   
The Group’s operations are vulnerable to natural disasters, operating difficulties, health, safety or environmental incidents and infrastructure constraints, not all of which are covered by insurance, which could have an impact on its productivity and reputation.
  Mining, smelting and refining operations are vulnerable to natural events, including earthquakes, drought, floods, fire, storms and the possible effects of climate change. Operating difficulties could be experienced such as unexpected geological variations that could result in significant ground or containment failure. The Group’s operations involve chemicals and other substances under high temperature and pressure, with the potential for fire, explosion or other loss of control of the process, leading to a release of hazardous materials. This could occur by accident or a breach of operating standards, and could result in a significant incident. Any of these events could affect the Group’s reputation, and the costs and viability of its operations for indeterminate periods.
 
   
 
  The Group has extensive health, safety, environment and community policies and standards in place. Despite these, it remains possible that a health, safety, environment or community incident could occur that may adversely impact the Group’s reputation, earnings or cash flows.
 
   
 
  The Group requires reliable roads, rail networks, ports, power sources and power transmission facilities, water supplies and information technology 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 weather events, 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.
 
   
 
 
   
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 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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Risk factors continued
 

     
 
 
   
Joint ventures and other strategic partnerships may not be successful and non managed projects and operations may
  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 risks. Whether or not the Group holds majority interests or maintains operational control in its joint ventures, its partners may:
not comply with the Group’s standards, which may adversely affect its reputation and the value of such projects and operations.
 
    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.
 
   
 
  In addition, failure of a joint venture partner may result in unanticipated losses to the Group. 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.
 
   
 
 
   
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 few decades. 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 or extend the life of an operation. Total provisions at 31 December 2010 amounted to US$8,602 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 stakeholder expectations evolve over time and unforeseen changes could have an adverse effect on the Group’s earnings, cash flows and reputation.
  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. Furthermore, community and stakeholder expectations change over time. Evolving regulatory standards and stakeholder expectations can result in litigation and/or increased costs, or in extreme cases threaten the viability of an operation. This may impact on the reputation of the Group (including in circumstances where the underlying issue is not material to the Group). All of these matters may have an adverse effect on earnings and cash flows.
 
   
 


28   Rio Tinto 2010 Annual report


Table of Contents

Sustainable development

Performance data
Our sustainable development performance data are reported for calendar years and, unless otherwise stated, 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.
We report in line with the GRI G3 guidelines at Application level A+ and have implemented the International Council on Mining and Metals’ (ICMM) sustainable development framework (www.icmm.com).
Environmental stewardship
We continue to proactively manage issues related to climate change, water, land stewardship, biodiversity, mineral and non mineral waste, air quality and closure.
Our programmes include input from our local communities and subject matter experts, and are supported by our partnerships with BirdLife International, Conservation International, the Eden Project, Earthwatch, Fauna & Flora International and the Royal Botanic Gardens, Kew.
During 2010, the International Union for Conservation of Nature (IUCN) and Rio Tinto entered into a three year formal collaboration agreement to work together on sustainable development efforts, environmental management and delivery of conservation outcomes.
Greenhouse gas emissions
We accept the need for climate change action and recognise the issue as being one of our greatest challenges and opportunities. We support efficient, effective and equitable measures to tackle climate change, which promise a comprehensive, long term response to a globally complex problem. We accept the need for a price on carbon.
We believe that our businesses have a positive future in a world that is working to global carbon constraints and we aim to improve the energy intensity of our operations and new projects.
We are targeting 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.
Our GHG emissions intensity has reduced by 3.7 per cent between 2008 and 2010, largely as a result of the 2009 divestment of the Ningxia aluminium smelter in China. During 2010, the impact of closure or reduced production at older aluminium smelters that had low emitting power sources offset some of the intensity reductions achieved during 2009. These closures and production decreases are one step towards our longer term strategy of modernisation.

Our total GHG emissions were 43.4 million tonnes of carbon dioxide equivalent (CO2 e) in 2010, 2.3 million tonnes higher than in 2009. This is the result of increased production of a number of commodities and production shifts to operations with higher greenhouse gas emission intensity. Rio Tinto’s direct emissions were 27.6 million tonnes of CO2-e in 2010. A breakdown of our greenhouse gas emissions by product group and country is available on our website.
We operate in an energy intensive sector and we seek to lower the greenhouse gas emissions over the full lifecycle of our products. For example, Rio Tinto Alcan is a leader in the development of energy efficient aluminium smelting technology and a significant proportion of our aluminium smelters are powered with low carbon, hydro or nuclear power sources. The high strength to weight ratio of aluminium can reduce the weight of cars and decrease the amount of fuel used during their operation; it can also be efficiently recycled.
We continue to track greenhouse gas emissions associated with our products along the value chain. In 2010, the three most significant sources of indirect emissions associated with our products were:
  Approximately 4.7 million tonnes of CO2-e associated with third party transport of our products and raw materials.
 
  An estimated 122 million tonnes of CO2-e associated with customers using our coal in electricity generation and steel production.
 
  Approximately 360 million tonnes of CO2-e associated with customers using our iron ore to produce steel. The emissions associated with the use of our coal and iron ore cannot be added, as some customers use both our iron ore and our coal to produce steel.
Due to global demand, coal will remain a significant source of energy for the foreseeable future. We are therefore investing in developing and commercialising carbon capture and storage (CCS) technology. We are a founding member of the Global CCS Institute and we support other collaborative efforts to deploy CCS technology, such as the CO2CRC’s Otway Basin geosequestration project in Australia.
(BAR GRAPH)

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Sustainable development continued

During 2010, climate change legislation and regulation were debated in a number of jurisdictions where we operate. This has the potential to increase our operating costs significantly:
  In Australia new climate change policy has been discussed but not yet enacted. Currently we have both direct and indirect cost exposure as a result of a requirement to purchase certificates as part of the Government’s renewable energy target. All legislated reporting requirements were met in 2010.
 
  In the US, the Environmental Protection Agency (EPA) is drafting regulations that may subject GHG emissions to permitting requirements.
 
  In the EU some of our operations are subject to the second phase of the EU emissions trading scheme. This exposure will increase when the third phase starts in 2013.
We recognise the need to adapt to the physical impacts of climate change. In 2010 Rio Tinto Alcan entered into partnership with Ouranos to develop tools and strategies to further adapt to climate change (www.ouranos.ca).
Energy use
Rio Tinto both uses energy in its operations and produces it. 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 increased by 3.2 per cent to 512 petajoules following production increases for several commodities, including titanium dioxide feedstock and iron ore.
Through our coal and uranium sales, we supplied 4,735 petajoules of world energy demand in 2010. Our energy supply was more than eight times our energy use.
To drive improvements in energy efficiency our businesses have set a range of local energy targets that cover nearly three quarters of the Group’s energy use.
We are also working to reduce the energy intensity of our new projects through energy efficient design, the use of alternative energy sources and development of step change technologies. This includes commercialisation of the AP60 cell and other components of AP technology™ which have the potential to significantly reduce the energy required to produce aluminium.
(BAR GRAPH)

Our use of low greenhouse gas emitting hydro, nuclear and other renewable power sources represented 67 per cent of our electricity use in 2010. We have significant hydropower generation facilities in Canada, Scotland, and Norway and are currently developing a hydropower strategy to better manage the social and environmental threats and opportunities associated with our hydropower dams.


30  Rio Tinto 2010 Annual report

 


Table of Contents

 
Aluminium
Transformation, modernisation and expansion
 
   
()
Our high quality bauxite mines and alumina refineries, state of the art technologies, clean and renewable energy assets and low cost aluminium smelters make us a global leader in the aluminium industry.

Jacynthe Côté , chief executive, Rio Tinto Alcan
Aluminium overview

(PIE CHART)

Operating highlights
                 
    2010     2009  
    US$ million     US$ million  
 
           
Revenue
    15,206       12,038  
Operating cash flow
    1,334       549  
Underlying earnings (a)
    773       (560 )
Capital expenditure
    1,328       1,690  
Net operating assets
    38,326       36,340  
 

Strategy
  The second phase of transformation will target incremental EBITDA improvement of US$1 billion by 2014.
 
  Leverage the group’s robust growth pipeline with a priority on modernising and expanding existing Tier 1 assets; lower costs of existing facilities; and progress the development of greenfield options at a pace aligned with market demand.
 
  Be long in bauxite and alumina, providing strong growth potential, particularly in the Asian region.
Key achievements
  Increase of US$1,333 million in underlying earnings from 2009.
 
  Value added aluminium product sales volumes increased to 65 per cent of total sales.
 
  Bauxite production up by nine per cent over 2009 mainly in response to increased production at Weipa in Australia to meet the demands of the growing Chinese market.
 
  Alumina production up by three per cent on 2009 due to improved production at Yarwun in Australia, ramp up at Alumar in Brazil, and restarting idled capacity at Vaudreuil in Canada.
(LINE GRAPH)
  Construction at the Yarwun expansion project has been accelerated and the completed co-generation plant and ship unloader handed over to operations.
 
  ISAL aluminium smelter won Rio Tinto’s top safety award with 4.7 million work hours without a lost time injury as at December 2010.
Key priorities
  Proceed with cost efficiencies, capacity creep and step change improvement through strategic capital investment; includes phase one of the AP60 plant in Canada and the ISAL expansion in Iceland.
 
  Continue steps towards optimising the group’s asset portfolio; progress with Kitimat aluminium smelter modernisation in Canada and Yarwun refinery expansion.
 
  Capitalise on our value added product capabilities and optimise our casting portfolio to serve customers in all key regions.
 
  Prioritise power sources with the lowest carbon footprint and improving energy efficiency.
 
  Create value from AP Technology™ via increased technology sales, faster operational improvements and lower full economic costs on new projects.
Outlook
  Favourable position to leverage strong demand from emerging economies and seize opportunities across the aluminium value chain as the industry continues its recovery.
 
  Alumina pricing mechanisms are developing and as liquidity builds, the group’s strategy of remaining long in bauxite and alumina will allow it to use various pricing alternatives.
 
  As aluminium markets continue to recover, the group is expected to benefit from stable energy sources, less linked to LME pricing than those of other large producers.


(a)   See note 2 and the “Financial information by business unit” section of the 2010 financial statements for a reconciliation of underlying earnings to net earnings.
      


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Strategy
Rio Tinto Alcan’s financial performance will continue to be founded on transformational change and portfolio discipline as a means of reducing its costs and achieving stronger margins. With the integration of former Alcan operations completed and achieved synergies in excess of the stated US$1.1 billion target, the second phase of transformation is targeting incremental EBITDA improvement of US$1 billion by 2014 through cost efficiencies and capacity creep, as well as step change improvement through capital investment.
The group’s portfolio began improving in 2009 with the sale of the Ningxia smelter in China as well as closures at two older facilities, the Beauharnois smelter in Canada and the Anglesey smelter in the UK when its power contract expired. In 2010, the group divested some of its smaller non core businesses, including the Awaso bauxite mine in Ghana and the Brockville specialty alumina plant in Canada.
Executing Tier 1 growth options with a priority on modernising and expanding existing assets will allow Rio Tinto Alcan to continue driving costs down and reduce its carbon footprint. Primary aluminium projects such as the AP60 plant and Kitimat modernisation in Canada and ISAL expansion in Iceland, as well as alumina projects such as the Yarwun expansion in Australia, are expected to further reduce average costs and progressively drive the group’s portfolio down the industry cost curve.
The group uses clean power sources for 72 per cent of the electricity used to produce primary aluminium, including a strong base of renewable, self generated hydropower. This gives its aluminium products a relatively low carbon footprint not only from a production standpoint, but also due to their potential for application towards fuel efficiency improvements and downstream GHG reductions (eg in cars, trucks, trains and aircraft). In addition, aluminium’s combination of excellent thermal, electrical and forming properties can offer more efficient electrical, heating and cooling solutions.
Rio Tinto Alcan’s business strategy is also to be long in bauxite and alumina. The group produces enough bauxite and alumina to supply its own facilities as well as generate value through third party sales. This supports growth and reduces price risk. The group’s alumina position should also allow it to benefit from opportunities, particularly in the Asian region, as pricing structures evolve.
Rio Tinto Alcan is the largest bauxite producer in the industry. It has an interest in three of the four largest bauxite mines in the world and is currently the world’s largest bauxite producer. Rio Tinto Alcan also has projects under way to achieve a leading position in alumina refining, including expansion at the Yarwun facility and ramping up tonnage at both Gove in Australia and Alumar in Brazil.
Performance
Gross sales revenue for Rio Tinto Alcan increased by 26 per cent compared to 2009. This reflects the combination of a robust recovery in end use demand in developed economies and the continued roll-over of inventory financing positions amidst a prolonged period of low interest rates.
In 2010, Rio Tinto Alcan’s contribution to the Group’s underlying earnings was US$773 million, an increase of US$1,333 million from 2009. This was as a result of higher exchange traded aluminium prices with the overall impact of price increasing earnings by US$1,569 million compared to 2009. This was partly
offset by adverse currency movements of US$391 million, mainly from the strengthening of the Canadian and Australian dollars against the US dollar.
The improvement in earnings was also attributable to higher sales of value added aluminium products, smelting capacity brought back on line following curtailments in 2009, cost savings from lower input prices for caustic, coke and pitch, and further operating efficiencies in group smelters and refineries worldwide. This was partly offset by inflation and higher energy costs.
The average aluminium market price in 2010 was US$2,173 per tonne compared to US$1,665 per tonne in 2009. The group’s average realised price for ingot products in 2010 was US$2,388 per tonne compared to US$1,833 in 2009. Rio Tinto Alcan has entered into metal sales hedging transactions to protect the downside risk at some of its high cost smelters. This mandate covers a maximum of 317,000 tonnes (about eight per cent of global production) in 2011 and is expected to cover approximately half this tonnage in 2012.
In 2010, Rio Tinto Alcan’s annual bauxite production was 33.4 million tonnes, up from 30.7 million tonnes in 2009 mainly in response to rising third party demand. The group has a leading position in bauxite mining; strong performance in alumina refining; and whole ownership or participation in 21 smelters with a total annual capacity of four million tonnes of primary aluminium (Rio Tinto’s share). Approximately 80 per cent of this aluminium production is located in the first half of the industry cost curve based on data from CRU, an industry analyst.
Aluminium production stayed relatively flat year over year as production at the Kitimat smelter was reduced due to the closures of potlines 7 and 8 in preparation for the modernisation project, and production at Laterrière in Canada was reduced due to a power outage in July. These were offset by NZAS in New Zealand’s production increasing following a transformer failure in 2008, which impacted 2009, and a gradual return to full capacity at operational UK smelters. Aluminium production records were set at the smelters in Arvida and Grande-Baie in Canada, Sohar in Oman, ISAL in Iceland, Dunkerque in France and Boyne in Australia.
Key achievements
Bauxite production in 2010 was up by nine per cent compared to 2009 due to increased production at Weipa in Australia to meet demands of the growing Chinese market. Alumina production also increased, up by three per cent compared to 2009 due to improved production at Yarwun, restarting idled capacity at Vaudreuil in Canada, efficiencies in work management and process improvements. Production records were set at Yarwun and at Alumar.
Rio Tinto Alcan is accelerating the construction schedule for the Yarwun alumina refinery expansion. This will increase the plant’s capacity to 3.4 million tonnes per year and help move the group’s alumina production further down the industry cost curve. The completed ship unloader and co-generation plant were handed over to operations in 2010, and the latter is already providing tangible environmental benefits. The project has an expected project completion date of August 2012, with first bauxite expected to be processed during the first half of 2012.
In 2010, the group finalised long term energy contracts for a number of its smelters including ISAL in Iceland, Bell Bay and Tomago in Australia, and Alucam in Cameroon. As aluminium


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Aluminium continued
 

prices continue to recover, Rio Tinto Alcan is expected to benefit from stable energy sources that are less linked to pricing on the LME than those of other large producers. Ninety six per cent of the group’s power is secured by self generating facilities or long term contracts, thus ensuring low and predictable costs.
The group is also expanding its hydroelectric capacity in the Saguenay-Lac-Saint-Jean region of Quebec through the Shipshaw turbine project. This initiative remains on budget and on schedule for completion in Q4 2012, and will improve this major component of total installed capacity by adding 225 megawatts to Rio Tinto Alcan’s 2,919 megawatt network.
The ISAL operations won the Rio Tinto Chief Executive’s Safety Award in 2010, which was the first year in which it was eligible to do so. Except for one incident in 2009, ISAL has had zero injuries since 2007, and has completed 4.7 million work hours without a lost time injury.
Rio Tinto Alcan also continued its global commitment to strong community partnerships throughout 2010. In Australia, the Gove mine and refinery received the prestigious Origin Gold Banksia award for their partnership with Dhimurru Aboriginal Corporation to eradicate the Yellow Crazy Ant, a significant threat to the regional biodiversity of North East Arnhem Land. In Canada, the group established Ensemble pour la persévérance scolaire, a five year investment programme to support definitive action to keep young people in school. In Cameroon, Rio Tinto Alcan has played an active role in community projects focused on health care (prevention of HIV, malaria, and oncocercosis) and access to potable water.
Safety
Rio Tinto Alcan employees have integrated the Group safety strategy throughout the business and work diligently towards creating a workplace free of health, safety and environmental (HSE) incidents. Rio Tinto Alcan reduced its all injury frequency rate by over 30 per cent to 0.73, representing a near 50 per cent reduction from 2006 levels. The group experienced no fatalities at its managed sites, however, there were three fatalities at non managed operations.
A key priority has been the reduction of major risks through the implementation of Rio Tinto HSE performance standards and risk management practices. This includes initiatives relating to manual handling, process safety, and improving safety leadership with the rollout of Leading for Improvement Training. By year
(GRAPH)
end, a Caustic safety standard was developed and implemented within the Bauxite & Alumina business unit. At critical sites, process safety management has progressed significantly, with reporting, investigation and analysis of significant potential incidents and completion of corrective actions as a main focus.
Greenhouse gas emissions
Rio Tinto Alcan contributed 62 per cent of Rio Tinto’s total GHG emissions in 2010. Realised and planned reductions also contribute significantly to the Rio Tinto Group’s overall intensity improvements. Rio Tinto Alcan has a strong commitment to climate change, which includes both short term operational objectives and long term adaptation strategies.
In 2010, as recovery from the global financial crisis took place, curtailed production was gradually restarted. This affected the group’s GHG performance level, as did the restart of one potline at the Laterrière smelter in Canada. Energy efficiency improved throughout the operations.
Total greenhouse gas emission intensity at Rio Tinto Alcan improved by 6.3 per cent in 2010 from 2008 baseline performance. This represents 1.8 million tonnes of carbon dioxide equivalent and is attributable to the divestment of a high emissions intensity joint venture smelter in China, the closure of some older operations and increased operational efficiency. Furthermore, expansion and modernisation projects throughout the portfolio, such as those at the Arvida (AP60) and Kitimat sites, will considerably reduce the Group’s carbon footprint and help deliver on greenhouse gas commitments.
Review of operations
During 2010, most value added product (VAP) segment shipments improved considerably compared to 2009, largely due to recovery in the economies of Rio Tinto Alcan’s principal markets. In North America, for example, most VAP segment shipments have been affected by the modest but steady improvement in the US economy. Overall, the group’s sales volumes of VAP products almost reached the same levels as seen in 2008, accounting for 65 per cent of total sales in 2010 as compared with 51 per cent in 2009.
The return in demand gives Rio Tinto Alcan an opportunity to optimise and invest in its VAP casting portfolio. While Kitimat will increase its slab production, it is transferring billet production to other group units in Australia and New Zealand, where the Boyne smelter recorded its highest ever volume VAP. The group is also investing in leading edge billet casting facilities at ISAL to support the European billet market.
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Rio Tinto Alcan also made progress with its growth strategy, focusing on high return production capacity increases and Canadian modernisation projects that leverage low cost, self generated hydropower. The group completed value improvement initiatives at both the Kitimat and AP60 project sites to reduce costs.
The prefeasibility study for the modernisation of the Kitimat smelter is now complete with an improved business case, and the anode pallet storage facility has been built. In March, the group also reached a landmark agreement with the Haisla Nation of British Columbia to secure support and further the Kitimat project’s commitment to strong communities. In December, the Group approved an additional US$300 million investment to further construction and site preparations for the modernised smelter.
At the ISAL facility, a total investment of US$487 million was approved for a modernisation project to boost production capacity by 20 per cent and install a leading edge casting facility to reinforce Rio Tinto Alcan’s VAP position. The group also finalised a long term energy supply agreement with the state utility to allow for an amperage increase at the smelter. The smelter is expected to begin a gradual production increase in Q2 2012. Billet production is expected to begin in 2012 and the group will consolidate expertise and production for slab products from ISAL with existing operations in France and the UK.
Primary aluminium production was negatively impacted from July to September when two electrical transformers failed at Laterrière. The gradual restart of 216 affected pots was completed safely and ahead of schedule. Production losses are estimated at about 24,000 tonnes and the cost of this disruption has been mitigated by insurance coverage.
The group also experienced a temporary hydropower reduction in Quebec due to exceptionally low precipitation levels in the Saguenay–Lac-Saint-Jean region. This led to the signing of a one year power supply agreement with the provincial utility. The full year impact on EBITDA was approximately US$117 million.
Rio Tinto Alcan’s technological capabilities continue to create value from sales, faster operational improvements (eg production capacity creep), and lower full economic costs on new projects. Phase one of the AP60 smelter project received final approval to proceed in December 2010 with an additional investment commitment of US$758 million. Construction of the electrical substation is complete and site preparations for potrooms and busbar corridors have begun. The facility will be equipped with 38 AP60 reduction cells with metal output per pot at the plant reaching levels 40 per cent higher than at existing smelters. Phase one of the plant will produce 60,000 tonnes of aluminium per year. First hot metal is expected in 2013 and the plant will be the platform for commercial development of AP60 technology.
Rio Tinto Alcan is also recognised as a world leader in bauxite residue management and is often called upon to share its expertise. Its goal is to store bauxite waste in its most solid form possible and, in many cases, recover the liquids used so that it can recycle them in our refining operations. The group works closely with regulatory authorities in host communities to ensure that it complies with the highest HSE standards, and invests regularly to maintain the integrity and security of these sites.
Outlook
Rio Tinto Alcan is better positioned than ever to tackle the challenges of the future and the long term fundamentals of its industry remain intact, providing for a confident outlook. The per capita rate of aluminium consumption is above 20 kilograms per year in developed countries, and the rate gap between developed countries and emerging economies such as India (one kilogram), Brazil and Indonesia (five kilograms) as well as China (12 kilograms) is expected to close over the long term.
The group’s financial performance will continue to be founded on transformational change, reducing its cost structure, and achieving stronger margins. Its next phase of transformation is targeting significant EBITDA margin improvements with the objective of achieving margins around 40 per cent.
Rio Tinto Alcan’s comprehensive, proprietary AP Technology™ suite makes it a partner of choice for project development. The group possesses one of the strongest growth pipelines in the industry, with smelter projects in various stages of development. These include brownfield expansions at Kitimat and ISAL as well as the potential for expansions at Sohar in Oman, Alucam in Cameroon, Alma in Canada and two subsequent expansion phases of the AP60 plant. Greenfield opportunities include an additional smelter in Cameroon, a joint venture smelter in Malaysia, and an aluminium smelter in Paraguay. In Guinea, the group has a basic agreement which sets forth a framework for a joint venture greenfield alumina refinery.
As a highly integrated producer, the group also aims to be long in bauxite and alumina. This provides Rio Tinto Alcan with a robust internal supply chain and additional value options. Alumina pricing mechanisms are expected to continue evolving. Rio Tinto Alcan believes that there is insufficient liquidity to support a spot index at present and a material proportion of alumina supply is locked up under medium to long term contracts.
As markets continue their recovery, the aluminium industry cost curve is expected to steepen further with cost pressures on the top end. This is expected to be driven by upward pressure on energy prices, appreciation of the Chinese currency, China’s reliance on imported bauxite, potential gradual increased alumina price, and the eventual impact of carbon pricing mechanisms. Rio Tinto Alcan remains well positioned to face these expected pressures on input costs, as key drivers such as access to energy, raw materials and currency drive up costs for producers in China.


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Copper
Resource, optimise, grow
 
   
(PHOTO OF ANDREW HARDING)
We believe Rio Tinto’s Copper group is uniquely positioned to supply growing global demand for
copper, with a diverse, balanced asset base and
industry leading technology and innovation that
allows the Copper group to optimise its resources
and grow.

Andrew Harding, chief executive, Copper
Copper overview


(PIE CHART)
Operating highlights
                 
    2010     2009  
    US$ million     US$ million  
 
Revenue
    7,782       6,206  
 
               
Operating cash flow
    4,048       2,223  
 
               
Underlying earnings (a)
    2,534       1,878  
 
               
Capital expenditure
    958       553  
 
               
Net operating assets
    6,663       5,187  
 
Strategy
  Deliver shareholder value with a material increase in production in the medium term.
 
  Optimise our operating assets by delivering meaningful improvements in safety and productivity, championing various technologies and remaining a leader in sustainable development.
 
  Partner with local governments and communities to contribute to sustainable development.
 
  Develop strong leadership and diverse, high quality talent needed to deliver growth.
Key achievements
  Completed Northparkes E48 block cave project.
 
  Began process of updating environmental permits at Kennecott Utah Copper’s Bingham Canyon copper mine and extending its life to 2028 while maintaining additional long term options.
 
  Launched construction of US$340 million Molybdenum Autoclave Process at Kennecott Utah Copper.
 
  Progressed a number of underground projects at Grasberg, namely the Grasberg Block Cave and DMLZ (Deep Mill Level Zone) projects.
 
  Continued to develop Oyu Tolgoi, one of the most promising
(BAR GRAPH)
    undeveloped copper-gold deposits in the world.
 
  Became the development and operating manager of Oyu Tolgoi and established a clear pathway to 49 per cent ownership in Ivanhoe Mines Limited.
 
  Began construction of the Eagle nickel-copper project, which is expected to begin production in late 2013.
 
  Obtained tenure over Sulawesi nickel mineralisation.
 
  Secured land contracts to advance drilling at the La Granja project.
Key priorities
  Continue to improve safety performance with an emphasis on process safety and underground safety.
 
  Leverage industry leading technology and innovation to drive value-generating growth in every operation and shorten development for greenfield projects.
 
  Proactively advance application of key technologies that will drive value in Rio Tinto’s copper assets.
 
  Manage and provide support to the Oyu Tolgoi copper-gold project, with a focus on safety, resourcing and sustainable development.
 
  Keep the growth pipeline full of potential projects and opportunities.
 
  Ensure high quality resources are in place to deliver growth.
Outlook
  Solid fundamentals in the near to medium term.
 
  Growth in emerging economies, led by China and India, will drive increasing demand.
 
  Potential for supply side challenges linked to increased sovereign risk, higher operating costs, increasing depths, decreasing grades and project disruption.
 
  The Copper group’s asset base is resilient to volatile prices and has opportunities for development, while its growth pipeline is world class.

     
(a)  See note 2 and the “Financial information by business unit” section of the 2010 financial statements for a reconciliation of underlying earnings to net earnings.
 

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Strategy
The Copper group’s strategy is to deliver shareholder value with a material increase in production in the medium term. The company believes the copper price will remain above historical averages, with some volatility, driven by continued strong demand in China and potential supply side challenges.
Using technological innovation, Rio Tinto’s Copper group is optimising its large, long life, cost competitive assets to safely and efficiently gain access to deposits at lower depths.
The growth pipeline is full of promising potential projects, which the group will develop by leveraging Rio Tinto’s project skills and in accordance with Rio Tinto’s leading standards of collaboration with local governments and communities. The group is focused on developing the people resources needed to deliver its ambitious growth agenda.
Rio Tinto is a leader in block cave mining, and many of our growth projects located at depth depend on this mining method. While block cave mining is capital intensive and requires lengthy development times, technologies being pioneered by the company have the potential to deliver meaningful competitive advantage.
Performance
Sales revenue of the Copper group was US$7,782 million in 2010, US$1,576 higher than in 2009 reflecting higher prices as a result of increasing global demand.
Underlying earnings were US$656 million higher than 2009, attributable to higher metal prices. Refined copper production was down five per cent. Refined gold production was up 24 per cent, and refined silver up 17 per cent reflecting the processing of high grade precious metals contained in concentrates produced in late 2009.
The improvement in prices was partially offset by lower sales volumes and higher unit cash costs in line with reduced production from lower grades.
The average price of copper in 2010 was US$3.40 per pound compared to US$2.32 per pound in 2009.
Key achievements
During 2010, the Copper group made significant and important progress on a number of fronts.
The Kennecott Utah Copper operation is pursuing the Cornerstone project, which is expected to extend the life of its Bingham Canyon mine to 2028 while maintaining additional long term options. Kennecott Utah Copper is also moving forward with construction of a new Molybdenum Autoclave Process facility that can improve efficiency, metal recovery and greenhouse gas emissions.
Northparkes received approval to proceed with the “Step Change” pre-feasibility project, which has the potential to increase production three fold and further reduce costs.
A feasibility study for the Deep Mill Level Zone at Grasberg was completed.
The Oyu Tolgoi project, one of the most promising undeveloped copper-gold deposits in the world, continued to move forward.
Construction began at the Eagle project, which will produce an average of 17,300 tonnes of nickel and 13,200 tonnes of copper metal per year, beginning in 2013. In addition, tenure was granted over the southern mineralisation at our Sulawesi nickel project in Indonesia.
In 2010, Rio Tinto secured land access by signing 27 necessary land contracts essential to advancing the La Granja project in Peru.
Safety
The Copper group had no fatalities at its managed operations in 2010. However, a fatality occurred at Escondida, a non managed site, in the process area.
The Copper group is committed to creating an injury free workplace. In 2010, the all injury frequency rate was 0.57, versus 0.67 in 2009.
During 2010, the Kennecott Utah Copper workforce worked more than 2.7 million hours without a lost time incident. The operation has moved forward with successful initiatives to implement on-site Emergency Response teams and help employees manage their personal health. During 2010, Kennecott received a total of 13 awards from the Utah Safety Council for its safety performance.
Northparkes is working to improve safety by understanding and addressing fatigue in the workplace, with stage two of a trial currently under way. In addition, Northparkes is also working to manage low probability, high consequence risks. Into 2011 Northparkes will be focusing safety efforts on further developing and setting underground safety standards and implementing the site process safety plan.
Rio Tinto Copper Projects has had zero fatalities for the past two consecutive years and worked without a lost time incident in 2010. The La Granja project worked without a medical treatment case for 18 consecutive months. For the second year in a row, Resolution Copper received the Sentinels of Safety Award from the US Department of Labor’s Mine Safety and Health Administration and the National Mining Association, for excellence in safety. This award is the most recognised and longest standing award given for occupational safety.
In 2011, the Copper group will focus on process safety and underground safety, with the goal of reducing injuries to zero.
Greenhouse gas emissions
The Copper group is committed to ongoing improvements in energy management and efficiency. In 2010 the Copper group’s total greenhouse gas emissions were 3.1 million tonnes of carbon dioxide equivalent, about seven per cent of the Rio Tinto total. Since 2008 the Copper group has reduced the GHG emissions intensity of its copper cathode production by 6.3 per cent.
Kennecott Utah Copper accounts for the majority (61 per cent) of the Copper group’s greenhouse gas emissions. Key programmes to improve performance at Kennecott Utah Copper have included energy management and fuel programmes to improve efficiency and the commissioning of a six megawatt combined heat and power
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Copper continued
 

facility. The Copper group anticipates continued progress in 2011 as a result of planned implementation of additional efficiency and technology improvements.
Review of operations
Kennecott Utah Copper (Rio Tinto: 100 per cent)
Kennecott Utah Copper, based in Salt Lake City, supplies more than ten per cent of the US’s refined copper. It also produces gold, silver, molybdenum and sulphuric acid as by-products. The planned maintenance shutdown at the smelter was completed safely, on time and on budget. In 2010 Kennecott Utah Copper produced 269 thousand tonnes of refined copper and 596 thousand ounces of refined gold. Kennecott Utah Copper is also commencing studies associated with the potential development of an underground copper skarn deposit to operate in parallel with the open pit.
Escondida (Rio Tinto: 30 per cent)
Operated by BHP Billiton, Escondida is the world’s largest copper producer. Located in Chile’s Atacama Desert, it represents eight per cent of global production. Escondida produced 1,011 thousand tonnes of mined copper in 2010. Approval of three capital projects for execution will extend the sulphide leach operation, provide access to higher grade material and add grinding capacity to increase mill throughput.
Grasberg (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)
Grasberg is owned and operated by PT Freeport Indonesia, a subsidiary of US based Freeport-McMoRan Copper & Gold Inc. It is one of the world’s largest copper mines and in the lowest cost quartile of copper producers. In 2010, Rio Tinto’s share of production from Grasberg was 51 thousand tonnes of mined copper and 183 thousand ounces of mined gold.
Palabora (Rio Tinto: 57.7 per cent)
Palabora Mining Company is a listed South African company (JSE) based in Limpopo Province. Palabora produced 58 thousand tonnes of refined copper in 2010, supplying most of South Africa’s copper needs and exporting the balance.
Northparkes (Rio Tinto: 80 per cent)
Based in New South Wales, Australia, Northparkes is a joint venture with the Sumitomo Group (20 per cent). Northparkes produced 39 thousand tonnes of mined copper and 65 thousand ounces of mined gold in 2010.
(BAR GRAPH)
Rio Tinto’s large, long life orebodies produce significant amounts of copper, at among the lowest costs in the industry, with meaningful opportunities for development. The group is optimising its operations by focusing on safety and by using technological innovation to improve recoveries, extend the life of its mines, protect the environment, gain efficiencies and deliver valuable growth.
Kennecott Utah Copper has submitted permits to move forward with the Cornerstone project, which is expected to create access to a significant quantity of mineralised material and extend the life of its Bingham Canyon mine to 2028 while maintaining additional long term options. Kennecott Utah Copper is also developing the Molybdenum Autoclave Process (MAP), an alternative that will replace third party roasting. Commissioning of the facility is planned to begin in late 2012.
Northparkes’ E48 block cave project has increased mineralised material tonnes and is expected to extend the mine’s life to 2023. By the end of 2012, Northparkes will begin testing a continuous mechanical rock excavation system. This breakthrough technology improves the speed and development of underground operations and allows recovery of valuable resources from increasingly difficult deposits.
Palabora Mining Company is evaluating expansion alternatives to extend the copper mine beyond the current profile. These options include growth of Lift I through an area known as the western extension and a second lift below current mining activities.
In addition, the company continues to monitor security at Grasberg following several shooting incidents from mid 2009 to January 2010. The last reported incident was on 24 January 2010, which resulted in a number of injuries. There were no fatalities in 2010. The Indonesian Government has responded with additional security forces and Grasberg has taken precautionary measures. Mining and milling activities have continued uninterrupted.
In September, a third party train derailment destroyed the rail line linking Palabora operations to key ports. Fortunately, there were no injuries. The event did not have a material impact on the production, transportation and sale of copper and copper rod to customers; however it did affect magnetite sales.
At each of its operations, the Copper group is committed to sustainable development and community partnerships.
In 2010, Kennecott received the Utah Division of Oil Gas and Mining (DOGM) Earth Day Award for the restoration of its historic Magna Concentrator. This award recognises industry leaders that voluntarily exceed regulatory requirements to protect and improve the environment.
In June 2010, Palabora Mining Company entered into a broad based agreement with its new partners. Under the agreement, the company will effectively sell 26 per cent of its operations and assets to a newly incorporated subsidiary owned by employees, the community and a consortium. The agreement is consistent with the country’s Black Economic Empowerment Act, which requires mines in South Africa to be at least 15 per cent owned by historically disadvantaged South Africans. This requirement will increase to 26 per cent by 2014.


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Development projects
The Copper group is pursuing a strong pipeline of projects and has a first class growth profile. In developing new projects, the group works to proactively manage risk and create a solid, sustainable operating environment.
Oyu Tolgoi (Rio Tinto: 42.1 per cent interest in Ivanhoe Mines Limited)
When Oyu Tolgoi, in Mongolia’s South Gobi Desert, reaches full production in 2018, it is expected to be a top ten copper producer and one of the world’s biggest gold producers, with first quartile production costs.
In late 2010 Rio Tinto secured the right to increase its ownership in Ivanhoe Mines to 49 per cent by 18 January 2012. Ivanhoe holds a 66 per cent interest in Oyu Tolgoi LLC. Rio Tinto has become the development and operating manager of Oyu Tolgoi and has agreed to provide a comprehensive financial package to Ivanhoe to help secure the development of the project.
The transition of management of Oyu Tolgoi to Rio Tinto has officially started, with a vision to safely deliver on schedule and on budget, to be firmly aligned with Rio Tinto’s strategy, values and standards for excellence, and fully deliver on its commitment to employ approximately 90 per cent of the project’s workforce from Mongolia – representing around 3,000 to 4,000 direct jobs, including contractors.
Resolution Copper (Rio Tinto: 55 per cent)
Resolution Copper, in Arizona, US hosts what is the world’s third largest undeveloped copper resource. The first production is expected in 2020. The site is in the midst of a pre-feasibility study and indications of this work are that the operation would likely be capable of producing 600,000 tonnes of copper per year. In 2010, Resolution Copper advanced development of a new exploration shaft, and provided more than one billion gallons of treated water from historic mine workings to farmers to irrigate their crops.
La Granja (Rio Tinto: 100 per cent)
Based on exploration drilling, La Granja – in Peru’s Cajamarca Region – is the world’s ninth largest undeveloped copper resource. In 2010 evaluation work entered a divergent phase to assess the potential of new geological discoveries and to identify higher value, lower risk options for development. An optimal business case is still being developed. However, the project has a clear direction for development utilising conventional technologies which has yet to incorporate a recently discovered higher grade zone of mineralisation. Drilling will continue in 2011 to confirm the extent of the new mineralisation.
Kennecott Eagle Minerals (Rio Tinto: 100 per cent)
Construction of the US$469 million Eagle nickel and copper mine in Michigan, US began in 2010, with first production expected in late 2013. The mine is expected to produce on average 17,300 and 13,200 tonnes per year of nickel and copper metal, respectively, over six years. High quality sulphide nickel concentrates will increasingly be in short supply, and Eagle is one of the most attractive greenfield projects in the nickel industry pipeline. Eagle is located in a prospective region where Rio Tinto has significant land holdings and mineral rights.
Sulawesi (Rio Tinto: 80 per cent)
Sulawesi in Indonesia is one of the world’s largest undeveloped nickel opportunities with significant mineralised material. Having received the first licence under Indonesia’s new mineral legislation, tenure for the project has been secured and Rio Tinto is reviewing development options. On 30 November 2010 Rio Tinto entered into an earn-in agreement with Sherritt International Corporation. Sherritt must complete two phases of work including a feasibility study and spend US$110 million on the project to earn a controlling 57.5 per cent equity interest in the holding company that owns the Sulawesi project. Rio Tinto will retain the remaining 42.5 per cent for a net economic interest of 34 per cent.
Pebble (Rio Tinto: 19.8 per cent interest in Northern Dynasty Minerals)
The Pebble project in Alaska, US is one of the world’s most significant undeveloped copper-gold-molybdenum deposits. Rio Tinto has a 19.8 per cent equity holding in Northern Dynasty Minerals, which owns a 50 per cent share in the Pebble joint venture.
Bougainville Copper Limited (Rio Tinto: 53.8 per cent)
Access to the site in Papua New Guinea remains restricted; however the company continues to progress plans for exploration and mining and is committed to working closely with the country’s leaders and local landowners.
Outlook
Global electrification and growth in China and India, along with a greater focus on renewable sources of energy, should drive continued demand for copper, while there may also be increased supply side challenges.
The grade profile of the Copper group decreased in 2010 compared to 2009. While mine plans are continually optimised, ore grades are impacted by the inherent constraints that face deeper, more mature mines. An anticipated decline in grade in 2011 is expected to see a rebound in 2012.
Using industry leading technology and innovation, the Copper group is expanding and extending the life of its properties with brownfield development, and pursuing a strong pipeline of greenfield projects to create a growth profile.
Rio Tinto’s focus on sustainable development allows it to create stable operating platforms that take into consideration the long term needs of the surrounding environment and the community. As a result, the company can manage risk effectively, reduce environmental impacts, operate efficiently, and attract and retain high calibre employees.
These factors, combined with strong technological capabilities, help differentiate Rio Tinto’s Copper group from its competitors and contribute to the goal of being the undisputed sector leader in creating value for its shareholders.


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Diamonds & Minerals
Differentiation in the marketplace
 
(PHOTO OF HARRY KENYON-SLANEY)
The Diamonds & Minerals group is well positioned to benefit from late cycle demand growth in mature and emerging markets. Our businesses occupy strong positions in their respective sectors, combining high quality assets with technical expertise and a robust understanding of our markets and customers.

Harry Kenyon-Slaney, chief executive, Diamonds & Minerals
Diamonds & Minerals overview
(PIE CHART)
Operating highlights
                 
    2010     2009  
    US$ million     US$ million  
 
Revenue
    3,035       2,618  
 
               
Operating cash flow
    510       528  
 
               
Underlying earnings (a)
    328       800  
 
               
Capital expenditure
    300       519  
 
               
Net operating assets
    4,580       4,612  
 
Strategy
  To maximise shareholder value by contributing material earnings to Rio Tinto and delivering better than comparable industry returns.
 
  To benefit from increasing demand for Diamonds & Minerals’ products by improving the efficiency of the group’s existing assets, building the growth projects in its pipeline and growing through value accretive acquisitions in existing and new sectors.
 
  To share best practices in safety and community engagement in order to maintain employer and developer of choice status across the six continents that constitute our operations base.
Key achievements
  Lowest all injury frequency rate among Rio Tinto product groups.
 
  Commenced underground ore production at the Diavik diamond mine.
 
  Gained approval and funding to complete the Argyle diamond mine underground project in Australia.
 
  Launched a pre-feasibility study for the Bunder diamond project, India.
 
  Delivered flexibility and efficiency improvements through a new labour agreement at Rio Tinto Minerals’ (RTM) Boron Operations in California.
 
  Received a binding offer in early 2011 from Imerys to acquire Rio Tinto’s talc business for an enterprise value of US$340 million.
(BAR GRAPH)
  Expanded deposit boundaries and identified additional sodium borate mineralisation at Jadar, a lithium and borates development project in Serbia.
 
  Rio Tinto Iron & Titanium (RTIT) increased titanium dioxide production by 21 per cent compared to 2009 in response to improved market conditions.
 
  Achieved the first full year of production of ilmenite ore at QIT Madagascar Minerals (QMM).
 
  Progressed construction of the tailings treatment plant at Richards Bay Minerals (RBM) ahead of start up in early 2011.
Key priorities
  Continue to strive for zero harm to people across all operations.
 
  Deliver material earnings and cash flow to Rio Tinto, and generate better than comparable industry returns.
 
  Differentiate Rio Tinto from other suppliers in Diamonds & Minerals’ markets by providing a reliable supply of high quality products, technical expertise and marketing support programmes.
 
  Ramp up to full production at QMM.
 
  Progress development projects to plan.
 
  Achieve incremental expansions at Rio Tinto Fer et Titane (RTFT) and Boron through efficiency and technology improvements.
 
  Identify and execute opportunities for inorganic growth.
Outlook
  Following recovery in 2010, the outlook for the product group’s markets is favourable, driven primarily by increased demand from emerging markets.
 
  The medium to long term fundamentals for the diamond industry are positive.
 
  Demand growth offers opportunities across titanium dioxide and borates.

   
(a)  See note 2 and the “Financial information by business unit” section of the 2010 financial statements for a reconciliation of underlying earnings to net earnings.


50   Rio Tinto 2010 Annual report


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Strategy
The Diamonds & Minerals group’s core purpose is to maximise shareholder value by safely and efficiently mining, processing and marketing diamonds and minerals. The group seeks to differentiate Rio Tinto from other suppliers in its markets by providing a reliable supply of high quality products, technical expertise and marketing support programmes. Many of its businesses operate in remote and environmentally sensitive locations, where we have focused on developing leading community relations and sustainable development practices to become a development partner of choice.
Rio Tinto believes that similar industry dynamics to those that drove the growth in iron ore, copper and coal demand are forming in a number of mineral sectors. The group’s strategy aims to position its businesses to make the most of these changing market fundamentals and will be delivered along three principal pathways:
  Progressing underlying business performance through operational and commercial improvement.
 
  Maintaining and expanding capacity through investment in the group’s existing businesses, for example the Argyle Underground project and incremental capacity expansions at Boron and RTFT.
 
  Further growing the business through value accretive acquisitions in existing and new sectors.
Rio Tinto Diamonds’ 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.
RTM’s strategy is to be the undisputed leader in value creation within the borate sector. RTM seeks to leverage superior product quality, reliability of supply and technical support to capture profitable growth in promising sectors and regions. At its operations, RTM will focus on increasing capacity while achieving world class safety performance and improving its position on the industry cost curve.
RTIT’s strategy is focused on capturing profitable growth in titanium dioxide feedstock markets and maximising the value from its industry leading portfolio of resources, processing facilities and co-product capabilities. RTIT aims to grow titanium dioxide feedstock production to meet increasing demand, while maximising co-product contribution. RTIT will also dynamically drive cost efficiency to sustain or improve its position on the industry cost curve.
Performance
In 2010 the Diamonds & Minerals group’s markets substantially recovered from the financial turmoil of late 2008 and 2009. Sustained demand from emerging markets largely offset the slower recovery from the established markets of the US and Europe. This has been reflected in higher prices and increased sales volumes, leading to a 16 per cent increase in revenues.
The product group continued to focus on improved operational performance. Rio Tinto’s share of diamond production reached 13.8 million carats, with underground production commencing at Diavik during the year. Strong demand growth in Asia for borates offset delayed recovery in mature markets, driving borate production increases of 18 per cent compared to 2009. Titanium dioxide feedstock production increased by 21 per cent in response to improved market conditions, while progress continues to be made at the QMM ilmenite mine in Madagascar.
Sales revenue of the Diamonds & Minerals group was US$3,035 million in 2010, US$417 million higher than in 2009, reflecting higher prices and sales volumes in response to improved economic conditions. Adjusting for the one-off US$797 million gain on the sale of potash assets in 2009, 2010 underlying earnings of US$328 million were US$325 million higher than 2009, reflecting revenue growth and tax benefits largely associated with a one-off charitable donation of land.
Improved rough diamond prices and sales volumes were reflected in a 52 per cent improvement in Rio Tinto Diamonds’ sales revenue in 2010 compared with 2009.
RTM’s borates and talc businesses secured additional price increases as markets recovered and met an aggressive target to increase EBITDA by 12 per cent from a 2009 baseline.
In December 2009, a Broad Based Black Economic Empowerment (BBBEE) restructuring was completed at RBM which reduced Rio Tinto’s equity share in the business from 50 per cent to 37 per cent. Despite this, RTIT’s revenue increased by four per cent, reflecting stronger demand for titanium dioxide feedstock and increased prices for its metallic products.
An impairment charge of US$115 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.
Key achievements
Diamonds
The first ore was produced from the Diavik underground mine in Canada in March 2010. Underground operations will steadily increase and the remaining open pits are expected to be depleted by 2012.
In September 2010, Rio Tinto approved the investment of US$803 million to complete the Argyle underground project in Australia. Following a transition from the current open pit operation, the mine is expected to be fully operational in 2013. The project is expected to extend the life of the mine until at least 2019.
A pre-feasibility study of the Bunder project in Madhya Pradesh, India commenced in July 2010 and in October 2010, the Government of Madhya Pradesh signed a State Support Agreement with Rio Tinto for the project. These are critical milestones in the ongoing development of the mine, which will be the first hard rock diamond mine in India.
Minerals
Demand recovery for borates across all market sectors – particularly in Asia – led to an 18 per cent increase in borate production compared with 2009. Talc demand recovery was driven primarily by the polymers sector and production levels increased by 13 per cent.
Boron forged a new labour agreement that lays the groundwork for improved work practices and productivity, enhancing the business’s competitive position through the life of the operation.
RTM upgraded its distribution and packaging facility in Malaysia, commissioned a new talc beneficiation plant in Australia and announced plans to open an Asian Technology Center in 2011 to create competitive advantage in the business’s most promising growth region.
In February 2011, Rio Tinto received a binding offer from Imerys to acquire its talc business for an enterprise value of US$340 million. A period of exclusivity with Imerys has been agreed, and Rio Tinto will respond to this binding offer following consultation with the relevant European works councils.


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Diamonds & Minerals continued
 

Production of titanium dioxide feedstock increased by 21 per cent compared with 2009 in response to improved market conditions. RTIT reacted quickly to stronger demand by returning to full output following capacity reductions made in response to the global financial crisis.
QMM completed its first full year in operation following the first shipment of ilmenite ore in mid 2009, and the final product is being well received by the market. QMM has experienced difficult mining conditions since commissioning, but production is increasing as technical issues are addressed. The implementation of dry mining in 2011 is expected to double throughput by year end. Further options to increase throughput are being evaluated.
Construction of the tailings treatment plant at RBM progressed in 2010, under budget and on schedule. The project will extract zircon, rutile and ilmenite from tailings, from early 2011.
Safety
Safety improvement and awareness continued to be a major focus of all operations. Initiatives included the piloting of the Site Safety Acceleration Programme at RBM and the creation of the Diamonds & Minerals collaborative forum to drive benchmarking and share best practice. In 2010 the product group’s all injury frequency rate (AIFR) was 0.51 compared to 0.71 in 2009.
All diamond sites achieved exceptional safety performances in 2010 with their AIFR improving to 0.36 from 0.65 in 2009. In 2010 the Diavik mine won the Canadian industry’s most prestigious safety award — the national John T Ryan safety trophy for its safety performance.
(BAR GRAPH)
(BAR GRAPH)
RTM reduced AIFR by 24 per cent to 0.65 in 2010. RTM’s Houston Operations were recognised for safety leadership through Rio Tinto’s Chief Executive Safety Award, and Rio Tinto’s US operations were recognised by the Mine Safety and Health Administration as among the safest in the country.
All RTIT operations improved their safety performance in 2010, with the total AIFR improving to 0.52. QMM achieved one of the group’s lowest AIFRs, at 0.20, with a largely new workforce.
Greenhouse gas emissions
All diamond sites maintained or reduced their greenhouse gas emissions in 2010 compared to 2009 and are working on a number of initiatives to ensure continuous improvements are in place. A key focus is reducing fuel consumption and investigating alternative power options.
Across RTIT’s operations, total greenhouse gas emission intensity decreased by nine per cent, reflecting increased operating efficiencies achieved as production levels increased. Engineering work on the electricity co-generation project at RBM is continuing and will contribute to future reductions in emissions by generating electricity from waste gas.
RTM’s global operations continued efforts to reduce greenhouse gas emissions, and set new targets to lower them by two per cent per tonne of product from 2008 levels by 2013. Key initiatives include improving energy efficiency in processing plants, harvesting reclamation ponds and in-pit dumping of overburden.
Review of operations
Rio Tinto Diamonds
Argyle (Rio Tinto: 100 per cent)
The Diamonds group owns and operates the Argyle diamond mine in the east Kimberley region of Western Australia. Argyle continued to operate its surface mine while undertaking minimal construction of an underground block cave mine below the existing open pit in the first half of 2010.
Diamond production in 2010 was 9.8 million carats, seven per cent lower than 2009, reflecting the fact that the open pit mine is in the final stages of production with lower ore grades, prior to an underground mine accessing higher grade ore.
Diavik (Rio Tinto: 60 per cent)
The Diamonds group operates the Diavik diamond mine, located approximately 300km north east of Yellowknife in the Northwest Territories, Canada. It is an unincorporated joint venture between Rio Tinto and Harry Winston Diamond Corporation.
The Diavik mine currently comprises three diamond bearing kimberlite pipes that are being mined using open pit and underground mining methods. The first underground mine production occurred in March 2010 and will steadily increase. The remaining open pits are expected to be depleted by 2012. The underground operation will extend the life of the Diavik mine until 2022. A fourth pipe, the A21 pipe, is being reviewed to determine its viability.
Diamond production in 2010 was 3.9 million carats (Rio Tinto share) compared with 2009 production of 3.3 million carats, reflecting a significant increase in ore processed.
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 Riozim


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Limited (22.2 per cent), an independent Zimbabwean listed entity. Rio Tinto’s share of production in 2010 of 139,000 carats was above the 97,000 carats in 2009 as a result of a modest capacity expansion in the process plant. Murowa is considering expanding the existing open pit to increase production and the previous feasibility study for this expansion is currently being reviewed.
In 2010 Murowa Diamonds received the Zimbabwe National Chamber of Commerce award for the Best Corporate Social Responsibility Programs.
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 product tonnes of refined borates are produced at Boron Operations, the principal borate mining and refining operation in California’s Mojave Desert. RTM also operates talc mines – including the world’s largest, in southern France – and processing facilities in Austria, Australia, Belgium, Canada, France, Italy, Japan, Mexico, Spain and the US.
In 2010 total borates production rose by 18 per cent to 500,000 tonnes of boric oxide, on the back of strong recovery in Asian demand. Total talc production increased by 13 per cent to one million tonnes in 2010, with stronger sales in the polymer sector and recovery in paint and paper markets.
Rio Tinto Iron & Titanium
Rio Tinto Iron & Titanium (RTIT) comprises:
  the wholly owned Rio Tinto Fer et Titane (RTFT, formerly QIT) in Quebec, Canada;
 
  an 80 per cent share in the QIT Madagascar Minerals (QMM) ilmenite project in Madagascar; and
 
  a 37 per cent interest in and management of Richards Bay Minerals 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 processing into titanium dioxide slag.
In 2010, titanium dioxide production increased by 21 per cent compared with 2009. The market for titanium dioxide feedstock has recovered quickly from the global financial crisis, which led to a sharp decline in demand in 2009. In response, RTIT’s operations have returned to full capacity, producing 1,392,000 tonnes of titanium dioxide feedstock (Rio Tinto share). This increase has been achieved despite the reduction in the Rio Tinto share of RBM production from 50 per cent to 37 per cent following the BBBEE restructuring in late 2009 and reflects increased output of ilmenite from QMM in Madagascar.
Development projects
The Bunder project (Rio Tinto: 100 per cent) in Madhya Pradesh is Rio Tinto’s most advanced diamond project and the most important diamond discovery in India for many decades. Located 500km south east of Delhi, the Bunder project’s Order of Magnitude study identified significant mineralised material. Rio Tinto applied for a mining lease in 2008, has constructed an on site sample processing plant to evaluate drilling and surface samples, and is working on detailed studies for the mine’s development.
In October 2010, the Government of Madhya Pradesh signed a State Support Agreement with Rio Tinto as further endorsement of the Bunder project.
In September 2010 the Rio Tinto board approved a further US$803 million to complete the construction of the Argyle underground mine. Argyle will continue the transition to underground mining until 2013 by which time it is expected to be a wholly underground mine with a life through to at least 2019.
Exploration drilling in Serbia resulted in expanded deposit boundaries and the identification of a new sodium borate mineralisation at Jadar, a lithium and borate development project with considerable economic potential. The deposit is one of the largest undeveloped lithium deposits in the world. If developed, it is expected to be in production within five to six years.
Outlook
The diverse markets being served by the group’s operations are linked by a strong connection to end consumer markets, consumer sentiment and spending habits. Following recovery in 2010, the outlook for the group’s markets is generally favourable, driven by increased demand from Asian countries.
Diamonds
Following 2009 inventory depletions, the diamond supply chain was gradually replenished in 2010. Diamond demand from emerging markets accelerated, while production levels remained relatively low in comparison with 2008. As a result, rough diamond prices demonstrated a robust recovery throughout 2010. In the short run, the sustainability of this recovery will be in part dependent on US consumer confidence. The medium to long term fundamentals for the diamond industry are positive.
Minerals
Socioeconomic trends driving energy efficiency in housing and transportation, urbanisation in emerging economies and more sustainable farming practices will drive increased intensity of demand for borates. Segmentation and pricing strategies are in place to support shifts between regions and end uses through different consumer and economic cycles. Supply chain flexibility will be enhanced by establishing bulk delivery stock points in promising growth regions. The borate business is positioned for strong growth and industry leading returns in the near and long term.
Demand for titanium dioxide feedstock is driven mainly by the pigment industry. The market recovered sharply in 2010, with high capacity utilisation rates, driven in part by a steady rise in demand in China and other developing countries. Rising demand is likely to drive prices to structurally higher levels in the coming years.
RTIT is well placed to benefit from improved market conditions as production increases following capital investment in QMM and its established operations in recent years.


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Energy
Portfolio positioned to meet growing demand
 
   
(PHOTO OF DOUG RITCHIE)
Rio Tinto’s Energy group will meet strong future demand for energy and steel, and maximise
shareholder return, through operating and
growing its global coal and uranium portfolio.

Doug Ritchie, chief executive, Energy
Energy overview
(PIE CHART)
Operating highlights
                 
    2010     2009  
    US$ million     US$ million  
 
Revenue
    5,652       4,869  
 
               
Operating cash flow
    2,463       2,069  
 
               
Underlying earnings (a)
    1,187       1,167  
 
               
Capital expenditure
    685       510  
 
               
Net operating assets
    3,694       2,809  
 
Strategy
  The Energy group is focused on safely supplying the world’s growing energy needs through the responsible and sustainable development and operation of large scale, long life, cost competitive assets.
 
  The group aims to be a sector leader in the development and operation of the world’s coal and uranium resources.
 
  The group seeks to build strong customer relationships and provide superior customer outcomes while earning significant premiums to the market.
 
  The group is pursuing opportunities for growth to meet expanding global energy demand, while continuing to focus on operational excellence, community engagement and environmental performance to ensure it is the developer of first choice.
Key achievements
  Commissioning of the new Clermont mine in Queensland, an open cut thermal coal mine due to reach annual peak production of 12.2 million tonnes in 2013.
 
  Feasibility study started into the open cut thermal coal Mount Pleasant project.
 
  Australian hard coking coal production increased by 20 per cent in 2010 and set a new record of 2.4 million tonnes in the third quarter.
(BAR GRAPH)
  A successful heap leach processing trial at Rössing, and finalising work on a proposed exploration decline at Energy Resources of Australia’s Ranger mine.
 
  Completion of a detailed study of global energy demand to support strategic decision making and growth planning.
 
  Announced a recommended cash offer for Riversdale Mining Limited. If successful, this acquisition would provide Rio Tinto with a coking coal development pipeline in the emerging Moatize Basin in Mozambique, in line with our established strategy.
 
  Divestment of Rio Tinto’s remaining 48 per cent equity holding in Cloud Peak Energy Inc. (gross proceeds of US$573 million).
Key priorities
  Continued focus on operational excellence; in particular safety performance to achieve the group’s goal of zero harm.
 
  Expanding and developing existing assets to meet the strong demand.
 
  Focusing on exploration and strategic acquisition and/or joint venture arrangements.
Outlook
  The world’s demand for energy and steel production is expected to grow strongly in coming decades, driven by increasing populations and industrialisation in large developing countries.
 
  The forecast growth in demand for coal over coming decades for both energy and steel production presents a significant opportunity to target expanding export markets, particularly in the Asia Pacific region.
 
  Global demand for uranium is expected to remain strong due to a desire for base load electricity generation with reduced greenhouse gases, as well as the need for energy security, diversity of supply and strong growth plans in China.

     
(a)   See note 2 and the “Financial information by business unit” section of the 2010 financial statements for a reconciliation of underlying earnings to net earnings.


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Strategy
Rio Tinto expects strong growth in energy demand in all markets, including coal and uranium, from energy per capita growth and population growth dominated by China and India.
Electricity demand outpaces overall energy demand and this should translate into good opportunities for thermal coal and uranium.
While nuclear and renewable energy will grow strongly in coming years, coal is set to remain a significant part of the world’s future energy mix as it is abundant, relatively cheap and there is significant recently installed capacity.
The Energy group’s coal assets are well positioned to service the future demand growth in Asia, and include long life, cost competitive assets that are viable throughout the economic cycle. Existing operations have expansion opportunities, and steps are under way to progress these.
While Rio Tinto benefits from this growth in energy demand, it is concerned by the threat of climate change and has accepted the need for global reductions in greenhouse gas emissions. Rio Tinto invests heavily to reduce emissions from its own operations. Rio Tinto also contributes to global efforts to reduce emissions, by participating in the development of low emission technologies, running strong product stewardship programmes, and assisting governments with the development of sound policies.
Rio Tinto has continued to sell non-core coal assets in the Energy group, with the divestment in 2010 of Cloud Peak Energy Inc. and the completed sales of the coal projects Maules Creek and Vickery in the Gunnedah Basin in New South Wales. A process also began in 2010 to divest the Colowyo mine in the US.
Given uranium’s low greenhouse gas emissions and strong demand, the Energy group is pursuing growth opportunities and in 2010 progressed work to further define available mineralisation at both Rössing and ERA. Rössing began a statutory approval process ahead of a proposed expansion, while ERA completed detailed planning of its Ranger 3 Deeps mineralisation.
The Energy group’s long term strategy is centred firmly on expanding existing capacity and securing opportunities for growth while maintaining superior margins as a reliable long term supplier with consistently high standards of operation.
Performance
The Energy group’s 2010 sales revenue was US$5,652 million and its underlying earnings were US$1,187 million, compared with sales revenue of US$4,869 million and underlying earnings of US$1,167 million in 2009.
Rio Tinto Coal Australia’s (RTCA) 2010 contribution to underlying earnings was US$940 million, US$77 million lower than in 2009 due mainly to a stronger Australian dollar, especially in the second half of the year, outweighing the impact of stronger coal prices throughout 2010. RTCA’s total coal production was 47.6 million tonnes (Rio Tinto share 30.5 million tonnes), slightly higher than 2009 production.
RTCA’s hard coking coal production increase was assisted by equipment investment and operational improvements. RTCA’s thermal and semi-soft coking coal production was seven per cent lower, mainly due to wet weather impacts in the Hunter Valley, and the scheduled ramp down of Blair Athol mine (which was partly offset by the ramp up of Clermont mine which became operational in April). Monsoonal rain and flood impacts on
mining operations, road and rail access at RTCA’s four Queensland mines in December 2010 led to a force majeure declaration on sales contracts at those mines.
Energy Resources of Australia (ERA) contributed US$22 million in 2010 to underlying earnings, compared with US$138 million in 2009. Total production for 2010 was 8.6 million pounds uranium oxide on a 100 per cent basis (2009: 11.5 million pounds). The reduced production was primarily due to lower than expected milled ore grade of 0.19 per cent, compared with 0.26 per cent in 2009. Earnings were impacted by the strengthening of the Australian dollar and higher cash costs. Sales of uranium oxide decreased in 2010 to 11.1 million pounds, compared with 12.1 million pounds in 2009. Unseasonal late rains in April 2010 and an early start to the 2010/2011 wet season also restricted pit access and delayed mine schedules. In January 2011, ERA announced a 12 week suspension of processing operations as a precautionary measure due to a higher than average wet season.
Rössing Uranium recorded a loss of US$3 million, US$27 million below 2009, predominantly attributable to an adverse exchange rate impacting production costs. Earnings recovered in the second half of the year when some sales occurred from volumes deferred from the first half. Rio Tinto’s share of uranium oxide production in 2010 was 5.5 million pounds, a 13 per cent decrease on 2009 levels due to lower average feed grade.
Key achievements
Australian hard coking coal production increased by 20 per cent in 2010.
Clermont mine became operational in April and produced 3.8 million tonnes of coal in 2010.
ERA completed detailed planning for a proposed underground exploration decline to conduct close spaced exploration drilling to further define the extent of the Ranger 3 Deeps mineralisation identified in late 2008.
Safety
All operations across the Energy group continued the focus on reducing injuries through leadership, simple and effective systems, and personal commitment to safety. This includes increasing the focus on significant potential incidents, which are defined as incidents that may not have caused actual harm, but had the potential to cause significant harm.
The Energy group’s AIFR increased slightly to 0.71 during 2010, mainly due to an increase in incidents at Rössing and the divestment of Cloud Peak Energy.
RTCA’s AIFR of 0.58 was an improvement from 0.60 in 2009, and its injury severity rate decreased significantly.
In 2010 ERA recorded a four per cent increase on its AIFR compared with 2009. However, ERA achieved 1.35 million hours and equalled a record number of consecutive days without a lost time injury.
Rössing’s safety performance of 0.95 AIFR in 2010 increased compared with 2009, however a safety acceleration programme implemented at mid year is expected to help deliver improved safety performance in 2011.
Colowyo reduced its rate of injuries by more than a third, achieving an AIFR of 0.65 in 2010 compared with 1.02 in 2009.


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Energy continued
 
Greenhouse gas emissions
The Energy group is committed to a future where energy is about sustainable practices that will lead to a low carbon future. Initiatives at each operation are helping to reduce greenhouse gases, while the group is continuing to dedicate resources to the development of low emissions coal technology.
Greenhouse gas emissions intensity increased across the Australian coal business in 2010, however a coal seam methane pilot project was completed by Coal & Allied at the Mount Thorley Warkworth operation. The purpose of the three year project was to test the feasibility of pre-mining drainage and use of methane from shallow coal seams that will be mined using open cut methods. Other trials will be considered after further drilling to measure the gas content in coal that is yet to be mined. The drilling and gas measurement programme, which is being rolled out across all Rio Tinto Coal sites in New South Wales including Mount Pleasant, is expected to be completed in 2011.
In 2010, total production of uranium oxide from Rio Tinto’s uranium mines in Australia and Namibia was 16.6 million pounds, and total production of thermal coal from Rio Tinto’s Australian coal mines was 31.8 million tonnes. The electricity that will be generated from these energy products is estimated to be 390TWh (terawatt hours). This is equivalent to the combined amount of electricity that was consumed in Australia, Indonesia, and Iceland in 2008. (Source: IEA, World Energy Statistics 2010.)
ERA improved energy efficiency and reduced carbon dioxide equivalent emissions through the rebuild of power station generators.
(BAR GRAPH)
(BAR GRAPH)
Rössing did not meet the set energy efficiency and emissions target due to mining and processing constraints, as expected, because of less ore mined, lower grade ore and a high calcium carbonate index. The operation is also aggressively stripping waste and widening the open pit to expose higher grades of ore.
Colowyo’s continuing haul road optimisation work aims to maintain greenhouse gas reductions achieved in prior years.
Review of operations
Rio Tinto Coal Australia (Rio Tinto: 100 per cent)
RTCA manages the group’s Australian coal interests. These include the Blair Athol (Rio Tinto: 71.2 per cent), Kestrel (Rio Tinto: 80 per cent), Hail Creek (Rio Tinto: 82 per cent) and Clermont (Rio Tinto: 50.1 per cent) coal mines in Queensland.
RTCA also provides management services to Coal & Allied Industries (Coal & Allied) for operation of its four mines located in the Hunter Valley in New South Wales. Coal & Allied (Rio Tinto: 75.7 per cent) is publicly listed on the Australian Securities Exchange and had a market capitalisation of A$10.4 billion (US$10.6 billion) at 31 December 2010. 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 adjacent to its wholly owned Mount Pleasant project. Coal & Allied also has a 36.5 per cent interest in Port Waratah Coal Services (PWCS) which operates the Kooragang and Carrington coal port terminals in Newcastle.
2010 saw continuing strength in the seaborne market for Australian coal, with growth in demand for thermal coal continuing from South Korea, India, Taiwan and China. Global steel demand improved in all markets in 2010 and led to strong demand for semi-soft coking coal. The market for premium quality hard coking coal remained solid in 2010.
Energy Resources of Australia (Rio Tinto: 68.39 per cent)
ERA is a publicly listed company and had a market capitalisation of A$2.1 billion (US$2.2 billion) at 31 December 2010. Since 1980 ERA has mined ore and produced uranium oxide at its Ranger open pit mine, 250km east of Darwin in Australia’s Northern Territory. ERA also holds title to the adjacent Jabiluka mineral lease. 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.
In 2010, ERA maintained its 30 year history of protection of the surrounding environment, with the Australian Government’s Supervising Scientist Division reporting in its 2009/2010 annual report that extensive monitoring and research programmes confirm that the Kakadu environment “has remained protected”.
ERA has invested A$11.2 million towards water management improvements across its entire operation, and additional real time water quality sensor points in local waterways have improved ERA’s ability to monitor releases and protect the environment.
A programme of infill drilling within Ranger pit commenced in October 2010 to confirm confidence in the mineralisation. As a result of this work and pit redesign due to a localised area of instability on the south wall, the Ranger in situ reserves were reduced by approximately 2,400 tonnes.


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Rössing Uranium (Rio Tinto: 68.58 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 plays 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. The Rössing Foundation, set up 30 years ago, continued to provide various education and training programmes and is recognised as a major contributor to sustainable development in Namibia.
A Social and Environmental Impact Assessment was commissioned in 2010 ahead of the mine’s proposed expansion activities, and following drilling work in existing and new areas surrounding the current open pit to investigate the extent of the uranium ore available within the Rössing mining licence area.
The latest Life of Mine plan sees the operation continuing to 2023; however it requires a large increase in stripping for the next three years to open up new areas of the pit. A combination of additional equipment and operational performance improvements were implemented in 2010 to deal with the extra mining requirements as efficiently as possible. A similar focus in the plant increased plant throughput and improved recovery rates by three per cent.
Heap leach is a key initiative to increase production and reduce operating costs, and trials were successfully undertaken in 2010. Rössing also continued to progress other potential value enhancing projects including a new tailings facility and an on-site acid plant.
Colowyo Coal Company (Rio Tinto: 100 per cent)
Colowyo Coal Company produces thermal coal in northwest Colorado. The company intends to fulfil a long term contract with its sole remaining customer, a power generator located in northwest Colorado. This contract expires at the end of 2017. In the absence of divestment or the development of additional customers, the expiration of the contract will be followed by closure and completion of reclamation of the mine site.
Development projects
The Energy group’s main coal development project in Australia is the extension of the Kestrel mine with first production expected in early 2013.
A feasibility study commenced in November 2010 for the Mount Pleasant project, an already consented, open cut thermal coal mine proposal in the Upper Hunter Valley. Consent modifications are being sought to provide options that may reduce capital costs and allow more efficient operations.
In New South Wales, the start of a long term commercial framework relating to port capacity to facilitate industry growth is showing results. To date the framework has seen coal producer nominations and the allocation process trigger the requirement for PWCS to take its terminal capacity to 145 million tonnes a year (mtpa), expected by 2013. The process has also triggered the requirement for PWCS to develop a fourth terminal. Meanwhile, the externally owned and operated Newcastle Coal Infrastructure Group commissioned its stage one 30mtpa terminal in April 2010 and has announced financial close on an expansion to take its port capacity to 53mtpa. Negotiations on below-rail arrangements in the Hunter Valley region are continuing.
RTCA has secured additional port capacity in the first stage of the Abbot Point expansion to meet its production requirements for growth in Queensland.
ERA completed 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 mineralisation identified in late 2008. This proposal is in the final stages of ERA’s approval process with a final decision expected in the second quarter of 2011.
ERA is progressing work on a feasibility study 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.
Outlook
The Energy group’s increased capital expenditure in 2010 will continue in 2011, to expand operations to meet forecast demand growth in coming years.
Rio Tinto’s Energy group expects 2010’s strong thermal coal demand will continue through 2011, with continued pressure on prices due to wet weather constraints to coal production in Australia, Indonesia and Colombia in late 2010/early 2011.
The group expects that coking coal prices will remain high relative to historical levels, given the lack of substitutes, growing demand and lingering supply constraints due to the impact of recent weather.
Uranium spot markets strengthened in the second half of 2010, mainly driven by strong demand from China, and long term prices saw some small increases in late 2010. Market demand is expected to remain strong in the coming years as new nuclear power capacity comes online.


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Iron Ore
Record performance, operational efficiency and robust outlook
 
(PHOTO OF SAM WALSH)
Following a decade of dramatic expansion, we are well positioned to supply rising global iron ore demand through further capacity increases. We will continue to drive performance through leadership in project delivery and operational excellence.


Sam Walsh, chief executive, Iron Ore and Australia
Iron Ore overview
(PIE CHART)
Operating highlights
                 
    2010     2009  
    US$ million     US$ million  
 
Revenue
    24,024       12,598  
 
               
Operating cash flow
    15,915       7,389  
 
               
Underlying earnings (a)
    10,189       4,126  
 
               
Capital expenditure
    1,716       2,148  
 
               
Net operating assets
    11,628       11,263  
 
Strategy
  Continue to build the Pilbara operations as the leading iron ore supplier close to the world’s largest, fastest growing markets.
 
  Focus on implementing a major expansion programme while maintaining maximum production.
 
  Continue to develop and benefit from technology innovation to deliver supply chain efficiencies, maximising margins per tonne.
Key achievements
  Record global iron ore production of 239 million tonnes
(Rio Tinto share 184.6 million tonnes), a ten per cent increase on 2009 global production.
 
  Full ramp up of the Operations Centre in Perth, including transition of ports and new mines.
 
  Opening of Brockman 4, Mesa A and Western Turner Syncline mines. Subsequent decision to expand Brockman 4 to 40 Mt/a capacity and Western Turner Syncline to 15 Mt/a.
 
  Approval to develop the US$1.6 billion Hope Downs 4 mine and linking rail spur (Rio Tinto share US$1.2 billion).
 
  Improving on an already sector leading safety record, in the context of high production levels and the complexities of expansion.
(BAR GRAPH)
  The employment of more than 900 Aboriginal people in Western Australia through targeted recruitment and retention strategies.
 
  Resuming expansion programme at Iron Ore Company of Canada (IOC).
 
  Opening the US$503 million Yurralyi Maya power station (Rio Tinto share US$397 million), providing more environmentally efficient power to support Pilbara operations and communities.
Key priorities
  Maintaining production and sales at nameplate capacity.
 
  Advancing technological integration into the group’s operations through Mine of the Future™ initiatives.
 
  Further improving the product group’s safety record towards zero harm.
 
  Emphasis on operational efficiency, removal of bottlenecks and cost control measures.
 
  Progress studies of total system capacity to 333 million tonnes per year in 2015.
 
  Continued emphasis on brownfield developments, to leverage an unrivalled network of assets close to existing infrastructure.
 
  Advance new project development options outside of the Pilbara.
Outlook
  Market to remain tight for the short to medium term, with delays to new supply and strong demand driving prices.
 
  The Iron Ore group’s strategy and performance will continue to be driven by the rapid urbanisation and industrialisation in China, and the steady recovery in other major Asian markets.
 
  India is expected to continue emerging as a major market as it follows China’s lead in urbanisation. The group also remains confident in the longer term potential for other markets of South East Asia, Central Asia, the Middle East and Africa.

     
(a)   See note 2 and the “Financial information by business unit” section of the 2010 financial statements for a reconciliation of underlying earnings to net earnings.
 


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Strategy
The Iron Ore group seeks to maximise shareholder return from its global assets, through establishing a global supply chain able to deliver high grade iron ore to established and emerging markets worldwide.
We will continue our focus on operational and financial efficiency, but our growth phase adds a new perspective. Of critical importance will be executing our capacity expansions in the Pilbara and Canada, and progressing major development opportunities at Simandou, Guinea and Orissa, India.
Following the joint decision to end plans for an iron ore production joint venture with BHP Billiton, Rio Tinto is well positioned to maximise its leading role in the Pilbara, with superior expansion options and a strong record of project execution. Strategy will focus on increasing Pilbara capacity by over 50 per cent in five years without compromising current operational efficiency.
A number of studies are well advanced to support the major increases in port and rail infrastructure. A continued emphasis on brownfield developments where possible, exploiting the group’s unrivalled network of assets close to existing infrastructure, will improve time-to-market delivery and manage risk.
Although a number of projects are under study in other regions, a high priority has been attached to the early development of the Simandou project in Guinea. Key aspects of the legal status of the project are still to be clarified, and management worked closely with the Government of Guinea throughout the year to progress this aim. A historic binding agreement was signed with Chalco in July, paving the way for joint development of the Simandou deposit. Following the Guinean elections in late 2010, chief executive Tom Albanese visited Conakry for further talks with the new administration. To date more than US$700 million has been spent in Guinea on exploration, environmental, community development and evaluation work.
Rio Tinto, as the second largest provider of seaborne iron ore, seeks to deliver its products across world markets. As a reliable source of large volumes to agreed specification, Rio Tinto can capitalise on superior supply chain logistics to deliver a consistent product such as the Pilbara Blend drawn from 11 of our 14 mines in the Pilbara.
Rio Tinto is not committed to a specific pricing structure, instead seeking to obtain the best price across its suite of products, one recognising high value in use while respecting longstanding customer relationships.
Performance
Rio Tinto’s global iron ore business achieved record performance in 2010, demonstrating not only the recovery of all major markets from the impact of the global financial crisis, but also the capacity of the group to benefit from its position as a leading supplier in the seaborne iron ore market. Production was maintained at above nameplate capacity levels through most of the year, leading to record production volumes.
As in 2009, the group implemented and refined measures to reduce expenditure as markets slowly recovered.
Sales revenue of the Iron Ore group was US$24,024 million in 2010, US$11,426 million higher than in 2009 mainly due to improved prices and higher volumes of ore sales.
Underlying earnings were US$6,063 higher than 2009 as the result of strong revenue growth and a continued focus on cost control. Cash flow optimisation, increased equipment productivity, reduction in process variability through standardisation and improvement in people intensity have all contributed to effective cost control strategies.
Sales volumes from the Pilbara region of Western Australia set a new record in 2010 at 223 million tonnes (100 per cent basis), an increase of nine per cent compared to 2009. Shipments to all major markets, other than China, increased as financial conditions improved earlier than expected.
2010 was also notable for the end of the traditional annually priced iron ore supply contracts in favour of shorter term pricing. Rio Tinto maintained its position of providing a range of options to customers, being able to supply ore under whichever pricing regime best fits within appropriate market dynamics.
At IOC (Rio Tinto 58.7 per cent), all pellet lines resumed full production and returned to normal concentrate and pellet proportions as markets improved. Total sales were 15.6 million tonnes, up 9.6 per cent on 2009, and achieved despite significant weather related challenges.
In December the HIsmelt® joint venture partners agreed to permanently close the Kwinana site and terminate the joint venture, following two years of care and maintenance. The closure work is expected to be substantially completed by 2014. The technology business (Rio Tinto share 100 per cent) continues and a number of licensing opportunities are progressing.
Key achievements
The ramp up of production levels was the standout achievement of the year, with nameplate capacity met and in many cases exceeded from month to month. This was particularly commendable given the widespread surge in industrial and economic activity throughout Western Australia’s resources sector, which might have otherwise imposed delays and cost pressures.
As a result, operating margins remained robust. Value was preserved through close focus on elimination of unnecessary cost and tight control over manageable overheads.
Another achievement was the maintenance of business discipline throughout a year in which the proposed production joint venture with BHP Billiton remained a high priority. This discipline positioned the group well once the proposed joint venture was abandoned.
As in previous years, technology and innovation was further embedded in enhanced operations. A number of key initiatives were implemented during the year, many under the pioneering Mine of the Future™ vision.
2010 saw the full ramp up of the Operations Centre in Perth. More than 400 employees are now remotely managing most key Pilbara operations, or planning future initiatives, up to 1,500km away. A number of other innovation projects continued, such as the commencement of tele-remote shiploading in Dampier and the continued successful trialling and deployment of driverless trucks and automated drilling and blasting at West Angelas mine.
Coinciding with the ramp up has been the greater deployment of Aboriginal workers in the group. The number of Aboriginal workers and class-A contractors exceeded 900, and a number of apprenticeship and training programmes have been targeted directly at attracting and retaining these employees.
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Iron Ore continued
 

operations and projects is a priority. More than A$200 million in contracts were awarded to Aboriginal businesses during 2010.
Safety
There has again been a significant improvement in safety performance for the Iron Ore group in 2010, with the all injury frequency rate (AIFR) dropping to 0.71, an 11 per cent improvement on 2009.
Two operations were recognised in the Chief Executive Safety Awards: Marandoo mine (a Most Improved Site award) and the Coastal Operation Division (a commendation for its strong safety culture). The Safety Leadership Development Programme continued to be implemented across iron ore sites in Western Australia.
Highlighting a greater focus on general health within the safety strategy, a Fatigue Management Programme, a pilot Wellness Programme, and programmes focusing on mental health and medical surveillance began.
Further improving the safety record, while undertaking Australia’s largest ever mining project, will be a key challenge. With this in mind, the Contractor Forum initiative continued throughout 2010 and a Contractor Safety Leadership Development Programme was initiated in Western Australia.
IOC’s performance was marred by a tragic accident in March. Two maintenance workers at the Labrador City site fell from height, resulting in fatal injuries to one of the men, while the other eventually recovered fully and was able to return to work. Comprehensive studies resulted in a change action plan, which has been fully implemented.
Greenhouse gas emissions
The Iron Ore group’s total greenhouse gas (GHG) emissions intensity has improved 4.7 per cent from 2008.
Progress continued on the replacement of ageing power infrastructure in the Pilbara, with a new generation plant, Yurralyi Maya, near Dampier progressively commissioned in the second half of 2010. The implementation of the cleaner technology is expected to produce 25 per cent less GHG emissions at the same production level compared with the existing steam power generation. The option of retrofitting combined cycle equipment has been kept open to further reduce GHG emissions and improve efficiency.
Another technological improvement occurred with the integration of 51 Evolution™ Series diesel electric locomotives into the Pilbara railway fleet, replacing less efficient locomotives.
A number of localised innovative projects to reduce GHG emissions
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continued across the group. Rio Tinto was a key participant in a landmark commercial biodiesel venture by the Ashburton Aboriginal Corporation, under which up to 7,000 litres of waste cooking oil is provided for biofuel, to be used for blasting at the Tom Price mine. 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. In addition to the reduction in air travel implied, the Operations Centre incorporates a range of innovative energy saving designs purpose built to reduce its environmental footprint.
At IOC’s Labrador City plant, projects to reduce fuel and steam production costs resulted in a number of efficiencies which are estimated to produce GHG savings of 2,200 to 3,600 tonnes annually. The second stage of a project to reduce fuel oil required to fire pellets was completed on three machines, producing estimated GHG savings of approximately 5,000 tonnes annually.
Review of operations
Production performance throughout 2010 was the group’s key achievement, emphasising the quality of Rio Tinto’s suite of assets and its array of efficient logistics systems.
Ian Bauert, previously managing director, Sales and Marketing, was appointed Rio Tinto’s managing director, China, as part of the rebuilding of close relations with that country. The improvement of ties was highlighted by the hosting of a number of high profile events at the Shanghai World Expo, where the Australian pavillion was sponsored by Rio Tinto.
A number of new mines were completed in 2010. In February the US$1 billion Mesa A mine (Rio Tinto share 53 per cent) was opened, ramping up through the year to reach its 25 million tonne annual capacity in late 2010. The Western Turner Syncline mine was constructed through 2010. In September, the US$1.5 billion Brockman 4 mine (Rio Tinto share 100 per cent) was opened, supplying 22 million tonnes a year into the Pilbara’s production and slated to expand to at least 40 million tonnes a year.
In August Rio Tinto approved a US$1.6 billion investment (Rio Tinto share US$1.2 billion) in Hope Downs 4 mine. The mine is expected to have a 15 million tonnes a year capacity, to sustain current Pilbara capacity, with first ore expected in 2013.
Two incremental expansions increasing capacity at our two Dampier Port terminals by five million tonnes each were approved, for a total investment of US$321 million (Rio Tinto 100 per cent). Both are now well into implementation, with completion scheduled for early 2011 and early 2012.
In April Rio Tinto confirmed it was discussing pricing of annual
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supply contracts on a quarterly basis, following a significant shift in market expectations towards shorter term pricing. Rio Tinto has pursued a flexible portfolio approach providing a range of options to customers. Rio Tinto recognises that the market dynamics will remain fluid given underlying cyclical, structural and domestic industry regulatory policy changes.
The taxation debate in Australia prompted a delay in the roll out of Rio Tinto’s ambitious expansion programme, as greater clarity and assurances were sought and ultimately received from the Commonwealth Government as to the regime under which major expansions would occur.
In June the Australian Competition Tribunal decided not to “declare” Rio Tinto’s principal railway line in the Pilbara (the Hamersley line) mandated open for third party access. The Tribunal also decided that the Robe River line should be “declared” open for access, but only until 2018, rather than for 20 years as the applicants wished. Both decisions are subject to appeal.
A landmark agreement was reached with the Western Australian Government during the year to revise state agreements and royalty arrangements. The agreement will allow greater flexibility in the use of infrastructure and assets. Rio Tinto agreed to pay royalties of 5.625 per cent on fine product from all mines (formerly 3.75 per cent on several mines) and to continue paying 7.5 per cent on lump product. Rio Tinto also agreed to fund 50 per cent of a one-off, combined payment of A$350 million, to the State Government’s Consolidated Revenue Fund.
Agreements with five Pilbara native title groups were signed in November. This is a major achievement in securing current and future access, as well as active Traditional Owners’ support.
Minerals
Good weather for salt growth in a number of countries and a sluggish recovery in relevant global markets in 2010 led to a weakening of salt prices and reduced underlying earnings of US$29 million, down from US$88 million in 2009. Salt production continued at less than capacity and similar to 2009 at 7.6 million tonnes (Rio Tinto share 5.2 million tonnes). Shipping increased by 0.6 million tonnes to 8.3 million tonnes, as stock built up during the global financial crisis was sold. As part of diversifying risk, customers and new contracts were established outside of the traditional Asian markets, in Europe, Africa and North America.
Continuation of the Sustainable Health and Safety programme within the business contributed to the Group’s improved focus on general health and safety performance. Work commenced on replacement of the main seawall and seawater intake structure at Dampier, as part of the continuing structural integrity programme.
Marine
Rio Tinto Marine provides Rio Tinto with comprehensive capabilities in all aspects of marine transportation, global freight markets and the international regulatory environment. The Marine group consists of approximately 75 shipping professionals, located principally in Melbourne, Singapore, London and Montreal. Identifying and executing seaborne freight solutions allows Rio Tinto to participate in all aspects of the supply chain, while exerting greater influence on vessel selection, operational safety, scheduling, port efficiency and cost management.
Rio Tinto Marine sets and maintains the group’s HSE and vessel assurance standards for freight, with continuous improvement efforts undertaken to instil a high standard of health, safety and environmental performance aboard vessels under management and throughout the organisation. As one of three equal shareholders in RightShip, a ship vetting specialist, Rio Tinto helps to promote maritime industry safety and efficiency.
During 2010 Rio Tinto Marine managed 155 million tonnes of seaborne cargo. Freight participation is largely within the dry bulk market, managing seaborne transportation of iron ore, coal, salt, bauxite, alumina and other minor bulk products. Rio Tinto Marine owns a fleet of five post-panamax vessels, used principally for the transportation of bauxite sourced from Rio Tinto Alcan’s mine at Weipa, Queensland. These purpose built ships deliver volume and efficiency advantages on niche trade routes, guaranteeing supply and eliminating freight cost variability.
Rio Tinto Marine secures the majority of its freight coverage through period charter commitments. It 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.
Development projects
Rio Tinto has outlined the largest expansion programme in Australia’s mining history, to achieve production and shipping annual capacity of 333 million tonnes in 2015. The expansion will more than double capacity at the Cape Lambert port facility (Rio Tinto share 53 per cent) to 183 million tonnes.
There were a series of major announcements in 2010 related to the expansion of the Pilbara rail and port infrastructure to 283 million tonnes a year. Feasibility studies into further expansion to 333 million tonnes per year are well under way. The scale of the expansion programme in the Pilbara is vast, with a total capital expenditure estimate of US$14.8 billion (Rio Tinto share US$12 billion) to increase annual capacity to 333 million tonnes.
In July and August Rio Tinto announced a US$990 million investment (Rio Tinto share US$649 million), for the letting of dredging contracts and the procurement of long lead items associated with the group’s growth programme. Dredging was approved and began in December. A further investment of US$3.1 billion (Rio Tinto share US$2.1 billion) was approved to increase infrastructure annual capacity to 283 million tonnes in 2013. Approval was also given for a final feasibility study for the second 50 million tonne tranche taking Pilbara capacity to 333 million tonnes a year, scheduled for completion in late 2015.
Demonstrating the fundamental change in global markets, Rio Tinto announced the resumption of IOC’s expansion to 22 million tonnes a year capacity, the first stage of a programme to boost capacity to 26 million tonnes a year.
Outlook
We believe market conditions will remain tight as delays to new supply and strong demand continue to drive prices.
Urbanisation and industrialisation have supported a phenomenal growth in China’s steel demand over the past decade. We believe this will continue. The fundamentals underlying China’s growing demand will remain robust, driving this demand into the next decade. India is expected to follow China’s lead, and increased controls on its export capacity and early signs of increased steel intensity suggest its emergence as a major market will continue. The group remains confident in the longer term potential for other markets of South East Asia, Central Asia, the Middle East and Africa where urbanisation is relatively low but increasing.
Just as the earliest indications of demand were met with Rio Tinto’s counter-cyclical investment in capacity a decade ago, the group will accordingly seek to expand its production capacity by almost 50 per cent in the next five years.


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Exploration
Investing for the future
 

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 after more than 40 years by both mine production and successful brownfield exploration.
Continuing this legacy, the Exploration group has since 2000 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 high grade iron ore deposits, at Simandou in Guinea, as well as the Caliwingina channel iron deposits in the Pilbara, Australia. Exploration identified the potash deposits at Potasio Rio Colorado, which Rio Tinto sold to Vale in 2009; the Sulawesi nickel laterite deposit in Indonesia; the Mutamba titanium deposit in Mozambique; and the lithium borate deposits at Jadar 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 period 2000 to 2010, divestment of Exploration group projects has returned US$1,291 million for a net pre tax spend of approximately US$128 million. Over the period this translates to an average Tier 1 discovery cost of less than US$16 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/borates   Serbia
 
At the end of 2010, the Exploration group was actively exploring in 16 countries, and assessing opportunities in a further seven, for a broad range of commodities including bauxite, copper, coking coal, iron ore, diamonds, nickel, uranium and potash.
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, most cost competitive resources that are profitable at all parts of the natural price cycle and that deliver sustainable competitive advantage. These are described as Tier 1 resources.
The Exploration group is accountable for greenfield exploration programmes and it provides technical assistance to the business units on brownfield exploration. 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 businesses. Exploration further supports the product groups in the assessment of merger and acquisition opportunities.
The Exploration group is organised geographically into regional multi-commodity teams, with head offices in London, Salt Lake City and Brisbane. This structure provides a balance between global reach and local presence.
Greenfield exploration programmes are prioritised on a global basis so that only the most attractive opportunities are pursued. Priorities are determined in consultation with the product groups, with investment decisions being driven not by location or choice of commodity but rather by the quality of each opportunity.
Exploration teams frequently present the first face of Rio Tinto in a community and lay the groundwork for what could become a multi-decade relationship. Exploration places a high priority on effective community engagement and considers its commitment to sustainable development as fundamental to securing its social licence to operate.
Safety
The Exploration group all injury frequency rate has increased from 0.62 at the end of 2009 to 1.18 at the end of 2010. The deterioration in performance is correlated with the expansion of field activities following the global financial crisis and increased engagement of contractors. The Exploration group continues to work closely with contractors to implement critical controls around high risk activities such as drilling.
Performance
A bauxite Order of Magnitude project was initiated at Amargosa in Brazil and is on target for delivery of the resource to the product group at the end of 2011. Resource evaluation continued at the Tamarack nickel-copper prospect in the US and the project will be advanced to a decision point in early 2011. The Altai Nuurs coking coal deposit in Mongolia was identified as a non core asset and has been prepared for divestment.
Target testing at Sanxai in Laos, in joint venture with Mitsui, identified ore grade bauxite mineralisation.
Target generation activities were progressed across a range of commodities and jurisdictions. In Kazakhstan, a memorandum of understanding was signed with state mining company Tau-Ken Samruk to conduct joint venture exploration for copper and other minerals. A similar agreement was signed with Chinalco to jointly explore for copper and other minerals within mainland China.
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In the brownfield environment, Exploration handed over a number of iron ore deposits in the Pilbara, Australia, to the Iron Ore product group. In Utah, US, exploration continues within a three kilometre orbit of the Bingham Canyon Mine. Recent drilling to the east of the mine identified a new but sub-economic copper-molybdenum-gold porphyry system. Drilling at other targets within the Bingham mine orbit is under review. On the Rössing mine lease in Namibia, ore grade uranium intersections were returned at the Z20 prospect.
A research and development milestone was reached with the first test flights of the VK1 airborne gravity gradiometer over a test range in Western Australia. System optimisation is under way in preparation for production flying towards the end of 2011 and commercialisation of the technology.
Gross cash expenditure on exploration and evaluation in 2010 was US$594 million. The increase of US$80 million over 2009 gross expenditure reflects the ramp up of activities in response to the improved market outlook, while remaining below 2008 expenditure of US$1,134 million. Gross expenditures are offset by US$522 million (pre-tax) proceeds from the divestment of exploration properties.
Outlook
The Exploration group expects to explore for a range of commodities across at least 17 countries in 2011 and plans to deliver the Amargosa bauxite Order of Magnitude project to the Rio Tinto Alcan product group at the end of the year. Reinvigorating early stage target generation will continue to be a priority to drive sustained exploration success.
Divestment of Tier 2 assets will continue where real value can be realised, with a target of 50 per cent of the annual greenfield exploration budget being returned to the Group.
The next crop of potential discoveries:
             
Project   Commodity   Country   Stage
 
Amargosa
  Bauxite   Brazil   Order of Magnitude
Sanxai
  Bauxite   Laos   Project of Merit
 


         
Progress of a project
 
       
The evolution of a project from target generation to investment approval, implementation and commissioning involves a series of study stages that can take ten to 20 years. Sustainable development critera are applied throughout the project development cycle.

Early stages of work are broadly termed exploration and are the responsibility of the Exploration group. These stages deliver a progressive increase in confidence in the technical and economic parameters used to determine whether a project satisfies Rio Tinto’s investment criteria.

Target generation and testing involves the progression from concept to demonstration of mineralisation at a prospect. A Project of Merit is defined where mineralisation has been identified
  through drilling to be of a grade and quantity sufficient to be of economic interest by analogy with peer deposits currently in production.

Projects which attract the support of the relevant Rio Tinto product group are progressed to Order of Magnitude Study. This involves an assessment of a range of options to establish economic viability of the project, and determine whether its potential value is sufficient to justify committing significant resources to a detailed study 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 key value drivers. The Feasibility Study sees the focus switch to optimisation and engineering of a single scenario identified through the Pre-feasibility Study. This finally freezes the scope of the project to be constructed.
 
       
Opportunities are tested and screened by several different stages of work
 
       
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Technology & Innovation
A strategic commitment driving competitive 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 increased from 267 at 31 December 2009 to 538 at 31 December 2010 primarily due to an increase of demand for the design and build of major projects on behalf of the Group business units.
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. Starting in 2009, the safety results reflect the inclusion of development projects managed by T&I. The all injury frequency rate for T&I and projects in 2010 is 0.72 compared to 0.87 in 2009.
Performance
Key achievements
The Improving Performance Together (IPT) engagements continue to work with operating sites on operating improvements. In 2010 this collaborative effort delivered in excess of US$1 billion pre-tax cash flow. This was achieved by, for example, assisting in the debottlenecking of the iron ore operations in the Pilbara, through improved equipment availability and concentrator throughput at Kennecott and maintenance cost reduction at Rio Tinto Alcan operations.
The Innovation group achieved several milestones during 2010 including the following:
  Successful movement of 31 million tonnes of iron ore with the Autonomous Haul System fleet demonstrating higher than planned productivity.
 
  First flight of the VK1 airborne gravity instrument.
 
  Deployment of the remote command vehicle, which is capable of managing up to three blast hole drills with one operator in non line of sight mode.
  Accelerated progression of the first tunnel boring machine which will be commissioned at Northparkes mine in early 2012.
 
  Successful trial of an innovative flotation control system at Kennecott Utah Copper demonstrating improved recovery.
The T&I gross cost in 2010 was US$214 million, compared with US$134 million in 2009 and US$158 million in 2008.
Innovation
The Innovation group identifies, evaluates and implements value accretive step change mining technologies with Group wide application.
Some of the Innovation initiatives and programmes included:
  The strategic Mine of the Future™ programme, interlinking projects delivering improvements in productivity, cost, product quality and mining technology.
 
  The Rio Tinto Centre for Underground Mine Construction, which will focus on rapid mine construction, rock mass behaviour controls, and innovative ground support for future Rio Tinto underground mines.
 
  The development of step change technologies to support the safe rapid development of large underground block cave mines.
 
  The development and deployment of autonomous blast hole drilling technologies, currently operating in the Pilbara with potential for Group wide implementation.
 
  The surface Mine of the Future™ programme which focuses on operating the first significantly autonomous iron ore mine by combining autonomous drilling, semi-autonomous blast loading with autonomous trucks, and a wide range of advanced sensing and telecommunications technologies.
Energy & Climate Strategy
The Energy & Climate Strategy team (E&CS) leads the Group’s response to the challenges of climate change and the inter-related topic of energy management. The team engages with the operating businesses, governments and other stakeholders on the design of climate and energy policy, manages the Group’s carbon capture and storage (CCS) and develops internal strategies to evaluate energy supply options, secure energy supply, and to reduce energy usage and greenhouse gas (GHG) emissions.
In addition, E&CS actively supports the development of legislation and regulation through direct engagement with governments and involvement in advocacy groups such as the US Climate Action Partnership.
Mineral Technology Services
The Mineral Technology Services Centre comprises a team of technology professionals deployed from five regional offices in North America, Australia and the UK. The team works with operating sites to deliver substantial increases in value; with project teams to determine the optimum value adding project plan; and with the broader Group to understand and manage major technical risks. The team provides support in the areas of geology, geotechnics, mining, mineral processing, hydrometallurgy, process control, asset management, environment and business analysis.
The Centre is also responsible for implementing IPT processing, a structured methodology designed to increase the value delivered by Rio Tinto’s processing operations. IPT processing includes focused data analysis to understand and address the constraints and variability which inhibit process performance. IPT processing


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continues to generate value across the Group, delivering over US$350 million in pre-tax cash flow benefits in 2010.
Asset Management
The Asset Management Centre concentrates on the effective selection and use of equipment for the Group’s mining and processing operations. Work included the implementation of asset management standards and guidelines, as well as standard business processes and fit for purpose technical operating systems, work practices and global metrics to monitor the performance of fixed plant and heavy mobile equipment.
The Asset Management IPT programme continued to deliver robust results in 2010, supporting business units to realise over US$400 million in pre-tax cash flow benefits.
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. The Centre also oversees the Group’s resource and reserves estimation and reporting process, reserves and resources audit process and core technical systems. IPT mining initiatives in 2010 included payload management, drill and blast and off road tyre demand reduction. The IPT programme for mining technology continued to deliver strong results in 2010 and assisted business units in realising over US$180 million in pre-tax cash flow benefits.
The Mining Technology Centre also includes a Strategic Production Planning (SPP) team, which focuses on developing and establishing leading practice. SPP teams co-operate with business units to develop comprehensive plans and valuations of strategic resource development options. Results from SPP provide a logical resource development framework for more detailed studies and investment decision making. SPP engagements completed during the year increased the life of mine valuation of a number of existing mining businesses and supported expansion based investment proposals.
Project Development & Implementation
The Project Development & Implementation Centre (PDI) provides guidance, support and training for all aspects of capital projects, performs a governance function by conducting project reviews, manages feasibility studies, and executes capital projects on behalf of the business units. During 2010 PDI commenced resourcing for, and implementation of, a global operating model in preparation for implementation of projects in nearly all continents and on behalf of all product groups. The model provides for a Project Management support function as well as Implementation Hubs focused on supporting the product groups. In 2010 it was responsible for the progression of the Argyle Diamonds underground project, Kestrel mine extension, Yarwun 2 project, the feasibility study for the Energy Resources of Australia heap leach project and the Eagle nickel project in Michigan. PDI also provided support and advice to most other major projects in a year when the Group recommenced or accelerated projects that were suspended during 2008 and 2009. Additionally, the operation of the Clermont coal mine project was successfully handed over to Rio Tinto Coal Australia. During 2010, the Centre continued to make improvements in overall safety performance at these projects.
Technical Evaluation Group
The Technical Evaluation Group (TEG) ensures that Rio Tinto’s investment decisions are based on independent, technical review and evaluation. TEG also provides advice on the adequacy of risk identification and management at key points in the project approvals process.
Outlook
In 2011 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. It 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. T&I will also focus on delivering improvements in the Group’s energy efficiency, long term business decarbonisation options, compliance processes and performance, and carbon markets participation. T&I will look to significantly increase staff levels as the business environment continues to improve and the need for highly skilled technical employees increases.


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Financial review
 

2010 financial performance compared with 2009
In order to provide additional insight into the performance of its business, Rio Tinto presents underlying earnings.
2010 underlying earnings of US$13,987 million and net earnings of US$14,324 million were US$7,689 million above and US$9,452 million above the comparable measures for 2009. The principal factors explaining the movements are set out in the table below.
                         
            Underlying     Net  
            earnings     earnings  
Changes from 2009 to 2010           US$m     US$m  
 
2009
            6,298       4,872  
Prices
    9,505                  
Exchange rates
    (1,171 )                
Volumes
    782                  
General inflation
    (253 )                
Energy
    (232 )                
Other cash costs
    (445 )                
Exploration and evaluation costs
(including disposals of undeveloped
   properties)
    (690 )                
Interest, tax, other
    193                  
 
                     
 
        7,689     7,689  
Gain on consolidation of
   Oyu Tolgoi LLC
                    531  
Profits less losses on disposal of
                    (325 )
interests in business
                       
Net impairment charges
                    716  
Exchange differences and derivatives
                    401  
Chinalco break fee
                    182  
Restructuring costs from global
   headcount reduction
                    231  
Other
                    27  
 
2010
            13,987       14,324  
 
(a)   See note 2 on page 182 of the 2010 financial statements for a reconciliation of underlying earnings to net earnings.
Prices
The effect of price movements on all major commodities in 2010 was to increase underlying earnings by US$9,505 million compared with 2009. Average annual prices improved for nearly all of Rio Tinto’s major commodities: copper prices were up 47 per cent, molybdenum prices were up 45 per cent, gold prices were up 26 per cent and aluminium prices were 31 per cent higher than 2009. Demand and prices for diamonds and minerals improved significantly as the worldwide economy emerged from the global financial recession.
Commodity prices and other drivers of sales revenue of individual product groups are discussed further in this section on pages 69 to 71.
Exchange rates
There was significant movement in the US dollar in 2010 relative to the currencies in which Rio Tinto incurs the majority of its costs. Compared with 2009, on average, the US dollar weakened by 16
per cent against the Australian dollar and by ten per cent against the Canadian dollar. The effect of all currency movements was to decrease underlying earnings relative to 2009 by US$1,171 million.
Volumes
Higher sales volumes were primarily generated from the expanded iron ore operations in the Pilbara region of Western Australia running at above nameplate capacity and an increased proportion of higher margin pellet sales at IOC. The Aluminium group benefited from higher sales of value added aluminium products. Increased volumes of hard coking coal following new investment in heavy mobile equipment at the Queensland mines, higher refined gold and molybdenum at Kennecott Utah Copper and a significant recovery in diamonds and minerals market demand also contributed to the positive variance. These increases offset lower copper and gold volumes at Grasberg which were impacted by lower ore grades and lower mill throughput. The overall impact of volume movements was an increase in underlying earnings of US$782 million relative to 2009.
Energy, other cash costs and exploration
Higher energy costs across the Group, in particular for Aluminium, reduced underlying earnings by US$232 million. This primarily reflected low snow and rain levels in the Saguenay region of Quebec during the first half of 2010 which led to reduced power generation, resulting in the need to purchase additional power under a specially negotiated power block from the provincial utility over a 12 month period.
Higher other cash costs during 2010 decreased underlying earnings by US$445 million compared with 2009. Higher unit cash costs in the Copper group were the result of the planned smelter shutdown and lower copper production following lower grades at most of the operations. Adverse weather conditions and higher stripping rates impacted costs at the Energy group. These were partly offset by lower costs in the Aluminium group, which benefited from lower prices for caustic, pitch and coke.
In 2010, evaluation work accelerated at many of the Group’s projects including the Resolution and La Granja copper projects and the Simandou iron ore project. Two undeveloped coal properties were divested in 2010 resulting in a US$229 million gain on disposal, compared with a gain of US$797 million in 2009 from the disposal of two undeveloped potash properties. The impact from higher exploration and evaluation expenditure combined with lower gains realised from divestments was to lower underlying earnings by US$690 million compared with 2009.
Interest, tax, other
The effective corporate income tax rate on underlying earnings, excluding equity accounted units, was 27.9 per cent compared with 24.8 per cent in 2009. A significant proportion of the increase 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$110 million lower than in 2009, mainly reflecting lower debt in 2010 following completion of the rights issues and divestments.


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2009 financial performance compared with 2008
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 below.
                         
            Underlying     Net  
            earnings     earnings  
Changes from 2008 to 2009           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 )                
 
                     
Total changes in underlying earnings
        (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  
 
(a)   See note 2 on page 182 of the 2010 financial statements for a reconciliation of underlying earnings to net earnings.
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.
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 cutbacks at Rio Tinto Alcan, Alcan Engineered Products, Rio Tinto Diamonds, Rio Tinto Iron &
Titanium and Rio Tinto 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 spend 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, a US$797 million gain on disposal of the undeveloped potash properties in Argentina and Canada was recognised within underlying earnings. This forms part of the exploration variance in the table above net of the US$483 million gain on disposal of the undeveloped Kintyre uranium project in 2008.
Interest, tax, other
The effective tax rate on underlying earnings, excluding equity accounted units, was 24.8 per cent compared with 31.6 per cent in 2008. The decrease largely related to the one-off non taxable profit on disposal of the potash assets which was recognised in 2009, and by an increase in foreign currency exchange losses arising from revaluation of tax bases for Canadian companies with US$ functional currencies. The Group interest charge was US$446 million lower than in 2008, mainly reflecting a decline in interest rates, and lower debt in 2009 following completion of the rights issues.


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Financial review continued
 

Exclusions from underlying earnings 2008–2010
Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are summarised in the discussion of year on year results below.
                         
    2010     2009     2008  
    US$m     US$m     US$m  
 
Gain on consolidation of
                       
   Oyu Tolgoi LLC
    531              
Profit less losses on disposal of
   interest in business
    174       499       1,470  
Net impairment charges(a)
    (836 )     (1,552 )     (8,406 )
Exchange differences and gains/
   (losses) on derivatives
    429       28       843  
Chinalco break fee(b)
          (182 )      
Restructuring/severance costs from
   global headcount reduction
          (231 )     (57 )
Other exclusions
    39       12       (477 )
 
Total excluded in arriving at
underlying earnings
    337       (1,426 )     (6,627 )
 
(a)   Net impairment charges include impairment charges of US$739 million (2009: US$1,103 million; 2008: US$7,579 million) and loss after tax of discontinued operations of US$97 million (2009: US$449 million; 2008: US$827 million).
 
(b)   The Chinalco break fee was US$195 million pre-tax.
2010
Rio Tinto consolidated Oyu Tolgoi LLC on 15 December 2010 following the signing of a new agreement with Ivanhoe Mines. The US$531 million gain arising on consolidation represents the excess of the provisional fair value ascribed to the Group’s indirect share of the assets and liabilities of Oyu Tolgoi LLC over the historic cost of acquiring that share through its investment in Ivanhoe Mines.
Profits on the disposal of businesses in 2010 relate primarily to the sale of the Group’s remaining 48 per cent interest in Cloud Peak Energy Inc.
The 2010 impairment charge of US$739 million related mainly to the Alcan Engineered Products businesses. On 5 August 2010 the Group received a binding offer for the sale of 61 per cent of Alcan Engineered Products, excluding the Cable division, to certain investment funds affiliated with Apollo Global Management, LLC (Apollo) and the Fonds Stratégique d’Investissement. The divestment was completed on 4 January 2011. The terms of the transaction are confidential. Following completion, Rio Tinto holds a 39 per cent stake and will treat its interest as an equity accounted unit.
Loss after tax from discontinued operations of US$97 million (inclusive of divestment costs) relates to the completion of the disposal of Alcan Packaging global Pharmaceuticals, global Tobacco, Food Europe and Food Asia divisions to Amcor on 1 February 2010, and the Alcan Packaging Food Americas division to Bemis Company Inc. on 1 March 2010.
2009
In 2009, the Group completed the divestments of its interests in the Ningxia aluminium smelter, the Corumba 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 were excluded from underlying earnings as divestments of interests in businesses are considered to be outside the underlying activities of the Group.
Of the Group’s total post-tax impairment charge of US$1,103 million, US$500 million related to Alcan Engineered Products, US$212 million related to the Group’s aluminium businesses and US$348 million related to the Group’s diamond businesses.
An impairment of US$318 million relating to the Alcan Packaging businesses was recognised during the year, and was included within “loss after tax of discontinued operations”.
All impairments were measured based upon an assessment of fair value less costs to sell. These impairments were 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 was excluded from underlying earnings.
During 2009, the Group incurred restructuring and severance costs of US$231 million associated with its global headcount reduction programme.
2008
Profit on disposal related to the disposal of the interests in the Cortez gold mine and the Greens Creek silver/zinc/lead mine. During 2008 the Group incurred advisory and other costs related to the rejection by the board of the pre-conditional takeover proposal from BHP Billiton which was withdrawn in November. These costs totalled US$270 million (net of tax) in 2008 and were excluded from underlying earnings. Other charges excluded from underlying earnings comprised costs relating to non recurring acquisitions, disposals and similar corporate projects.
The Group’s total post-tax impairment charge of US$7,579 million related mainly to the Group’s aluminium businesses: US$6,127 million, and Engineered Products: US$980 million. The acquisition price of Alcan anticipated significant growth in smelter and refinery capacity, but following the significant weakening in economic and market circumstances during 2008, many of these growth projects were deferred. These deferrals, together with the weak economic environment and increases in input costs, resulted in the impairment charge.
In measuring the amount of the impairment, the Group compared the carrying value of the upstream aluminium business with its value in use, assessed using discounted cash flow techniques. This followed the requirements of accounting standards as, in the Group’s view, the upstream aluminium business’ fair value less cost to sell was lower than its value in use. For the purposes of the annual goodwill impairment test, goodwill was allocated to a group of cash generating units that included both Alcan and the aluminium activities previously owned by Rio Tinto which were managed as a single business following the acquisition.
The impairment charge did not trigger the covenant under the Alcan acquisition facilities, which required that the ratio of net debt to underlying EBITDA be no greater than 4.5 times.
An impairment of discontinued operations of US$827 million relating to Packaging was recognised outside of underlying earnings. As required by IFRS 5 — Non-current Assets Held-for-Sale and Discontinued Operations, the amount of this impairment was determined by reference to the Group’s best estimate of expected proceeds to be realised on the sale of Packaging, less an estimate of remaining costs to sell. The Packaging business was valued based upon an assessment of its fair value, required because this business was presented as an Asset Held for Sale in the Group balance sheet. Engineered Products was also valued based upon an assessment of its fair value, as the Group’s intention was to sell this group of businesses.


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Exchange differences and gains/(losses) on derivatives of US$843 million related to a gain of US$1.9 billion on Australian dollar intragroup liabilities, held by Group entities with a US dollar functional currency offset by a loss of US$1.7 billion on external US dollar debt held by an entity with an Australian dollar functional currency. The weakening of the Australian dollar against the US dollar, particularly towards the end of 2008, led to these significant movements. The tax on exchange gains and losses included a benefit of US$254 million through recovery of tax relating to the prior years. It also included tax relief for losses on US dollar denominated debt. The pre-tax loss was offset by gains on intragroup balances which were largely not subject to tax.
Net earnings and underlying earnings
Both net earnings and underlying earnings deal with amounts attributable to the owners of Rio Tinto. However, IFRS requires that the profit for the period reported in the income statement should also include earnings attributable to non-controlling interests in subsidiaries. The profit for the period is reconciled to net earnings and to underlying earnings as follows:
                         
    2010     2009     2008  
    US$m     US$m     US$m  
 
Profit from continuing operations
    15,281       5,784       5,436  
Loss after tax from discontinued
   operations
    (97 )     (449 )     (827 )
 
Profit for the year
    15,184       5,335       4,609  
Less: attributable to non-controlling interest
    (860 )     (463 )     (933 )
 
Attributable to owners of Rio Tinto
   (net earnings)
    14,324       4,872       3,676  
Exclusions from underlying earnings
    (337 )     1,426       6,627  
 
Underlying earnings attributable to
   owners of Rio Tinto
    13,987       6,298       10,303  
 
Group financial results by product group 2008-2010
                         
    2010     2009     2008  
    US$m     US$m     US$m  
 
Iron Ore
    10,189       4,126       6,017  
Aluminium
    773       (560 )     1,281  
Copper
    2,534       1,878       1,615  
Energy
    1,187       1,167       2,432  
Diamonds & Minerals
    328       800       474  
Other operations
    71       71       13  
Inter-segment transactions
    (15 )     (28 )     25  
Other items
    (554 )     (577 )     (391 )
Exploration and evaluation
    (52 )     5       (133 )
Net interest
    (474 )     (584 )     (1,030 )
 
Group underlying earnings
    13,987       6,298       10,303  
Exclusions from underlying earnings
    337       (1,426 )     (6,627 )
 
Net earnings
    14,324       4,872       3,676  
 
Sales revenue
Prices
                                       
                2010     2009     2008  
Commodity   Source   Unit     US$     US$     US$  
 
Average prices
                                   
Aluminium
  LME (a)   Tonne     2,173       1,665       2,572  
Copper
  LME   Pound     3.40       2.32       3.20  
Gold
  LBMA   Ounce     1,222       970       872  
Iron ore
  Australian   dmtu  (b)   1.84       1.09       1.29  
 
  fines                                
Molybdenum
  Metals Week:   Pound     16       11       31  
 
  quote for                                
 
  dealer oxide                                
 
  price                                
 
Closing prices (quoted commodities only)
Aluminium
      Tonne     2,459       2,207       1,454  
Copper
      Pound     4.44       3.33       1.32  
Gold
      Ounce     1,410       1,104       865  
Molybdenum
      Pound     16       11       10  
 
(a)   LME cash price
(b)   Dry metric tonne unit
The above table shows published prices for Rio Tinto’s commodities for the last three years where these are publicly available, and where there is a reasonable degree of correlation between the published prices and Rio Tinto’s realised prices. The prices set out in the table are the averages for each of the calendar years, 2008, 2009 and 2010.
The Group’s sales revenue will not necessarily move in line with these published prices for a number of reasons which are discussed below.
The discussion of revenues below relates to the Group’s gross revenue from sales of commodities, including its share of the revenue of equity accounted units (after adjusting for sales to subsidiaries), as included in the financial information by business unit.
Iron Ore
2010 sales revenue compared with 2009
Gross sales revenue for the Iron Ore group increased by 91 per cent in 2010 compared to 2009 driven by strong prices and a nine per cent increase in production. During 2010, iron ore pricing moved to quarterly contracts, reflecting the structural shift away from annual benchmark pricing. First quarter iron ore prices (from 1 January 2011) are based on the average indexed price from 1 September to 30 November 2010. Sales volumes increased in response to growing demand in major markets stimulated by improving economic conditions and delays in capacity from other suppliers.
2009 sales revenue compared with 2008
The sales revenues of the Iron Ore group decreased by 24 per cent in 2009 compared with 2008. During 2009, Rio Tinto settled 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, sales were primarily priced on a benchmark or its equivalent provisional basis.


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Financial review continued
 

Aluminium
2010 sales revenue compared with 2009
The Aluminium group’s sales revenues are from aluminium and related products such as alumina and bauxite. Gross sales revenue in 2010 for the Aluminium group increased by 26 per cent compared to 2009. The 2010 spot aluminium price averaged US$2,173 per tonne, an increase of 31 per cent on 2009. This increase reflects the combination of a robust recovery in end use demand in developed economies and the continued roll over of inventory financing positions amidst a prolonged period of low interest rates.
2009 sales revenue compared with 2008
The 2009 sales revenues of the Aluminium group decreased by 34 per cent against 2008. The average aluminium market price in 2009 was US$1,665 per tonne compared with US$2,572 per tonne in 2008. The decline in LME prices that commenced in mid 2008 continued into 2009, with some improvement in the second half of 2009, resulting in a year-end price of US$2,207 per tonne.
Energy
2010 sales revenue compared with 2009
A significant proportion of Rio Tinto’s coal production is sold under long term contracts. In Australia, the prices applying to sales under the long term contracts are generally renegotiated annually; but prices are fixed at different times of the year and on a variety of bases. For these reasons, average realised prices will not necessarily reflect the movements in any of the publicly quoted prices. Moreover, there are significant product specification differences between mines. Sales volumes will vary during the year and the timing of shipments will also result in differences between average realised prices and published prices.
Gross sales revenue for the Energy group increased by 16 per cent in 2010. Overall average coal prices were lower than in 2009 due to the absence of higher carry over prices from 2008. 2010 saw continuing strength in the seaborne market for Australian coal. Demand for thermal coal continued to be robust from South Korea, India, Taiwan and China. Global steel demand improved in all markets in the first half of the year and led to strong demand for semi-soft coking coal. The market for premium quality hard coking coal remained steady in 2010.
Uranium spot markets were relatively weak early in 2010 but strengthened in the second half of the year, mainly driven by strong demand from China. Long term prices have remained consistent with some small increases in the latter part of the year.
2009 sales revenue compared with 2008
Sales revenues for the Energy group decreased by 16 per cent in 2009 compared with 2008 due to lower realised Australian coal prices, partially offset by an increase in the US thermal coal price. 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 led to strong demand for coking and semi-soft coking coal. Hard
coking coal production from the Group’s Australian operations was comparable with 2008. Thermal coal contracts for the 2009 fiscal year (12 months commencing 1 April 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 the 2009 fiscal year were settled in the US$115-130 per tonne range, a decline of approximately 60 per cent on the record levels of the 2008 fiscal year.
Copper
2010 sales revenue compared with 2009
The Copper group also produces gold and molybdenum as significant by-products. Gross sales revenue for the Copper group increased by 25 per cent in 2010 compared to 2009. The Copper group benefited from higher average prices for its major products in 2010. Copper increased 47 per cent to 340 cents per pound, gold increased 26 per cent to US$1,222 per ounce and molybdenum increased 45 per cent to US$16 per pound. The benefit from higher prices in 2010 was partly offset by lower volumes, notably from Grasberg and higher unit cash costs in line with reduced production from lower grades.
At the end of 2010, the group had an estimated 270 million pounds of copper sales that were provisionally priced at US 428 cents per pound. The final price of these sales will be determined during the first half of 2011.
2009 sales revenue compared with 2008
The 2009 average copper price of 232 US cents per pound was 28 per cent below the 2008 average price. The 2009 gold price averaged US$970 per ounce, an increase of 11 per cent on the prior year, whilst the average molybdenum price was US$11 per pound, a decrease of 65 per cent compared with 2008.
Sales revenues for the Copper group in 2009 increased by eight per cent compared with 2008. The effect of provisional pricing of copper sales resulted in a benefit to underlying earnings of US$213 million in 2009, compared to a charge of US$207 million in 2008. At the end of 2009 the Group had 267 million pounds of copper sales that were provisionally priced at 335 US cents per pound. This compared with 183 million pounds of open shipments at 31 December 2008 provisionally priced at 133 US cents per pound.
Diamonds & Minerals
2010 sales revenue compared with 2009
Diamond prices realised by Rio Tinto depend on the size and quality of diamonds in the product mix. Gross sales revenue increased by 16 per cent in 2010 compared to 2009. Sustained demand from emerging markets, which largely offset the slower recovery from the established markets of the US and Europe was reflected in higher prices and increased sales volumes for the Diamonds & Minerals group.
Rough diamond prices demonstrated a robust recovery throughout 2010 as demand from emerging markets, notably India and China, accelerated. Demand for titanium dioxide feedstocks, talc and borates in 2010 continued to demonstrate a healthy recovery in line with improving global economic conditions.


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2009 sales revenue compared with 2008
Revenue from Diamond sales in 2009 decreased by 46 per cent compared with 2008, primarily due to the global economic slowdown, as demand for luxury items decreased. However, there was an improvement in prices for rough diamonds in the latter half of 2009.
Sales revenue for Minerals in 2009 decreased by 27 per cent compared with 2008, due to a decline in demand resulting from the global economic crisis. Prices applying to industrial minerals are generally negotiated with individual customers, based on a variety of factors such as product specification, volumes, etc. Therefore, average realised prices will not necessarily reflect the movements in any publicly quoted prices.
Cash flow
2010 compared with 2009
A full consolidated cash flow statement is contained in the 2010 financial statements. Cash flows from operations, including dividends from equity accounted units, were US$23.5 billion, 70 per cent higher than 2009, primarily as a consequence of higher prices.
Tax paid for 2010 increased to US$4,100 million, US$1,024 million higher than 2009 largely due to the increase in taxable profits. Net interest paid of US$696 million for 2010 was US$440 million lower than 2009, largely due to lower amounts of debt, following a US$8.5 billion repayment of Alcan acquisition facility D at the beginning of the year.
Purchase of property, plant and equipment and intangible assets was US$4.6 billion in 2010, a decrease of US$0.8 billion from 2009. This included the Brockman 4 iron ore mine development in Western Australia, the expansion of the Yarwun alumina refinery, the commissioning of the Clermont thermal coal mine and the extension and expansion of the Kestrel coking coal mine.
Net cash proceeds from disposals and acquisitions in 2010 were US$2,893 million, and related to the disposal of Alcan Packaging businesses and the remainder of Cloud Peak Energy Inc.; partly offset by the payments to acquire an additional 20.62 per cent in Ivanhoe Mines.
Dividends paid in 2010 of US$1.8 billion compared with US$0.9 billion in 2009 reflected the suspension of the 2009 interim dividend.
2009 compared with 2008
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 in 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, expansion of the Yarwun alumina refinery, construction of the Clermont thermal coal mine, expansion of the Kestrel coking coal mine, development of the underground diamond mines at Diavik
and Argyle, and 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, together with proceeds from the initial public offering of Cloud Peak Energy Inc. and related transactions, partly offset by payments 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 suspension of the interim dividend. Other financing cash flows in 2009 included the net proceeds from rights issues of US$14.8 billion, and net repayments of borrowings of US$16.4 billion compared with US$8.0 billion in 2008.
Statement of financial position
Net debt decreased to US$4.3 billion from US$18.9 billion at 31 December 2009 following the receipt of proceeds from the divestment programme and strong operating cash flows. Net debt to total capital was six per cent at 31 December 2010 and interest cover was 27 times.
Rio Tinto consolidated Oyu Tolgoi LLC on 15 December 2010 following the signing of a new agreement with Ivanhoe Mines. 100 per cent of Oyu Tolgoi LLC’s identifiable assets and liabilities have been recognised in the statement of financial position at fair values estimated with the assistance of an independent third party valuer, together with goodwill. The historic cost of acquiring the Group’s indirect share of Oyu Tolgoi LLC through its investment in Ivanhoe Mines was deducted from Investments in equity accounted units. The Group’s remaining interest in the assets of Ivanhoe that does not relate to Oyu Tolgoi LLC continues to be equity accounted. The transaction generated a non cash gain of US$531 million.
Due to the complexity of the valuation process, and the proximity of the date on which the agreement was signed to the reporting date, fair values on consolidation are provisional and will be subject to further review during the 12 months from the date on which the agreement was effective.
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 2010 financial statements.
The Group’s 2010 Annual report and financial statements shows 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 25 to 28. The effectiveness of internal control procedures continues to be a high priority in the Rio Tinto Group. The board’s statement on internal control is set out on page 125.
Capital management and dividends

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


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Financial review continued
 

Total capital
                 
    2010     2009  
    US$m     US$m  
 
Equity attributable to owners of Rio Tinto
    58,333       43,831  
Equity attributable to non-controlling
interests
    6,941       2,094  
Net debt (note 24)
    4,284       18,861  
Total capital
    69,558       64,786  
 
The Group’s overriding objectives when managing capital are to safeguard the business as a going concern; to maximise returns for shareholders and benefits for other stakeholders; and to maintain an optimal capital structure in order to provide a high degree of financial flexibility at the lowest cost of capital. A key objective of the Group is to achieve and maintain a single A credit rating. The board and senior management regularly review the capital structure of the Group taking account of strategic priorities and conditions within which the Group operates.
The Group’s capital management objectives allow it to selectively invest at all points of the commodities cycle, both in the Group’s own existing growth projects, and other opportunities that may arise, whilst providing a shareholder return.
Net debt reduced from US$18.9 billion to US$4.3 billion at 31 December 2010 following strong cash flows from operations, and the debt maturity profile was improved in October 2010 by raising US$2 billion in bonds with five, ten and 30 year maturities. The proceeds were used in a successful tender for US$1.9 billion of bonds due in 2013.
Net debt at 31 December 2010 was made up principally from borrowings of US$14.3 billion, offset by US$9.9 billion in cash and cash equivalents. The proportion of net debt to total capital stood at 6.2 per cent at 31 December 2010 compared with 29.1 per cent at 31 December 2009. In February 2011, as part of the Group’s capital management programme, a share buy-back of US$5 billion was announced which, subject to market conditions, is planned to be completed by the end of 2012.
Rio Tinto has a progressive dividend policy which aims to increase the US dollar value of ordinary dividends over time, taking into account the results for the past year and the outlook. Under the dividend policy, the interim dividend is set at one half of the total ordinary dividend for the previous year and the final ordinary dividend is expected to be at least equal to the previous interim dividend.
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. Details relating to the payment of dividends in sterling, Australian dollars and other currencies and on the payment of dividends to holders of American Depositary Receipts (ADRs) are included in the shareholder information on page 262.
The Group’s major capital projects are listed on pages 76 to 77.
Liquidity and capital resources
Details of our Liquidity and Capital risk management are contained within note 33 “Financial risk management”, part (v), to the 2010 financial statements.
We expect that contractual commitments for expenditure, together with other expenditure and liquidity requirements will be met from internal cash flow and, to the extent necessary, from the existing facilities described in note 33 “Financial risk management”, part (v), to the 2010 financial statements.
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 2010 financial statements.
Foreign exchange
The following sensitivities give the estimated effect on underlying earnings assuming that each exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. Where the functional currency of an operation is that of a country for which production of commodities is an important feature of the economy, such as the Australian dollar, there is a certain degree of natural protection against cyclical fluctuations, in that the currency tends to be weak, reducing costs in US dollar terms, when commodity prices are low, and vice versa.
Earnings sensitivities – exchange rates
                 
          Effect on net and underlying  
    Average exchange     earnings of 10% change in  
    rate for 2010     full year average  
    US cents     +/- US$m  
 
Australian dollar
    92       604  
Canadian dollar
    97       194  
Euro
    133       29  
Chilean peso
  US$1 = 510 pesos       23  
New Zealand dollar
    72       19  
South African rand
    14       54  
UK sterling
    155       18  
 
The exchange rate sensitivities quoted above include the effect on operating costs of movements in exchange rates but exclude the effect of the revaluation of foreign currency financial assets and liabilities. They should therefore be used with care.
Further 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 2010 financial statements.
Interest rates
Details of our exposure to interest rate fluctuations are contained within note 33 “Financial risk management”, part (ii), to the 2010 financial statements.


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Commodity prices
The approximate effect on the Group’s underlying and net earnings of a ten per cent change from the full year average market price in 2010 for the following products would be:
Earnings sensitivities – commodity prices
                                
                  Effect on underlying  
            Average market     and net earnings of 10%  
            price for 2010     change in full year average  
    Unit   US$     +/- US$m  
 
Copper
  Pound     3.40       349  
Aluminium
  Tonne     2,173       650  
Gold
  Ounce     1,222       73  
Molybdenum
  Pound     16       31  
Iron ore
  dmtu           1,343  
Thermal and
coking coal
  Tonne           207  
 
The sensitivities give the estimated impact on net earnings of changes in prices assuming that all other variables remain constant. These should be used with care. As noted previously, the relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa.
Further details of our exposure to commodity price fluctuations are contained within note 33 “Financial risk management”, part (iii), to the 2010 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 2010 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 2010 financial statements and on page 226.
Critical accounting policies and estimates
Many of the amounts included in the financial statements involve the use of judgment and/or estimation. These judgments and estimates are based on management’s best knowledge of the
relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements.
Information about such judgments and estimation is contained in note 1 “Principal accounting policies” to the 2010 financial statements, and/or the other notes to the 2010 financial statements. The key areas are listed 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
Off balance sheet arrangements and
contractual commitments
The table below presents information in relation to our material off balance sheet arrangements, principally contingent liabilities, commitments for capital expenditure and other expenditure, and commitments under operating leases at 31 December 2010. Information regarding the Group’s pension commitments and funding arrangements is provided in note 50 to the 2010 financial statements. Information regarding the Group’s closedown and restoration obligations is provided in note 27 to the 2010 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.


                                         
    < 1 yr     1 – 3 yrs     3 – 5 yrs     > 5 yrs     Total  
At 31 December 2010   US$m     US$m     US$m     US$m     US$m  
 
Expenditure commitments in relation to:
                                       
Operating leases
    507       854       561       1,107       3,029  
Other (capital commitments)
    5,219       2,264       90             7,573  
 
 
    5,726       3,118       651       1,107       10,602  
 
Long-term debt and other financial obligations:
                                       
Debt
    1,066       1,789       3,570       7,783       14,208  
Interest payments
    705       1,472       1,136       4,166       7,479  
Unconditional purchase obligations
    2,295       2,934       2,515       10,156       17,900  
Other
    297       400       35       48       780  
 
 
    4,363       6,595       7,256       22,153       40,367  
 
Total
    10,089       9,713       7,907       23,260       50,969  
 


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Five year review
 

Selected financial data
The selected consolidated financial data below has been derived from the historical audited consolidated financial statements of the Rio Tinto Group. The selected consolidated financial data should be read in conjunction with, and qualified in their entirety by reference to, the 2010 financial statements and notes thereto. The financial statements as included on pages 157 to 256 have been prepared in accordance with International Financial Reporting Standards both as adopted by the EU (“EU IFRS”) and as issued by the International Accounting Standards Board (“IFRS”).
Rio Tinto Group
Income statement data
                                         
For the years ending 31 December   2010     2009     2008     2007     2006  
Amounts in accordance with IFRS   US$m     US$m     US$m     US$m     US$m  
     
Consolidated sales revenue
    56,576       41,825       54,264       29,700       22,465  
Group operating profit (a)
    19,694       7,506       10,194       8,571       8,974  
 
                                       
Profit for the year from continuing operations
    15,281       5,784       5,436       7,746       7,867  
Loss after tax from discontinued operations
    (97 )     (449 )     (827 )            
     
Profit for the year
    15,184       5,335       4,609       7,746       7,867  
 
                                       
Basic earnings per share (b)
                                       
Profit from continuing operations (US cents)
    735.4       301.7       286.8       464.9       456.2  
Loss after tax from discontinued operations (US cents)
    (4.9 )     (25.5 )     (52.7 )            
     
Profit for the year per share (US cents)
    730.5       276.2       234.1       464.9       456.2  
 
                                       
Diluted earnings per share (b)
                                       
Profit from continuing operations (US cents)
    731.1       300.7       285.5       462.9       454.3  
Loss after tax from discontinued operations (US cents)
    (4.9 )     (25.4 )     (52.4 )            
     
Profit for the year per share (US cents)
    726.2       275.3       233.1       462.9       454.3  
     
 
                                       
Dividends per share
    2010       2009       2008       2007       2006  
     
Dividends declared during the year (b)
                                       
US cents
                                       
– interim
    45.0             55.6       42.5       32.7  
– final
    63.0       45.0       55.6       68.7       52.3  
UK pence
                                       
– interim
    28.2             29.6       20.9       17.5  
– final
    39.1       28.8       37.9       35.3       26.7  
Australian cents
                                       
– interim
    49.3             63.3       49.6       42.9  
– final
    61.9       51.6       83.0       76.1       67.8  
 
                                       
Dividends paid during the year (US cents) (b)
                                       
– ordinary and special
    90.0       55.6       124.3       94.8       156.7  
 
                                       
Weighted average number of shares – basic (millions) (b)
    1,961.0       1,763.6       1,570.1       1,572.9       1,630.5  
Weighted average number of shares – diluted (millions) (b)
    1,972.6       1,769.6       1,577.3       1,579.6       1,637.1  
     
Statement of financial position
 
                            Restated  (c)      
As at 31 December   2010     2009     2008     2007     2006  
Amounts in accordance with IFRS   US$m     US$m     US$m     US$m     US$m  
     
Total assets
    112,402       97,236       89,616       101,091       34,494  
Share capital/premium
    10,105       9,344       5,826       3,323       3,190  
Total equity/net assets
    65,274       45,925       22,461       26,293       19,385  
     
Equity attributable to owners of Rio Tinto
    58,333       43,831       20,638       24,772       18,232  
     
(a)   Group operating profit under IFRS includes the effects of charges and reversals resulting from impairments and profit and loss on disposals of interests in businesses. Group operating profit amounts shown above exclude equity accounted operations, finance items, tax and discontinued operations.
 
(b)   The rights issues completed in July 2009 were at a discount to the then market price. Accordingly, earnings per share and dividends per share for all periods up to the date on which the shares were issued were adjusted for the bonus element of the issue. The bonus factor for Rio Tinto plc was 1.2105 and for Rio Tinto Limited was 1.2679.
 
(c)   The 31 December 2007 balance sheet has been restated for the revisions to Alcan’s fair value accounting which were finalised in 2008.


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Acquisitions and divestments

 
During 2010 Rio Tinto acquired an additional interest in Ivanhoe Mines and completed asset sales totalling US$4.2 billion. Since 2008, Rio Tinto has completed divestments in excess of US$11 billion.
Acquisitions
             
Asset   Cost US$m     Status
 
Acquired in 2011
           
 
Copper – Ivanhoe Mines
    751     Participation in the strategic rights offering and purchase of additional shares increasing the Group’s holding to 42.1%
 
 
           
Acquired in 2010
           
 
Copper – Ivanhoe Mines
    1,588     Purchases of additional shares, maturing of convertible debt facility and exercise of Series A and B warrants increasing the Group’s holding to 40.3% as at 31 December 2010. Rio Tinto consolidated Oyu Tolgoi LLC on 15 December 2010 following the signing of a new agreement with Ivanhoe Mines.
 
 
           
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
         
 
Divestments
 
Asset   Proceeds US$m     Status
 
Divested in 2011
           
 
Alcan Engineered Products
  Undisclosed     Sold 61 per cent to investment funds affiliated with Apollo Global Management, LLC (Apollo) and the Fonds Stratégique d’Investissement (FSI)
 
 
           
Divested in 2010
           
 
Energy – Cloud Peak
    573     Secondary public offering
 
Alcan Packaging – Beauty
  Undisclosed     Sold to Sun European Partners LLP
 
Alcan Packaging – Medical Flexibles
    66     Sold to Amcor
 
Alcan Packaging – Food Americas
    1,200     Sold to Bemis Company Inc.
 
Energy – Maules Creek (Rio Tinto: 75.7%)
    427     Sold to Aston Resources
 
Energy – Vickery (Rio Tinto: 75.7%)
    28     Sold to Whitehaven Coal
 
Alcan Packaging – global Pharmaceuticals,
           
global Tobacco, Food Europe and Food Asia
    1,948     Sold to Amcor
 
Sundry asset sales
    57     Sale of assets including Ghana Bauxite Company, Brockville Specialty Alumina Plant and Rawhide Mine
 
 
           
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
          Sold to Barrick Gold, the Group’s majority partner, for cash plus a deferred
(Rio Tinto: 40%)
    1,695     bonus payment and contingent royalty interest
 
Exploration – sundry assets
    134     Sold to multiple parties
 


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Capital projects
 

Capital and major evaluation projects
               
    Approved capital    
Project   cost (100%) US$   Status/milestones
 
Ongoing
       
 
Alumina – expansion of Yarwun alumina refinery
from 1.4 million tonnes per year (mtpa) to 3.4mtpa.
  1.9bn   Approved in July 2007, the co-generation plant was commissioned in September 2010 and the ship unloader was commissioned in November 2010. Completion is expected in August 2012.
 
Aluminium – construction of a new 225MW turbine at Shipshaw power station, Saguenay, Quebec, Canada.
  228m   Approved in 2008, the project remains on budget and on track to be completed by December 2012.
 
Coking coal – extension and expansion of Kestrel mine (Rio Tinto share 80%).
  1.1bn   The investment will extend the life of the mine to 2031 and increase production to an average of 5.7mtpa (million tonnes per annum). Extension expected to come on stream in late 2012/early 2013.
 
Copper – construction of phase one of Oyu Tolgoi copper and gold mine in Mongolia(a).
  5.9bn   Rio Tinto consolidated Oyu Tolgoi LLC on 15 December 2010 following the signing of a new agreement with Ivanhoe Mines. First ore production is forecast to commence in late 2012 with an initial throughput of 100,000 tonnes of ore per day.
 
 
       
Approved/restarted in 2010/2011
       
 
Molybdenum – investment in phases one and two of Molybdenum Autoclave Process (MAP) project to enable lower grade concentrate to be processed more efficiently than conventional roasters and allow improved recoveries.
  340m   First approved in June 2008, the project was put on hold. Approval was given in April 2010 to restart the project. First production from phase 1 is anticipated in the fourth quarter of 2012 and full capacity of 30 million pounds per annum is scheduled for fourth quarter 2013. The phase 2 expansion to 60 million pounds per annum is anticipated to be completed in the first quarter of 2015.
 
Iron ore – expansion of Iron Ore Company of Canada’s concentrate capacity (Rio Tinto: 58.7%).
  401m   Initially approved in March 2008, the project recommenced in May 2010 (Rio Tinto share US$235m). It is projected to expand concentrate capacity by 4mtpa to 22mtpa by 2012 with options to expand further to 26mtpa.
 
Nickel – construction of the Eagle nickel and copper mine in Michigan (US).
  469m   Approved in June 2010, first production is expected in late 2013. The mine is projected to produce an average of 17.3kt (thousand tonnes) and 13.2kt per year of nickel and copper metal respectively over six years.
 
Iron ore – preparation for the expansion of the Pilbara to 330mtpa and beyond
  990m   Approved in July and August 2010, the funding (Rio Tinto share US$649m) will allow dredging contracts to be issued and long lead items to be ordered as part of early works on the expansion of the Cape Lambert port to 180mtpa capacity.
 
Iron ore – development of Hope Downs 4 mine in the Pilbara (Rio Tinto: 50%).
  1.6bn   Approved in August 2010, first production is expected in 2013. The new mine is projected to have a capacity of 15mtpa and a capital cost of US$1.2 billion (Rio Tinto share US$0.6bn). Rio Tinto will fully fund the US$425 million for the rail, rolling stock and power infrastructure.
 
Diamonds – Argyle diamond mine underground project.
  1.6bn   Originally approved in 2005, the project was slowed in 2009. The remaining US$803 million to complete was approved in September 2010. The underground is projected to be fully operational in 2013 with targeted production of 20 million carats a year. It should extend the mine life to at least 2019.
 
Iron ore – debottlenecking of Dampier port to expand the Pilbara capacity to 230mtpa.
  321m   Approved in September 2010, the project is projected to add 10mtpa capacity at the Dampier port by Q1 2012. No additional capital expenditure is required at the mines.
 
Aluminium – ISAL modernisation.
  487m   Approved in September 2010, the project is projected to increase annual production from 190kt to 230kt between April 2012 and July 2014. Includes US$140m in a leading edge casting facility to produce value added billet, approved in October.
 
Iron ore – expansion of Pilbara infrastructure to 283mtpa.
  3.1bn   Approved in October 2010, the investment (Rio Tinto share US$2.1bn) is projected to increase infrastructure capacity by 53mtpa to 283mtpa by the end of 2013. Further investments in mine expansions will likely be required.
 
Iron ore – expansion of Brockman 4 mine (from 22mtpa to 40mtpa) and Western Turner Syncline mine (from 6mtpa to 15mtpa) in the Pilbara.
  1.2bn   Approved in December 2010, the two projects represent the first two of three mine developments to expand mine capacity to 283mtpa by the fourth quarter of 2013.
 
      


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Approved/restarted in 2010/2011 continued        
 
Aluminium – phase 1 of 60kt per annum AP60 plant in Quebec.
  1.1bn   Approved in December 2010, US$758m will be spent on completing the first phase of the AP60 plant, in addition to the US$376m spent to date. First hot metal is expected in February 2013.
 
Aluminium – modernisation and expansion of Kitimat smelter.
  640m   A further US$300m was approved in December 2010 for further construction in preparation for the US$2.5bn modernisation of the Kitimat smelter. This is in addition to US$340m spent to date. Final approval is expected in 2011.
 
Iron ore – phase two expansion of IOC’s concentrate capacity to 23.3mtpa (Rio Tinto 58.7%).
  277m   Approved in February 2011, phase two is expected to be complete by 2013 (Rio Tinto share US$163 million) with options to expand further to 26mtpa.
 
Iron ore – phase two of the Marandoo mine expansion to sustain production at 230mtpa.
  933m   Approved in February 2011, the mine is projected to extend Marandoo at 15mtpa by 16 years to 2030.
 
 
       
Completed in 2010
       
 
Iron ore – construction of new Mesa A/ Warramboo mine (Rio Tinto: 53%).
  901m   First ore was produced in February 2010. Initial production of 20mtpa is projected to increase to 25mtpa by the end of 2011.
 
Diamonds – Diavik (Rio Tinto: 60%) underground development.
  787m   First production at end of March 2010.
 
Thermal coal – Clermont (Rio Tinto: 50.1%) will produce 12mtpa, largely replacing Blair Athol as it ramps down to 3mtpa.
  1,290m   First production in second quarter of 2010. Full capacity expected to be reached in 2013.
 
Iron ore – construction of new 22mtpa Brockman 4 mine and Western Turner Syncline extension of Tom Price mine.
  1,521m   Both mines commenced production in July 2010 and full capacity is expected to be reached by the end of 2011. Further expansion options are being assessed.
 
Iron ore – investment in cleaner, more sustainable
power generation to support expansion of mining
capacity in Western Australia.
  503m   Four new gas turbines at the 240MW Yurralyi Maya site near Dampier were commissioned and came on line progressively in the second half of 2010.
 
Copper – Northparkes (Rio Tinto 80%) E48 block cave project extending mine life to 2024.
  221m   The project restarted in September 2009 with a scope change including an expanded extraction level and increased reserves, secondary crushing and loader automation. Production from E48 commenced in late 2009 with full production occurring in late 2010.
 
 
       
Completed in 2009
       
 
Iron ore – expansion of Hope Downs mine from 22mtpa to 30mtpa (Rio Tinto: 50%).
  350m   Approved in August 2007, the expansion work was completed during the first half of 2009.
 
 
       
Completed in 2008
       
 
Aluminium – Development of the 360,000 tonne per annum greenfield Sohar smelter in Oman (Rio Tinto: 20%).
  1,700m   Approved in February 2005, first hot metal was produced in June 2008.
 
Aluminium – Aluminium spent potlining treatment plant in Quebec (Rio Tinto: 100%).
  225m   Approved in September 2006, the plant commenced operations in June 2008.
 
Titanium dioxide – Construction by QMM (Rio Tinto: 80%) of a greenfield ilmenite operation in Madagascar and associated upgrade of processing facilities at RTFT in Canada.
  1,000m   First production of ilmenite took place at the end of 2008.
 
Iron ore – Cape Lambert port expansion (Rio Tinto: 53%) from 55 to 80mtpa and additional rolling stock and infrastructure.
  952m   Approved in January 2007, the project was completed at the end of 2008.
 
Following the consolidation of Oyu Tolgoi LLC, capital expenditure for 2011 is expected to be approximately US$13 billion. This includes US$2.3 billion for the Oyu Tolgoi project (approved and funded by Ivanhoe). It also includes US$4.5 billion for sustaining capital expenditure (Rio Tinto funded).
Evaluation expenditure in 2011, including the Simandou iron ore project and the Resolution and La Granja copper projects, is expected to be around US$900 million
 
(a)   On 3 February 2011, Rio Tinto increased its ownership in Ivanhoe Mines to 42.1 per cent. Ivanhoe Mines owns 66 per cent of the Oyu Tolgoi copper-gold project.


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Summary
 

Aluminium
(BAR GRAPH)
 
Diamonds & Minerals
(BAR GRAPH)
 
Energy
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Copper
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Iron Ore
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Metals and minerals production
 

                                                         
            2010 Production     2009 Production     2008 Production  
    Rio Tinto             Rio Tinto             Rio Tinto             Rio Tinto  
    % share (a)     Total     share     Total     share     Total     share  
 
ALUMINA (‘000 tonnes)                        
Gardanne (France) (b)
    100.0                               38       38  
Gove (Australia)
    100.0       2,473       2,473       2,519       2,519       2,325       2,325  
Jonquière (Vaudreuil) (Canada) (c)
    100.0       1,301       1,301       1,125       1,125       1,370       1,370  
Queensland Alumina (Australia)
    80.0       3,821       3,057       3,959       3,167       3,842       3,074  
São Luis (Alumar) (Brazil)
    10.0       2,507       251       1,657       166       1,504       150  
Yarwun (Australia)
    100.0       1,377       1,377       1,347       1,347       1,293       1,293  
Specialty Plants (Canada/France/Germany) (b) (d)
    100.0       631       631       492       492       758       758  
     
Rio Tinto total
                    9,089               8,815               9,008  
     
ALUMINIUM (‘000 tonnes)                        
Alma (Canada)
    100.0       434       434       435       435       424       424  
Alouette (Sept-Îles) (Canada)
    40.0       569       228       573       229       572       229  
Alucam (Edéa) (Cameroon)
    46.7       76       35       73       34       91       43  
Anglesey (UK) (e)
    51.0                   106       54       118       60  
Arvida (Canada)
    100.0       174       174       171       171       172       172  
Beauharnois (Canada) (f)
    100.0                   11       11       50       50  
Bécancour (Canada)
    25.1       417       104       420       105       415       104  
Bell Bay (Australia)
    100.0       177       177       177       177       178       178  
Boyne Island (Australia)
    59.4       558       332       556       331       556       330  
Dunkerque (France)
    100.0       260       260       244       244       254       254  
Grande-Baie (Canada)
    100.0       218       218       215       215       212       212  
ISAL (Reykjavik) (Iceland)
    100.0       190       190       190       190       187       187  
Kitimat (Canada)
    100.0       184       184       224       224       247       247  
Lannemezan (France) (g)
    100.0                               5       5  
Laterrière (Canada)
    100.0       212       212       235       235       234       234  
Lochaber (UK)
    100.0       41       41       38       38       43       43  
Lynemouth (UK)
    100.0       145       145       109       109       165       165  
Ningxia (Qingtongxia) (China) (h)
                      10       5       163       81  
Saint-Jean-de-Maurienne (France)
    100.0       96       96       101       101       130       130  
Sebree (US)
    100.0       196       196       193       193       197       197  
Shawinigan (Canada)
    100.0       100       100       99       99       100       100  
Sohar (Oman) (i)
    20.0       367       73       351       70       49       10  
SØRAL (Husnes) (Norway)
    50.0       88       44       98       49       171       86  
Tiwai Point (New Zealand)
    79.4       344       273       271       215       316       250  
Tomago (Australia)
    51.6       528       272       528       272       523       270  
     
Rio Tinto total
                    3,790               3,808               4,062  
     
BAUXITE (‘000 tonnes)                        
Awaso (Ghana) (j)
          42       34       440       352       796       637  
Gove (Australia)
    100.0       7,190       7,190       7,185       7,185       6,245       6,245  
Porto Trombetas (MRN) (Brazil)
    12.0       17,022       2,043       15,645       1,877       18,063       2,168  
Sangaredi (Guinea)
    (k)       12,413       5,586       11,216       5,047       13,181       5,931  
Weipa (Australia)
    100.0       18,591       18,591       16,235       16,235       20,006       20,006  
     
Rio Tinto total
                    33,443               30,696               34,987  
     
BORATES (‘000 tonnes) (l)                        
Rio Tinto Minerals – Boron (US)
    100.0       483       483       411       411       591       591  
Rio Tinto Minerals – Tincalayu (Argentina)
    100.0       18       18       13       13       19       19  
     
Rio Tinto total
                    500               424               610  
     
COAL – hard coking (‘000 tonnes)                        
Rio Tinto Coal Australia
                                                       
Hail Creek Coal (Australia)
    82.0       7,183       5,890       6,308       5,173       6,049       4,960  
Kestrel Coal (Australia)
    80.0       3,846       3,076       2,868       2,294       3,089       2,471  
     
Rio Tinto total hard coking coal
                    8,967               7,467               7,431  
     
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Table of Contents

 

                                                         
            2010 Production     2009 Production     2008 Production  
    Rio Tinto             Rio Tinto             Rio Tinto             Rio Tinto  
    % share (a)     Total     share     Total     share     Total     share  
     
COAL – semi-soft coking (‘000 tonnes) (m)                        
Rio Tinto Coal Australia
                                                       
Hunter Valley (Australia)
    75.7       2,469       1,869       2,626       1,988       2,865       2,169  
Mount Thorley (Australia)
    60.6       1,460       884       1,112       674       1,168       708  
Warkworth (Australia)
    42.1       764       321       530       223       386       162  
     
Rio Tinto total semi-soft coking coal
                    3,075               2,885               3,039  
     
COAL – thermal (‘000 tonnes) (m)                        
Rio Tinto Coal Australia
                                                       
Bengalla (Australia)
    30.3       5,477       1,659       5,466       1,655       5,357       1,622  
Blair Athol (Australia)
    71.2       6,803       4,846       11,325       8,068       10,194       7,262  
Clermont (Australia) (n)
    50.1       3,770       1,889                          
Hunter Valley (Australia)
    75.7       8,442       6,391       8,606       6,515       7,886       5,970  
Kestrel Coal (Australia)
    80.0       713       571       849       679       929       744  
Mount Thorley (Australia)
    60.6       1,518       920       2,230       1,351       1,780       1,078  
Tarong Coal (Australia) (o)
                                  262       262  
Warkworth (Australia)
    42.1       5,120       2,154       4,632       1,949       5,652       2,378  
     
Total Australian thermal coal
                    18,430               20,217               19,317  
     
US Coal                        
Antelope (US) (p)
          31,156       15,043       30,865       29,031       32,474       32,474  
Colowyo (US) (q)
    100.0       2,371       2,371       3,214       3,214       4,446       4,446  
Cordero Rojo (US) (p)
          33,518       16,184       35,687       33,361       36,318       36,318  
Decker (US) (p)
          2,521       609       4,161       2,017       5,939       2,970  
Jacobs Ranch (US) (r)
                      26,537       26,537       38,206       38,206  
Spring Creek (US) (p)
          16,726       8,076       16,035       15,360       16,341       16,341  
     
Total US thermal coal
                    42,283               109,520               130,755  
     
Rio Tinto total thermal coal
                    60,713               129,738               150,072  
     
COPPER (mined) (‘000 tonnes)                        
Bingham Canyon (US)
    100.0       249.8       249.8       303.5       303.5       238.0       238.0  
Escondida (Chile)
    30.0       1,011.0       303.3       1,061.2       318.3       1,281.7       384.5  
Grasberg – Joint Venture (Indonesia) (s)
    40.0       126.8       50.7       269.3       107.7       17.8       7.1  
Northparkes (Australia)
    80.0       39.0       31.2       34.3       27.4       24.8       19.8  
Palabora (South Africa)
    57.7       74.6       43.0       82.6       47.6       85.1       49.1  
     
Rio Tinto total
                    678.1               804.7               698.5  
     
COPPER (refined) (‘000 tonnes)                        
Escondida (Chile)
    30.0       300.1       90.0       327.2       98.2       257.5       77.3  
Kennecott Utah Copper (US)
    100.0       269.3       269.3       274.2       274.2       200.6       200.6  
Palabora (South Africa)
    57.7       58.0       33.4       69.4       40.0       75.9       43.8  
     
Rio Tinto total
                    392.8               412.4               321.6  
     
DIAMONDS (‘000 carats)                        
Argyle (Australia)
    100.0       9,804       9,804       10,591       10,591       15,076       15,076  
Diavik (Canada)
    60.0       6,500       3,900       5,565       3,339       9,225       5,535  
Murowa (Zimbabwe)
    77.8       178       139       124       97       264       205  
     
Rio Tinto total
                    13,843               14,026               20,816  
 
(IMAGE) See notes on page 83


(GRAPH)


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Table of Contents

Metals and minerals production continued
 
 
                                                         
            2010 Production     2009 Production             2008 Production  
    Rio Tinto             Rio Tinto             Rio Tinto             Rio Tinto  
    % share (a)     Total     share     Total     share     Total     share  
     
GOLD (mined) (‘000 ounces)                        
Barneys Canyon (US)
    100.0       2       2       2       2       5       5  
Bingham Canyon (US)
    100.0       466       466       582       582       368       368  
Cortez/Pipeline (US) (t)
                                  72       29  
Escondida (Chile)
    30.0       174       52       144       43       144       43  
Grasberg – Joint Venture (Indonesia) (s)
    40.0       458       183       1,072       429              
Greens Creek (US) (u)
                                  18       12  
Northparkes (Australia)
    80.0       65       52       34       27       32       26  
Rawhide (US) (v)
          9       9       19       19       18       9  
Others
            13       7       13       8       14       8  
     
Rio Tinto total
                    772               1,111               501  
     
GOLD (refined) (‘000 ounces)                        
Kennecott Utah Copper (US)
    100.0       596       596       479       479       303       303  
     
IRON ORE (‘000 tonnes)                        
Corumbá (Brazil) (w)
                      1,509       1,509       2,032       2,032  
Hamersley Iron – eight wholly owned mines (Australia)
    100.0       112,706       112,706       106,808       106,808       95,553       95,553  
Hamersley – Channar (Australia)
    60.0       11,016       6,610       11,041       6,625       10,382       6,229  
Hamersley – Eastern Range (Australia)
    (x)       9,206       9,206       9,318       9,318       8,186       8,186  
Hope Downs (Australia)
    50.0       31,720       15,860       20,634       10,317       10,936       5,468  
Iron Ore Company of Canada (Canada)
    58.7       14,710       8,638       13,844       8,129       15,830       9,295  
Robe River (Australia) (y)
    53.0       59,641       31,610       54,417       28,841       50,246       26,631  
     
Rio Tinto total
                    184,629               171,547               153,394  
     
LEAD (‘000 tonnes)                        
Greens Creek (US) (u)
                                  4.6       3.2  
     
MOLYBDENUM (‘000 tonnes)                        
Bingham Canyon (US)
    100.0       12.9       12.9       11.3       11.3       10.6       10.6  
     
PIG IRON (‘000 tonnes)                        
HIsmelt® (Australia) (z)
    60.0                               144       87  
     
SALT (‘000 tonnes)                        
Dampier Salt (Australia)
    68.4       7,589       5,188       8,555       5,848       8,974       6,135  
     
SILVER (mined) (‘000 ounces)                        
Bingham Canyon (US)
    100.0       3,754       3,754       4,871       4,871       3,414       3,414  
Escondida (Chile)
    30.0       6,140       1,842       5,424       1,627       6,167       1,850  
Grasberg – Joint Venture (Indonesia) (s)
    40.0       1,721       688       3,685       1,474       549       220  
Greens Creek (US) (u)
                                  1,815       1,275  
Others
          752       577       757       596       655       417  
     
Rio Tinto total
                    6,862               8,569               7,176  
     
SILVER (refined) (‘000 ounces)                        
Kennecott Utah Copper (US)
    100.0       4,732       4,732       4,050       4,050       3,252       3,252  
     
TALC (‘000 tonnes)                        
Rio Tinto Minerals – talc (Australia/Europe/North America) (aa)
    100.0       1,000       1,000       888       888       1,163       1,163  
 
(IMAGE) See notes on page 83
82   Rio Tinto 2010 Annual report


Table of Contents

 

                                                         
            2010 Production     2009 Production             2008 Production  
    Rio Tinto             Rio Tinto             Rio Tinto             Rio Tinto  
    % share (a)     Total     share     Total     share     Total     share  
 
TITANIUM DIOXIDE FEEDSTOCK (‘000 tonnes)                        
Rio Tinto Iron & Titanium (Canada/South Africa) (bb) (cc)
    100.0       1,392       1,392       1,147       1,147       1,524       1,524  
 
URANIUM (‘000 lbs U3O8)                        
Energy Resources of Australia (Australia)
    68.4       8,614       5,891       11,500       7,865       11,773       8,052  
Rössing (Namibia)
    68.6       7,999       5,485       9,150       6,275       8,966       6,149  
     
Rio Tinto total
                    11,377               14,140               14,200  
 
ZINC (‘000 tonnes)                        
 
                                                       
Greens Creek (US) (u)
                                  13.9       9.8  
 

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 on site, 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 2010 and has applied over the period 2008 – 2010 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 %
                                 
Operation   See note     2010     2009     2008  
 
Antelope
    (p     46.2       94.0       100.0  
Cordero Rojo
    (p )     46.2       94.0       100.0  
Decker
    (p )     23.1       47.0       50.0  
Spring Creek
    (p )     46.2       94.0       100.0  
 
 
(b)   Production of smelter grade alumina at Gardanne ceased at the end of 2008. Production continues from the Gardanne specialty alumina plant.
 
(c)   Jonquière’s (Vaudreuil’s) production shows smelter grade alumina only and excludes hydrate produced and used for specialty alumina.
 
(d)   Rio Tinto sold its 100 per cent interest in the Brockville specialty alumina plant with an effective date of 20 September 2010. Production data are shown up to that date.
 
(e)   The Anglesey smelter ceased smelting operations at the end of the third quarter of 2009. Casting operations continue.
 
(f)   The Beauharnois smelter ceased smelting operations in the second quarter of 2009. Casting operations continue.
 
(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. Production data are shown up to that date.
 
(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 of 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)   Thermal coal and semi-soft coking coal were previously reported under “Other Coal”.
 
(n)   Production commenced at Clermont in the second quarter of 2010.
 
(o)   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.
 
(p)   As a result of the initial public offering of Cloud Peak Energy Inc. on 20 November 2009, Rio Tinto held 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. Following a secondary public offering in December 2010, Rio Tinto completed the divestment of its entire interest in Cloud Peak Energy Inc. with an effective date of 15 December 2010. Production data are shown up to that date.
 
(q)   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.
 
(r)   Rio Tinto completed the sale of its 100 per cent interest in the Jacobs Ranch mine on 1 October 2009. Production data are shown up to that date.
 
(s)   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.
 
(t)   Rio Tinto sold its 40 per cent interest in the Cortez/Pipeline joint venture on 5 March 2008, with an effective date end of February 2008. Production data are shown up to that date.
 
(u)   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.
 
(v)   On 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. Rio Tinto sold its 100 per cent interest in the Rawhide mine with an effective date of 25 June 2010. Production data are shown up to that date.
 
(w)   Rio Tinto completed the sale of its 100 per cent interest in the Corumbá mine, effective 18 September 2009.
 
(x)   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.
 
(y)   Production at the Mesa A mine commenced in the first quarter of 2010.
 
(z)   In March 2009, Rio Tinto announced that HIsmelt® would be placed on an extended care and maintenance programme. In December 2010, the HIsmelt® joint venture partners agreed to close the Kwinana site permanently and terminate the joint venture.
 
(aa)   In February 2011, Rio Tinto announced that it had received a binding offer for the purchase of 100 per cent of its talc business. Talc production includes some products derived from purchased ores.
 
(bb)   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.
 
(cc)   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.




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Table of Contents

      
Ore Reserves (under Industry Guide 7)
 

For the purposes of this combined Annual report on Form 20-F estimates of ore reserves have been prepared in accordance with the SEC’s Industry Guide 7 under the United States Securities Act of 1933 and the following definitions:
  An ‘Ore Reserve’ means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserves determination. To establish this, studies appropriate to the type of mineral deposit involved have been carried out to estimate the quantity, grade and value of the ore mineral(s) present. In addition, technical studies have been completed to determine realistic assumptions for the extraction of the minerals including estimates of mining, processing, economic, marketing, legal, environmental, social and governmental factors. The degree of these studies is sufficient to demonstrate the technical and economic feasibility of the project and depends on whether or not the project is an extension of an existing project or operation. The estimates of minerals to be produced include allowances for ore losses and the treatment of unmineralised materials which may occur as part of the mining and processing activities. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proven Ore Reserves as defined below.
 
  The term “economically”, as used in the definition of reserves, implies that profitable extraction or production under defined investment assumptions has been established through the creation of a mining plan, processing plan and cash flow model. The assumptions made must be reasonable, including costs and operating conditions that will prevail during the life of the project.
 
  Ore reserves presented in accordance with SEC Industry Guide 7 do not exceed the quantities that, it is estimated, could be extracted economically if future prices were to be in line with the average of historical prices for the three years to 30 June 2010, or contracted prices where applicable. For this purpose, contracted prices are applied only to future sales volumes for which the price is predetermined by an existing contract; and the average of historical prices is applied to expected sales volumes in excess of such amounts. Moreover, reported ore reserve estimates have not been increased above the levels expected to be economic based on Rio Tinto’s own long term price assumptions.
 
  The term “legally”, as used in the definition of reserves, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for reserves to exist, there is reasonable assurance of the issuance of these permits or resolution of legal issues. Reasonable assurance means that, based on applicable laws and regulations, the issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a timeframe consistent with the Company’s current mine plans.
 
  The term “proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Proven reserves represent that part of an orebody for which there exists the highest level of confidence in data regarding its geology, physical characteristics, chemical composition and probable processing requirements.
 
  The term “probable reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. This means that probable reserves generally have a wider drill hole spacing than for proven reserves.
 
  The amount of proven and probable reserves shown below does not necessarily represent the amount of material currently scheduled for extraction, because the amount scheduled for extraction may be derived from a life of mine plan predicated on prices and other assumptions which are different to those used in the life of mine plan prepared in accordance with Industry Guide 7.
 
  The estimated ore reserve figures in the following tables are as of 31 December 2010. 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. Commodity price information is given in footnote (a).
 
  Where operations are not managed by Rio Tinto the reserves are published as received from the managing company.
      




84   Rio Tinto 2010 Annual report


Table of Contents

 

 

      
                                                         
                    Total ore reserves at end 2010                      
    Type                                 Interest     Rio Tinto  
    of mine (b)             Tonnage     Grade             %     share  
                                                Recoverable