Rio Tinto achieves a creditable
result and record cash flow
•
Adjusted earnings
of $1,530 million were eight per cent below 2001, but the second highest
in the Group’s history.
•
Record cash flow
from operations of $3,743 million was ten per cent above 2001.
•
Hamersley Iron achieved
record shipments to China and the average gold price was 14 per cent higher.
These were exceptions in what were generally subdued commodity markets.
•
China has emerged
as the major variable influencing global supply and demand balances in most
metal markets.
•
Adjusted earnings
of $1,530 million exclude exceptional charges of $879 million.
•
Major projects were
brought on stream:
o
West Angelas (iron ore) was commissioned
on time and below budget.
o
Diavik (diamonds) delivered its
first production this month, well ahead of schedule.
•
A final dividend
of 30.5 US cents per share brings full year dividends to 60.0 US cents per
share, 1 US cent per share above 2001.
Financial Summary
Full year to 31 December
2002
2001
Change
Group turnover
$
10,828
m
$10,438
m
+4
%
Cash flow from operating activities
$3,134
m
$2,767
m
+13
%
Total cash flow from operations
$3,743
m
$3,415
m
+10
%
Adjusted earnings
$1,530
m
$1,662
m
-8
%
Net earnings (after exceptional charges)*
$651
m*
$1,079
m*
-40
%
Adjusted earnings per share – US cents
111.2
120.9
-8
%
Earnings per share – US cents
47.3
*
78.5
*
-40
%
Total dividends per share – US cents
60.0
59.0
+2
%
*2002 net earnings are stated after exceptional
charges of $763 million relating to asset write-downs and $116 million relating
to environmental remediation works at Kennecott Utah Copper. 2001 net earnings
were stated after an exceptional charge of $583 million relating to asset write-downs.
These items are added back in arriving at adjusted earnings and adjusted earnings
per share.
Throughout this document, all dollars
are US$ unless otherwise stated.
Rio Tinto plc. 6 St James’s Square London SW1Y 4LD
Telephone +44 (0) 20 7930 2399 Fax +44 (0) 20 7930 3249
R
EGISTERED
O
FFICE
: 6 St James’s Square London SW1Y 4LD Registered in England No.
719885
Rio Tinto’s chairman Sir Robert Wilson said, “Adjusted earnings in 2002 were the second highest ever and our operations generated record levels of cash. This was a creditable performance given the economic
environment in which we have been operating. Following the sharp downturn in demand in 2001, markets stabilised in the first half of 2002 but in most markets there has been little evidence of improvement since then.
“Our focus on long life, highly efficient operations has produced a business that remains highly profitable and cash generative even in markets as difficult as we have seen in 2002. Our competitive cost structure means
that our performance will be robust even if markets remain depressed but, as and when market conditions warrant, we have a range of attractive options for expansion across all our major products.”
Chief Executive’s Comments
Leigh Clifford, Rio Tinto’s chief executive, said, “Over the last few years, we have worked hard to increase the flexibility of our operations. In the current economic environment, this enables us to manage our
production in line with demand whilst limiting the impact on our cost base. For the future, it means that we have the capacity to respond quickly as and when markets improve.
“The strength of our cash flows allows us to continue investing in value enhancing projects. The new West Angelas iron ore mine further extends the range of products that we can offer to our customers. Diavik is up and
running, ahead of schedule, and will complement existing diamond production from Argyle. First shipments from Hail Creek, which will significantly increase our exposure to coking coal, are expected in the last quarter of this year. Looking further
ahead, construction of Comalco’s alumina refinery, which will make Rio Tinto a major player in the traded alumina markets, remains on track for completion in late 2004.
“Over the last 18 months, we have taken decisive action to improve the financial returns from two of our assets that have underperformed - Kennecott Utah Copper and the Iron Ore Company of Canada. However, the impact
of our revised assumptions about the future markets for these businesses has more than offset the benefits from these improvements and has necessitated writing down the carrying value of these assets. It should be emphasised that these impairment
charges, which are required to conform with UK accounting standards, are non-cash in nature. Moreover, the market value of Rio Tinto is about three times its net book value, underlining the world class quality of our assets.”
Outlook
Sir Robert said, “With little sign of any improvement in Europe or Japan, the performance of the US and Chinese economies in 2003 will be critical. The Chinese economy is only twelve per cent of the size of that of the
US and is too small to lead the world out of recession. However, the same is not true in the mining and metals industries. China already consumes more steel and more copper than does the US.
“In 2002 China’s demand for most commodities rose by ten per cent or more and shows no sign of slowing. If it continues to grow at anything like its current rate, it will begin to place pressure on the industry to
keep up with the level of demand. It is difficult to forecast the Chinese economy with confidence and we have to recognise that if there were to be a sudden slowdown there, it could have a marked adverse effect on our markets.
“At a global level we remain of the view that economic recovery is going to be a slow process. The influence of China on our markets suggests, though, that the mining and metals industries might move ahead of other
sectors.”
Adjusted earnings of $1,530 million were $132 million below the corresponding period of last year. The principal factors are shown in the table below.
US$m
2001 adjusted earnings
1,662
Prices
(5
)
Exchange rates
(69
)
Inflation
(76
)
Volumes
85
Costs
54
Absence of asset sales
(54
)
Other
(67
)
2002 adjusted earnings
1,530
Adjusted earnings exclude the exceptional charges which are described below.
Prices & exchange rates
Average gold prices were 14 per cent higher than 2001, but aluminium prices averaged eight per cent lower. Average copper prices were slightly down but there was a benefit from provisionally priced copper. Benchmark prices
for iron ore and seaborne thermal coal fell whilst North American coal prices improved with market fundamentals as the California crisis in early 2001 flowed into contract prices.
The negative variance due to exchange rate movements is principally as a result of the Australian dollar being stronger relative to the US dollar.
Volumes
Higher volumes increased earnings by $85 million. Demand for iron ore was extremely strong with Hamersley achieving record shipments and production from the West Angelas mine beginning to ramp up. Diamond sales volumes were
also higher than 2001. There were lower gold volumes from the Group’s interest in Grasberg as a result of lower grades, particularly in the first half of the year.
Costs
Excluding the effect of inflation, costs benefited earnings by $54 million.
Tax
Excluding exceptional items, the effective tax rate at 31.2 per cent was broadly in line with last year.
Other
The Group’s policy of having predominantly floating rate debt has allowed it to benefit from lower prevailing interest rates. The interest charge on the Group’s debt in 2002 was $72 million lower than 2001
although the level of debt has not changed significantly. This is more than offset by a negative variance on pensions and other corporate items.
Exceptional charges
2002 exceptional charges of $879 million comprise
provisions for the write down of asset carrying values of $763 million and a
charge relating to environmental remediation works at Kennecott Utah Copper
(KUC) of $116 million.
$480 million of the asset write-downs relates to
KUC and $235 million relates to the Iron Ore Company of Canada. Over the last
18 months, major changes have been set in train to improve the cost performance
and productivity of these operations. However, the impact of revised assumptions
about the future markets for these businesses, particularly in relation to price,
has necessitated reductions in their carrying values. In the valuation used
for measuring the impairment of KUC, Rio Tinto has used a copper price rising
to a peak of 82c/lb in 2005 and declining in real terms thereafter.
The increase in the expected cost of environmental
remediation results from a significant change in the planned methodology for
treatment of contaminated groundwater in the vicinity of the Bingham Canyon
mine. KUC has been investigating this issue since before 1989, when Rio Tinto
acquired the business. The provision relates to costs that will be incurred
over a number of years.
The 2001 exceptional charge comprised provisions
for the write-down of asset carrying values.
Second half adjusted earnings
Second half adjusted earnings were $126 million
above the first half earnings as a result of increased sales with strong demand
for iron ore, higher copper and gold grades at Grasberg and the usual seasonality
of titanium dioxide sales all playing a part.
Cash flow
Cash from operating activities together with dividends
from joint ventures and associates totalled $3,743 million, an increase of ten
per cent compared with 2001. Tight control of working capital was reflected
in reductions in accounts receivable and inventories totalling $243 million,
which largely reverse increases reported in 2001.
Net investment in property, plant and equipment
of $1,417 million was at a similar level to that in 2001. The major areas of
expansionary investment in 2002 were the first instalment on the purchase of
additional coal reserves at North Jacobs Ranch, the Diavik diamond mine, the
West Angelas iron ore mine, the Hail Creek coking coal development and Comalco’s
alumina refinery. Further information on major projects is given on pages 14
and 15.
Disposals of businesses net of acquisitions generated
$127 million. This largely related to units acquired with Peabody’s Australian
coal business in 2001, which the Group sold on as planned. In 2001, $659 million
was invested in acquisitions, net of the proceeds of disposals.
Purchases of other investments absorbed a further
$323 million of cash. These investments included $304 million of US treasury
bonds held as security for the deferred consideration on the North Jacobs Ranch
reserves acquired during the period, which is payable over the next four years.
Dividends paid were $145 million higher than 2001
as a result of the change in policy for weighting of interim and final dividends
announced in 2001.
Balance sheet
Shareholders’ funds increased by $419 million
to $7,462 million as a result of an uplift of $579 million from exchange rate
changes. Most important of these was the strengthening of the Australian dollar
by 11 per cent.
Net debt increased by $36 million to $5,747 million.
The other investments of $304 million, referred to above, generate interest
income but are not deducted in arriving at net debt. The ratio of net debt to
total capital decreased from 42.1 per cent, at 31 December 2001, to 41.1 per
cent at 31 December 2002. The balance sheet remains strong with interest covered
13 times.
Dividends
A final dividend equivalent to 30.5 US cents per
share has been declared by Rio Tinto plc and Rio Tinto Limited. This together
with the interim dividend of 29.5 US cents per share makes a total for the year
of 60.0 US cents per share (2001 59.0 US cents per share).
Dividends are determined in US dollars. Rio Tinto
plc dividends are declared and paid in pounds sterling and Rio Tinto Limited
dividends are declared and paid in Australian dollars, converted at exchange
rates applicable on Tuesday, 28 January 2003. The interim and final dividends
are summarised below.
2002
2001
Rio Tinto Group
Interim (US cents)
29.50
20.00
Final (US cents)
30.50
39.00
Total dividends (US cents)
60.00
59.00
Rio Tinto plc
Interim (pence)
18.87
14.03
Final (pence)
18.60
27.65
Total dividends (pence)
37.47
41.68
Rio Tinto Limited
Interim (Australian cents)
54.06
39.42
Final (Australian cents)
51.87
75.85
Total dividends (Australian cents)
105.93
115.27
The 2002 interim dividend was set as half of the
total dividends for the preceding year which has had the effect of increasing
the interim component of the total dividends. Interim and final dividends must
therefore be considered together to make a meaningful comparison of 2001 and
2002 dividends.
Rio Tinto Limited shareholders will be paid final
dividends which will be fully franked. The directors consider that there are
sufficient franking credits available for paying fully franked dividends for
at least the next year.
The respective dividends will be paid on Monday,
7 April 2003 to Rio Tinto plc shareholders on the register at close of business
on Friday, 7 March 2003 and to Rio Tinto Limited shareholders on the register
at close of business on Wednesday, 12 March 2003. The ex-dividend date for both
Rio Tinto plc and Rio Tinto Limited will be Wednesday, 5 March 2003. Dividends
to Rio Tinto ADR holders will be paid on Tuesday, 8 April 2003.
As usual, Rio Tinto will operate its Dividend Reinvestment
Plan, details of which can be obtained from the Company Secretaries’ offices.
5
Back to Contents
RIO TINTO FINANCIAL INFORMATION BY BUSINESS
UNIT (1)
Rio Tinto
interest
Gross turnover
(a)
EBITDA (b)
Net earnings (c)
US$ millions
%
2002
2001
2002
2001
2002
2001
Iron Ore
Hamersley (inc. HIsmelt®)
100.0
1,117
1,118
688
733
410
441
Robe River
53.0
240
193
160
127
54
45
Iron Ore Company of Canada
58.7
400
380
16
67
(6
)
16
1,757
1,691
864
927
458
502
Energy
Kennecott Energy
100.0
949
882
260
223
86
84
Pacific Coal
100.0
417
362
236
201
136
117
Kaltim Prima Coal
50.0
216
212
79
101
26
42
Coal & Allied
75.7
623
647
207
255
68
102
Rössing
68.6
112
115
52
68
23
21
Energy Resources of Australia
68.4
113
90
50
38
12
7
2,430
2,308
884
886
351
373
Industrial Minerals
1,847
1,768
722
797
289
323
Aluminium
- Comalco
1,454
1,499
504
598
256
313
Copper
Kennecott Utah Copper
100.0
755
675
223
271
78
81
Escondida
30.0
283
289
121
142
32
41
Freeport
16.5
306
296
139
128
19
4
Freeport joint venture
40.0
349
316
215
186
113
88
Palabora
49.2
201
233
54
66
13
14
Peak/Northparkes
(d)
74
87
22
43
(1
)
13
Other copper
148
145
78
64
36
10
Other metals
(e)
240
251
24
43
—
11
2,356
2,292
876
943
290
262
Diamonds & Gold
Argyle
100.0
372
278
178
147
65
58
Diavik
60.0
—
—
—
—
—
—
Kennecott Minerals
100.0
205
196
93
83
38
33
Kelian
90.0
168
127
66
35
17
1
Brazil
(f)
115
111
40
46
16
26
Other Diamonds & Gold
40
106
15
26
8
15
900
818
392
337
144
133
Exploration and evaluation
(130
)
(130
)
(109
)
(104
)
Net interest
(95
)
(167
)
Other items
84
62
(152
)
(50
)
(54
)
27
Adjusted earnings
1,530
1,662
Exceptional charges
(116
)
—
(879
)
(583
)
Total
10,828
10,438
3,844
4,308
651
1,079
Reconciliation
to the profit and loss account
Profit on ordinary activities before
interest
1,602
2,387
Depreciation &
amortisation in subsidiaries
954
929
Asset write-downs relating to subsidiaries
& joint ventures
955
701
Depreciation &
amortisation in joint ventures & associates
Adjusted earnings of $1,530 million for 2002 were
$132 million below the adjusted earnings of 2001. The table below shows the
difference by product group. All financial amounts in the tables below are US$
millions unless indicated otherwise.
$ m
2001 adjusted earnings
1,662
Iron Ore
(44
)
Energy
(22
)
Industrial Minerals
(34
)
Aluminium
(57
)
Copper
28
Diamonds and Gold
11
Exploration
(5
)
Other
(9
)
2002 adjusted earnings
1,530
IRON ORE
2002
2001
Change
Production (million tonnes)
90.1
89.9
—
Turnover
1,757
1,691
+4
%
Earnings
458
502
–9
%
EBITDA
864
927
–7
%
Capital expenditure
199
503
Market
As in the first half of the year, Chinese
demand for iron ore showed sustained growth and imports for 2002 are expected
to show an increase of around 20 per cent over 2001. This, coupled with some
recovery in the traditional markets of Europe and the US and unexpected strength
in Japan, made 2002 a record year for global steel production and seaborne traded
iron ore. Outside China, demand has been strongest for fines rather than lump
or pellets. Price reductions, effective from April 2002, of 2.4 per cent for
fines, 5.0 per cent for lump, 6.3 per cent for pellets and 3.0 per cent for
concentrate were agreed with major customers.
Hamersley Iron
Hamersley Iron’s earnings of $410
million were $31 million below 2001 due mainly to the effect of exchange rate
movements and the unfavourable 2002 price settlement. Shipments, including sales
from the Channar Joint Venture, were 68.5 million tonnes, five per cent above
2001. A slow first quarter was followed by strong shipments in the remainder
of the year stretching port operations and resulting in short term port congestion
and increased demurrage charges.
Production of 68.2 million tonnes was three per
cent below last year. Hamersley is over half way through a three year programme
which will be completed next year to deliver annual savings of $54 million.
The focus remains on improving the efficiency and safety of maintenance activities.
Robe and Hamersley continue to work together to
realise synergies. The Hamersley power grid was extended to include Robe’s
West Angelas mine and the Pilbara Rail Company was formed on 1 April to integrate
the networks of Hamersley and Robe.
Iron ore shipments began under a joint venture agreement
with Shanghai Baosteel Group Corporation, further strengthening Hamersley’s
unrivalled contract position in the otherwise predominantly spot Chinese market.
Robe River
Earnings of $54 million were $9 million
above 2001. Increased volumes offset the adverse effects of exchange rate movements
and price settlement. Shipments were 14 per cent higher than last year reflecting
both strong demand for Mesa J product in all markets, particularly Japan, and
the first shipments from the new West Angelas mine.
West Angelas Marra Mamba ore was successfully introduced
into the market with shipments to all the Japanese and Korean mills under contract
and trial cargoes to mills in China and Europe.
Iron Ore Company of Canada (IOC)
IOC reported a loss of $6 million compared
with earnings of $16 million in 2001. The outlook for the North American steel
industry remains extremely uncertain. All expansion plans, including the refurbishment
of the Sept Iles pellet plant, have been suspended until stability in the existing
operations has been achieved and market conditions improve.
Project Renewal, a major cost reduction and business
improvement initiative aimed at reducing annual costs by $65 million over the
next two years remains on track.
ENERGY
2002
2001
Change
Production
Coal (million tonnes)
US
105.3
106.7
–1
%
Australia &
Indonesia
43.8
42.3
+4
%
Uranium (tonnes)
4,995
4,705
+6
%
Turnover
2,430
2,308
+5
%
Earnings
351
373
–6
%
EBITDA
884
886
—
Capital expenditure
350
110
US coal – Kennecott Energy
Earnings of $86 million were $2 million
above 2001. A warmer than average summer helped to reduce the excess coal inventories
at power utilities following a mild winter. Towards the end of the year, cooler
than anticipated weather in the eastern and southern United States coupled with
warmer, drier weather in the hydro reliant North West was experienced. If these
conditions continue they will prove favourable for coal demand.
Second half production from Cordero Rojo was affected
by unusually heavy rainfall in August and high wall instability issues. Costs
were higher due to the resulting coal shortages and increased contractor costs
arising from efforts to rebuild coal inventory.
Asia Pacific Coal - Markets
The increase in exports of thermal coal
from China by over 50 per cent in 2001 had a major impact on spot prices in
the early part of 2002 and influenced the subsequent long-term contract negotiations
resulting in reductions of six to ten per cent effective from April 2002. Spot
prices recovered somewhat in the second half of 2002.
Conversely, hard coking coal prices in Japan rose
by ten to twelve per cent.
Pacific Coal
Earnings of $136 million were $19 million
above 2001. Sales from Blair Athol increased 19 per cent compared with 2001
when sales were affected by port and rail congestion in the third quarter and
some fourth quarter sales were deferred into 2002.
Production from Kestrel was 25 per cent higher with
the resolution of longwall reliability issues. Work continued on opening up
the Ti-Tree area with project completion expected in early 2004.
Kaltim Prima
Earnings of $26 million were $16 million
below 2001. Higher shipments failed to offset the effects of lower prices, the
removal of Government fuel subsidies, increased tax rates and higher stripping.
Coal & Allied
Earnings of $68 million were $34 million
below 2001 due mainly to lower prices and the stronger Australian dollar. Hunter
Valley Operations (HVO) now has a capacity of 14 million tonnes although production
was reduced in the second half to bring it into line with expected market demand.
The integration of Warkworth and Mount Thorley continues
following the completion of a combined mine plan and harmonisation of business
processes. Full operational integration requires joint venture and regulatory
approval.
Rössing
Earnings of $23 million, including the
benefit of lower taxes, were $2 million higher than 2001. Earnings in 2003 will
be affected by some higher priced long term contracts coming to an end which
were replaced with new long term contracts at terms in line with market conditions.
Energy Resources of Australia
Earnings of $12 million were $5 million
above last year as a result of higher sales volumes.
INDUSTRIAL MINERALS
2002
2001
Change
Production
Borates (000 tonnes)
528
564
–6
%
Titanium dioxide (000 tonnes)
1,274
1,427
–11
%
Salt (000 tonnes)
4,667
4,248
+10
%
Talc (000 tonnes)
1,327
1,267
+5
%
Turnover
1,847
1,768
+4
%
Earnings
289
323
–11
%
EBITDA
722
797
–9
%
Capital expenditure
133
146
Rio Tinto Borax
Earnings from Rio Tinto Borax of $92 million
were $10 million lower than 2001. Production of borates was six per cent lower
than 2001 despite boric acid production increases of twelve per cent. Sales
were slightly ahead of 2001 primarily due to increased sales in Asia Pacific,
strong North American construction activity, and a tightening of the boric acid
market, partially offset by continued perborate substitution. The cost reduction
programmes maintained their momentum but the effect on earnings was offset by
reduced pension credits reflecting lower investment returns and a higher effective
tax rate.
Rio Tinto Iron & Titanium (RIT)
Earnings of $157 million were $23 million
below 2001. Although the result benefited from a generally weaker rand on average
compared with the previous year, this was more than offset by exchange losses
on US dollar receivables caused by the strengthening of the rand from its low
in late 2001.
Titanium dioxide pigment demand increased moderately
year-on-year. The titanium dioxide feedstock side of the industry, however,
continued to be affected by the oversupply of high grade feedstocks and persistent
high feedstock inventory levels at some pigment producers. Consequently, RIT
shipments of titanium dioxide feedstocks were lower due both to market conditions
and the effect of reduced pigment demand in 2001. Production at both QIT and
RBM was curtailed accordingly.
Demand for iron and steel co-products strengthened
during the year, but market conditions remain very competitive. Zircon markets
were resilient for most of 2002.
RIT reached an out of court settlement in 2002 concerning
intellectual property legal proceedings. As part of the agreement, RIT will
receive $15 million.
Luzenac
Earnings were $15 million. Luzenac’s
production in 2002 was five per cent higher than 2001 at 1.33 million tonnes,
with the increase attributable to production from the Three Springs mine in
Australia, acquired in September 2001.
Sales volumes declined in Europe but revenues were
maintained year on year, due to a favourable sales mix, with particular strength
noted in coatings following customer re-formulations. The North American markets
were impacted by weak economic conditions in the traditional paper and pulp
markets, but a sustained recovery occurred in other applications, notably in
polymers and coatings. The Three Springs mine supported increased Asian sales.
New cost reduction programmes helped offset the impact on earnings of weaker
demand and costs associated with some mine and plant closures.
Dampier
Earnings were $25 million. Production levels
at Dampier, Lake MacLeod and Port Hedland benefited from favourable salt growing
conditions throughout 2002. Total production for 2002 was 7.2 million tonnes
(Rio Tinto 4.7 million tonnes) which was 0.6 million tonnes higher than in 2001.
ALUMINIUM – COMALCO
2002
2001
Change
Production
Bauxite (000 tonnes)
11,724
11,795
—
Alumina (000 tonnes)
1,947
1,761
+11
%
Aluminium (000 tonnes)
724.4
694.6
+4
%
Turnover
1,454
1,499
–3
%
Earnings
256
313
–18
%
EBITDA
504
598
–16
%
Capital expenditure
261
99
Aluminium price and exchange rate
The average aluminium price in 2002 was
61c/lb, 5c/lb below the average price in 2001. The effect of this and other
price changes was to reduce Comalco’s earnings by $44 million. With costs
predominantly in Australian dollars, the weakening of the US dollar further
reduced margins.
Bauxite
Full year production was in line with 2001
although shipments were slightly lower reflecting a stagnant traded bauxite
market.
Alumina
Comalco’s share of traded alumina
production was 11 per cent above last year following the acquisition of a further
8.3 per cent in Queensland Alumina (QAL) in September 2001. QAL production was
close to record levels, although disruption of the power supply affected production
towards the end of the year
Aluminium
Demand for value added products strengthened,
with a shortage of billet being a feature of the market in the latter part of
2002. Sales have been reallocated to those markets supporting higher billet
premia.
Comalco’s share of aluminium production was
four per cent higher than the previous year. First half production at Bell Bay
was affected by voluntary power reductions but full load has been available
throughout the second half. Power restrictions continued to affect production
in New Zealand. However, conditions have improved and additional power was available
in the last quarter. The acquisition of an additional 9.5 per cent of lines
1 and 2 of the Boyne Island aluminium smelter was completed in July 2002.
At Gladstone in Australia, drought conditions resulted
in water restrictions and all Comalco related operations in the region achieved
a 25 per cent cutback in water use.
Copper and gold prices
The average copper price of 71c/lb was
one per cent below the average during 2001. The average gold price of $309/oz
was 14 per cent higher.
Kennecott Utah Copper (KUC)
Earnings of $78 million were $3 million
below 2001. Mined copper production of 260,200 tonnes was 52,500 tonnes below
2001 following the closure of the North Concentrator from June 2001. The ore
processed in 2002 was also harder and lower grade than 2001. Gold and molybdenum
grades fell towards the end of 2002 and, as previously announced, are expected
to be significantly lower in 2003 before returning to more normal levels by
2005.
Refined copper production of 293,700 tonnes was
59,400 tonnes above last year as the smelter achieved record production levels.
The outsourcing of maintenance assisted in this improvement. Having reached
an impasse on negotiations for a new labour agreement, KUC began implementing
the company’s final offer which contains a significant number of work practice
changes, on 1 October 2002. The process of negotiation is now subject to mediation.
Escondida
Earnings of $32 million were $9 million
below 2001. Escondida has constrained production throughout 2002 as a result
of weak market demand and has announced that it will continue to operate below
its expanded capacity for at least the first half of 2003. Total copper production
was consequently down four per cent on 2001.
Freeport and Freeport Joint Venture
Earnings of $132 million were $40 million
above 2001. Total copper production at Grasberg, benefiting from higher grades
and mill throughput, was up 15 per cent. Lower grades, particularly in the first
half of the year, resulted in total gold production that was 16 per cent down.
Palabora
Earnings of $13 million were $1 million
below 2001. The positive effect of the weaker rand was more than offset by lower
volumes and higher costs as the operation moved from the open pit to the underground.
Open pit operations ceased in April 2002 and since then stockpiled and imported
ore has been supplementing ore from the underground mine as it ramps up.
Peak/Northparkes
Peak/Northparkes made a net loss of $1
million compared with earnings of $13 million in 2001. At Northparkes, the ore
grade into the mill was about 25 per cent lower than last year. Underground
ore was supplemented with lower grade (and higher cost) open pit ore. Grades
are likely to be lower by a further 20 per cent in 2003. The transition to Lift
2 will continue through 2004 and 2005 when grades will improve.
Other copper operations
Whilst the stronger gold price, higher
recoveries and the commissioning of the third grinding line resulted in higher
earnings from Alumbrera, the lower copper price and stronger euro adversely
affected the result of Somincor, albeit partially offset by cost improvements.
Alumbrera’s earnings include a positive tax effect related to exchange
losses on the peso equivalent of US dollar project debt.
Other metals
Zinkgruvan and Rio Tinto Aluminium were
affected by lower zinc and aluminium prices respectively.
Argyle
Earnings of $65 million were $7 million
above 2001. Sales were held back in the final quarter of 2001 as the diamond
industry as a whole anticipated a sharp decline post-September 11. This contraction
did not materialise and so the early part of 2002 saw restocking of the diamond
pipeline. With half of all retail jewellery sales being in the United States,
improved diamond demand is highly dependent on improvement in the North American
economy.
Kennecott Minerals
Earnings of $38 million were $5 million
above 2001, benefiting from higher gold prices. Production of gold was down
seven per cent reflecting lower grades at Cortez. Ore throughput at Greens Creek
was up 11%. Rawhide ceased mining in August but continues to recover gold and
silver from the heap leach operations.
Kelian
Earnings of $17 million were $16 million
above 2001. Production of gold was 19 per cent above 2001 as higher grades combined
with higher throughput. Sales of silver were resumed in the first half of 2002
following the resolution of a tax issue.
Rio Tinto Brasil
Earnings of $16 million were $10 million
below 2001. Underground mining operations at Fortaleza were suspended between
June and September as a result of working through problems arising from poor
mining conditions. Consequently nickel production was down 38 per cent. This
also had an effect on costs as the smelter and refinery processed lower grade
ore. The results in 2001 were boosted by profits on the sale of two small coal
deposits.
Other operations
Efforts at Rio Tinto Zimbabwe continue
to focus on controlling costs in a high inflationary environment. Gold produced
from Lihir was six per cent lower than 2001 due to lower grades.
EXPLORATION
2002
2001
Change
Post tax expenditure ($ million)
109
104
+5
%
Exploration in 2002 focused on advancing the most
promising targets on a range of grass roots generative, drill testing stage
and near mine programmes. Good results were obtained from a number of locations.
In the US, drilling at the Resolution project in
Arizona continued to delineate strong copper and molybdenum porphyry style mineralisation
at depth adjacent to the historical Magma mine.
At Marcona in Peru, significant oxide and sulphide
copper ore was discovered in close proximity to the Shougang Hierro iron ore
mine.
A sizeable body of gold mineralisation was encountered
at Dashkasan, near Hamadan in Iran. Investigations including metallurgical test
work continued. Extensions to the previously discovered gold mineralisation
at Çöpler in Turkey were intersected by drilling and studies are underway
on various engineering aspects to determine economic viability.
The potential of the high grade iron ore resources
at Simandou in Guinea was confirmed at more than one billion tonnes. A convention
that covers the conditions attached to the future possible development of the
deposit was signed with the Government of Guinea.
Closely spaced drilling was undertaken at the La
Sampala nickel laterite resource in Indonesia to test continuity and confirm
grade.
In Mozambique, substantial deposits of titanium
bearing heavy mineral sands were discovered. Results suggest a potential resource
of 120 million tonnes of contained ilmenite. The deposits occur near to the
coast, are amenable to conventional dredging methods and have a low slimes content.
Diamond exploration continued in Canada, Southern
Africa, West Africa, Brazil and India. New diamond bearing kimberlite pipes
were discovered in a number of locations and follow up test work is planned
to gauge economic potential.
The exploration group was active in the search for
industrial mineral deposits around the world including in North and South America
and Europe.
The exploration group continued to support brownfield
work at several Rio Tinto operations. Exploration of the sub-surface extensions
of the Argyle diamond deposit continued. In the USA and Argentina programmes
were conducted near the Boron and Tincalayu mines. In Indonesia exploration
in and around the Grasberg mine led to the addition of further copper reserves.
BROWNFIELD DEVELOPMENTS
The scale and quality of Rio Tinto’s asset
portfolio offers the opportunity to raise production from current mines and
associated infrastructure to meet market demand. Rio Tinto currently has a number
of brownfield developments under way and is evaluating the expansion of other
operations.
The following major projects are actually in construction
or were completed in 2002.
Project
Estimated
Cost
(100%)
Status/Milestones
Iron Ore
– West Angelas mine (RioTinto53%).
Development of a new mine in Western Australia with a capacity of 20 million
tonnes per annum.
$450
m
The
mine was completed on time, on budget and with an outstanding safety record.
Production began in April and shipments in July.
Iron Ore
–
Eastern Range mine (Rio Tinto 54%). Development of a new mine with a capacity
of 10 million tonnes per annum. The mine will service a joint venture
formed between Hamersley and Shanghai Baosteel Group Corporation.
$
64
m
First shipments are expected in
the first half of 2004.
Copper
–
Palabora
Underground.
30,000
tonnes
of ore per day block caving operation.
$
437
m
The production ramp up is currently
constrained by the availability of secondary rock breaking equipment. Output
of 30,000 tonnes per day will not be reached until the second half of 2003.
Copper
–
Escondida Phase 4. A new 110,000 tonnes of ore per day copper concentrator
facility.
$
1,045
m
The project had reached mechanical
completion by the end of September and entered the commissioning phase.
Completion is expected on or under budget.
Copper
–
Freeport
Deep
Ore
Zone
Expansion
project.
Development of a new 25,000 tonne per day block cave mine.
$
243
m
The mine was declared fully operational
from 1 October and operated above design capacity in November. Completion
was within budget and well within the original schedule.
Copper –
Northparkes
Lift
2
Expansion
project.
New 15,000 tonne of ore per day block
cave
mine approximately 400 metres below the
existing
underground operation.
$
76
m
Variable ground conditions and
higher than expected rock stress have caused delays as additional ground
support has been necessary to ensure the safety of construction crews. The
cost effect of the delay is under review.
Rio Tinto has a number of high quality greenfield
projects under construction. These projects represent a significant increase
in the Group’s exposure to several commodities. The Comalco alumina project
will make Rio Tinto a major player in the traded alumina market. Hail Creek,
together with the opening up of the Ti Tree area at Kestrel, will make Rio Tinto
a significant supplier of hard coking coal. The Diavik mine will approximately
double the revenue from the Group’s diamond production. In April 2002 the
Group committed to the construction of a commercial size HIsmelt
®
plant.
This technology has the potential to significantly change the steel making process
and to increase the value of Rio Tinto’s Pilbara ore reserves.
Project
Estimated
Cost
(100%)
Status/Milestones
Aluminium –
Comalco’s
alumina refinery. Construction in Queensland of a greenfield alumina refinery
with initial annual capacity of 1.4 million tonnes but with options to expand
to 4.2 million tonnes.
$750m
Structural
steel is being erected and the first piles have also been driven for the
wharf jetty. Engineering is 64% complete. The definitive estimate of construction
cost has been prepared and is currently under review. First shipments
planned for early 2005
Energy
–
Hail
Creek (Rio Tinto 92%). Coking coal mine in Queensland with a capacity
of 5 million tonnes per year.
$255m
The project is
over 40% complete. The scope has been expanded to include the purchase
of mining equipment following the decision to own/operate rather than
contract out various mining activities.
Diamonds
–
Diavik
(Rio Tinto 60%) in the North West Territories of Canada with average annual
production of about six million carats.
$900m
Water removal
from the dyke was completed by mid-September. The plant began processing
ore during the last week in November and participants received their first
diamonds in January 2003. The project will be completed early and within
budget.
Iron
Ore –
HIsmelt® direct iron smelting
technology. The project has the potential to alter steel making technology
worldwide.
$200
m
A joint venture
was created between Rio Tinto (60%), Nucor Corporation (25%) Mitsubishi
Corporation (10%) and Shougang Corporation (5%) to construct an 800,000
tonne capacity plant at Kwinana Western Australia.
Other
–
Project
Sunrise. Development for mixed use of a 4,100 acre area of land near Salt
Lake City, Utah
Initial cash
requirement of $ 50 m
Land sales are
planned to start in 2004 and ramp up over a period of 5-6 years.
ACQUISITIONS
In January 2002, Kennecott Energy (KEC) purchased
the North Jacobs Ranch coal reserves for $380 million, payable in instalments
over a five year period. The reserves are adjacent to KEC’s existing Jacobs
Ranch operation and provide a basis for a low cost expansion in line with market
demand.
In July, Comalco completed the acquisition of an
additional 9.5 per cent interest in reduction lines 1 and 2 of the Boyne Island
aluminium smelter for $78 million. This increased Comalco’s share in lines
1 and 2 of this world class, low cost smelter from 50.0 per cent to 59.5 per
cent. The interest in line 3 remains unchanged at 59.25 per cent.
An additional 3 per cent interest in Coal &
Allied Industries Limited was purchased in September 2002 for $29 million.
Rio Tinto’s interest in Iron Ore Company of
Canada increased from 56.1 per cent to 58.7 per cent following a capital restructuring
of that company in December 2002.
During the first half of 2002, Coal & Allied
completed the sale of its interests in Narama and Ravensworth for $64 million
and its 55 per cent interest in the Moura Joint Venture for $166 million. These
were classified as assets held for resale and consequently their disposal had
no effect on net earnings.
Under its 1982 Coal Agreement with the Indonesian
Government, PT Kaltim Prima Coal (KPC), in which Rio Tinto has a 50 per cent
interest, is required to offer up to 51 per cent of its shares to Indonesian
participants. The current offer process was delayed during 2002 by attachment
orders over KPC's shares granted by the District Court of South Jakarta. The
legal action giving rise to the attachment orders has since been withdrawn and
the offer is now proceeding under a formal agreement (The Framework Agreement)
entered into between the Government of Indonesia and KPC on 5 August 2002.
Two companies owned by regional governments in East
Kalimantan took action in November in the District Court of Samarinda in East
Kalimantan to have the Framework Agreement declared invalid. Both the Government
of Indonesia and KPC are now seeking to have this declaration overturned.
In January 2003 Rio Tinto announced that it had
signed a non binding letter of intent under which it acknowledged its intention
to sell its 25 per cent interest in Alumbrera together with its wholly owned
Peak Gold Mines to Wheaton River Minerals (WRM) for consideration of $210 million.
The transaction is subject to WRM and Rio Tinto reaching agreement on all terms
and entering into a definitive agreement. Completion will be subject to a number
of conditions.
PRICE AND EXCHANGE SENSITIVITIES
The following sensitivities give the estimated effect
on net earnings assuming that the price or 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. The exchange rate sensitivities quoted below include the effect on operating
costs of movements in exchange rates but exclude the effect due to the revaluation
of foreign currency working capital. They should therefore be used with care.
Estimated effect on Rio Tinto’s full year net
earnings of:
Gross turnover (including share of
joint
ventures and associates)
10,828
10,438
(3,061
)
(3,118
)
(1,108
)
(1,119
)
Share of joint ventures’ turnover
(1,662
)
(1,612
)
(1,332
)
(1,304
)
(482
)
(468
)
Share of associates’ turnover
(723
)
(674
)
15,552
15,765
5,629
5,662
Consolidated turnover
8,443
8,152
(14,021
)
(12,745
)
(5,075
)
(4,576
)
Net operating costs (including exceptional charges
of US$1,078 million; 2001: US$715 million)
(7,612
)
(6,590
)
1,531
3,020
554
1,086
Group operating profit
831
1,562
980
1,071
355
385
Share of operating profit of joint ventures
(including exceptional charges of US$16 million)
532
554
440
420
159
151
Share of operating profit of associates
239
217
–
104
–
38
Profit on disposal of interest in joint venture
—
54
2,951
4,615
1,068
1,660
Profit on ordinary activities before interest
1,602
2,387
(437
)
(671
)
(158
)
(241
)
Net interest payable
(237
)
(347
)
(99
)
(110
)
(36
)
(40
)
Amortisation of discount related to provisions
(54
)
(57
)
2,415
3,834
874
1,379
Profit on ordinary activities before taxation
1,311
1,983
(1,304
)
(1,389
)
(472
)
(499
)
Taxation (including relief on exceptional charges
of US$42 million; 2001: US $132 million)
(708
)
(718
)
1,111
2,445
402
880
Profit on ordinary activities after taxation
603
1,265
88
(360
)
32
(129
)
Attributable to outside shareholders (equity)
(including exceptional charges of US$173 million)
48
(186
)
1,199
2,085
434
751
Profit for the financial year (net earnings)
651
1,079
(1,521
)
(1,570
)
(551
)
(564
)
Dividends to shareholders
(826
)
(812
)
(322
)
515
(117
)
187
Retained (loss)/profit for the financial year
(175
)
267
87.1
c
151.6
c
31.5
p
54.6
p
Earnings per ordinary share
47.3
c
78.5
c
204.7
c
233.6
c
74.1
p
84.1
p
Adjusted earnings per ordinary share (d)
111.2
c
120.9
c
Dividends per share
37.47
p
41.68
p
– Rio Tinto plc
60.0
c
59.0
c
105.93
c
115.27
c
– Rio Tinto Limited
60.0
c
59.0
c
(a)
Diluted earnings per share figures
are US 0.1 cents (2001: US 0.2 cents) lower than the earnings per share
figures above.
(b)
For the purpose of calculating
earnings and adjusted earnings per share, the weighted average number of
Rio Tinto plc and Rio Tinto Limited shares outstanding during the period
was 1,376.5 million, being the average number of Rio Tinto plc shares outstanding
(1,065.2 million) plus the average number of Rio Tinto Limited shares outstanding
not held by Rio Tinto plc (311.3 million).
(c)
The results for both years relate
wholly to continuing operations.
(d)
The profit for the financial
year is stated after exceptional charges; these are added back in the
table below to arrive at adjusted earnings:
2002
A$m
2001
A$m
2002
£m
2001
£m
2002
US$m
2001
US$m
1,199
2,085
434
751
Profit for the financial year (net earnings)
651
1,079
Exceptional charges impact on the above profit
and loss account as follows:
Funding of Group share of joint ventures’
& associates’ capital expenditure
(137
)
(79
)
(11
)
25
(4
)
9
Other funding of joint ventures & associates
(6
)
13
(228
)
(255
)
(83
)
(92
)
Exploration and evaluation expenditure
(124
)
(132
)
29
48
11
17
Sale of property, plant and equipment
16
25
(595
)
(104
)
(215
)
(38
)
Purchases less sales of other investments
(323
)
(54
)
(3,444
)
(3,052
)
(1,246
)
(1,097
)
Capital expenditure and financial investment
(1,870
)
(1,578
)
(195
)
(1,853
)
(71
)
(665
)
Purchase of subsidiaries, joint arrangements,
joint ventures & associates
(106
)
(958
)
429
578
155
208
Sale of subsidiaries, joint ventures & associates
233
299
234
(1,275
)
84
(457
)
Acquisitions less disposals
127
(659
)
(1,746
)
(1,553
)
(632
)
(558
)
Equity dividends paid to Rio Tinto shareholders
(948
)
(803
)
Cash inflow/(outflow) before management
of
55
(1,143
)
20
(410
)
liquid resources and financing
29
(590
)
392
(35
)
142
(13
)
Net cash inflow/(outflow) from management of
liquid resources
213
(18
)
68
14
25
5
Ordinary shares issued for cash
37
7
(753
)
1,240
(273
)
445
Loans (repaid) less received
(409
)
641
(293
)
1,219
(106
)
437
Management of liquid resources and financing
(159
)
630
(238
)
76
(86
)
27
(Decrease)/increase in cash
(130
)
40
Cash flow from operating activities
1,531
3,020
554
1,086
Group operating profit from continuing activities
831
1,562
1,986
1,383
719
497
Exceptional charges
1,078
715
3,517
4,403
1,273
1,583
1,909
2,277
1,757
1,797
636
645
Depreciation and amortisation
954
929
239
251
87
90
Exploration and evaluation charged against profit
130
130
107
193
39
69
Provisions
58
100
(217
)
(286
)
(79
)
(103
)
Utilisation of provisions
(118
)
(148
)
157
(439
)
57
(158
)
Change in inventories
85
(227
)
291
(244
)
105
(88
)
Change in accounts receivable and prepayments
158
(126
)
(105
)
(93
)
(38
)
(33
)
Change in accounts payable and accruals
(57
)
(48
)
28
(232
)
10
(83
)
Other items
15
(120
)
5,774
5,350
2,090
1,922
Cash flow from operating activities
3,134
2,767
(a)
Net debt at 31 December 2002 of US$5,747 million
compares with US$5,711 million at 31 December 2001. The increase of US$36
million comprises the cash inflow before management of liquid resources
and financing of US$29 million offset by other items of US$65 million including
the effect of exchange rate movements.
(b)
'Purchases less sales of other investments'
for the year includes US$304 million relating to US treasury bonds. These
investments were purchased to be held as security for the deferred consideration
on assets acquired during the period, which is payable over the next four
years. For this reason they are not regarded as liquid resources.
— Rio Tinto Limited (excl. Rio Tinto plc
interest)
816
732
2,842
3,128
1,004
1,103
Share premium account
1,610
1,600
535
575
189
203
Other reserves
303
294
8,080
8,335
2,858
2,937
Profit and loss account
4,579
4,263
13,169
13,770
4,656
4,853
Equity shareholders’ funds
7,462
7,043
(a)
At 31 December 2002, Rio Tinto
plc had 1,065.5 million ordinary shares in issue and Rio Tinto Limited had
311.4 million shares in issue, excluding those held by Rio Tinto plc.
(b)
In accordance with Financial Reporting
Standard 4, the commercial paper of $1,749 million is classified as short
term borrowings though it is backed by medium term facilities. Under US
and Australian GAAP, this amount would be grouped within non-current borrowings.
(c)
The balance sheet at 31 December
2001 has been restated following the implementation of FRS 19 'Deferred
Tax', which has reduced shareholders' funds by US$133 million. The restatement
also included an increase in deferred tax provisions of US$57 million, an
increase in investments in associates of US$10 million and a reduction of
US$86 million in property, plant and equipment.
(d)
Current asset investments include
US$304 million relating to US treasury bonds, which are held as security
for the deferred consideration on assets acquired during 2002.
Reconciliation with Australian GAAP
At 31 December
2002
A$
m
2001
Restated
A$
m
2002
£m
2001
Restated
£m
2002
US$
m
2001
Restated
US$
m
2,818
3,213
1,020
1,156
Adjusted earnings reported under UK GAAP
1,530
1,662
(1,619
)
(1,128
)
(586
)
(405
)
Exceptional charges
(879
)
(583
)
1,199
2,085
434
751
Net earnings under UK GAAP
651
1,079
Increase/(decrease) net of tax in respect of:
(308
)
(327
)
(111
)
(117
)
Goodwill amortisation
(167
)
(169
)
(35
)
—
(13
)
—
Asset write downs
(19
)
—
(24
)
6
(9
)
2
Taxation
(13
)
3
6
(12
)
2
(7
)
Other
3
(7
)
838
1,752
303
629
Net profit attributable to members-Australian
GAAP
455
906
60.9
c
127.4
c
22.0
p
45.7
p
Earnings per ordinary share under Australian
GAAP
33.1
c
65.9
c
Diluted earnings per share under Australian GAAP
are US 0.1 cents (2001: US 0.1 cents) less than the above earnings per share
figures.
Net earnings under UK GAAP are stated after exceptional charges of US$879 million
relating to asset write downs and environmental remediation. In 2001 there was
an exceptional charge for asset write downs of US$583 million. Under Australian
GAAP, these items total US$898 million (2001: US$583 million). However, the
concept of Adjusted earnings does not exist under Australian GAAP.
13,169
13,770
4,656
4,853
Shareholders’ funds under UK GAAP
(as restated)
7,462
7,043
Increase/(decrease) net of tax in respect of:
1,843
2,399
651
846
Goodwill
1,044
1,227
131
169
46
60
Taxation
74
87
(41
)
(43
)
(14
)
(15
)
Other
(23
)
(22
)
15,102
16,295
5,339
5,744
Shareholders’ funds under Australian
GAAP
8,557
8,335
The Group’s financial statements have been
prepared in accordance with generally accepted accounting principles in the
United Kingdom (UK GAAP), which differ in certain respects from generally accepted
accounting principles in Australia (Australian GAAP). These differences relate
principally to the following items, and the effect of each of the adjustments
to net earnings and shareholders’ funds that would be required under Australian
GAAP is set out above.
Goodwill
For 1997 and prior years, UK GAAP permitted
the write off of purchased goodwill on acquisition directly against reserves.
Under Australian GAAP, goodwill is capitalised and amortised by charges against
income over the period during which it is expected to be of benefit, subject
to a maximum of 20 years. Goodwill previously written off directly to reserves
in the UK GAAP accounts has been reinstated and amortised for the purpose of
the reconciliation statements. For acquisitions in 1998 and subsequent years,
goodwill is capitalised under UK GAAP, in accordance with FRS 10.
Adjustments
are required for Australian GAAP purposes where such capitalised goodwill is
amortised over periods exceeding 20 years in the UK GAAP accounts.
Taxation
Rio Tinto has implemented FRS 19, the new
UK Accounting Standard on deferred tax. This has resulted in a prior year adjustment
under UK GAAP, which reduced shareholders’ funds at 1 January 2001 by US$133
million. Of this amount, US$46 million results from the requirment under FRS
19 to provide in full for deferred taxation on most timing differences. These
additional provisions were already recognised under Australian GAAP.
The remaining US$87 million of the prior year adjustment
relates to features of FRS 19 that give rise to new variations from Australian
GAAP. Accordingly, this element of the prior year adjustment has been reversed
in arriving at Australian GAAP shareholders’ funds. These variations, which
also affect the determination of earnings under Australian GAAP, relate principally
to the following:
(a) Under FRS 19, provision for the taxes arising
on remittances of earnings can only be made if the dividends have been accrued
or if there is a binding agreement for the distribution of the earnings. Under
Australian GAAP, provision must be made for tax arising on expected future remittances
of past earnings.
(b) Under FRS 19, tax benefits associated with goodwill
charged directly to reserves, in 1997 and previous years, must be accumulated
in the deferred tax provision. This means that the tax benefits are not included
in earnings until the related goodwill is charged through the profit and loss
account on disposal or closure. For Australian GAAP, no provision is required
for such deferred tax because the goodwill that gave rise to these tax benefits
was capitalised and gives rise to amortisation charges against profit.
Asset write downs
Under Australian GAAP, asset write downs
are US$19 million higher because the relevant carrying values include goodwill
that was eliminated directly against reserves in the year of acquisition for
UK GAAP purposes.
The above analyses include the Rio Tinto share
of the results of joint ventures and associates including interest
(b)
The amortisation of discount is
included in the applicable product category and geographical area. All other
financing costs of subsidiaries are included in 'net interest'.
(c)
The sales analysis of turnover by destination
for 2001 has been restated.
Exchange differences taken
to earnings under US GAAP
288
(174
)
1,071
2,005
388
722
Net income under US GAAP
581
1,038
77.8
c
145.8
c
28.2
p
52.5
p
Basic earnings per ordinary share under
US GAAP
42.2
c
75.5
c
Net earnings under UK GAAP are stated after exceptional
charges of US$879 million relating to asset write downs and environmental remediation.
In 2001 there was an exceptional charge for asset write downs of US$583 million.
Under US GAAP, these total US$1,176 million (2001: US$183 million). However,
the concept of Adjusted earnings does not exist under US GAAP.
13,169
13,770
4,656
4,853
Shareholders’
funds under UK GAAP
7,462
7,043
Increase/(decrease) net of
tax in respect of :
2,501
3,476
884
1,225
Goodwill
1,417
1,778
565
—
200
—
Intangibles
320
—
131
169
46
60
Taxation
74
87
759
1,050
268
370
Proposed dividends
430
537
462
962
163
339
Asset write downs
262
492
314
362
111
127
Reversal of additional provisions
under FRS 12
178
185
(124
)
(125
)
(44
)
(44
)
Start-up costs
(70
)
(64
)
(25
)
(336
)
(9
)
(119
)
Mark to market of derivative
contracts
(14
)
(172
)
(655
)
(354
)
(231
)
(125
)
Pensions/post retirement benefits
(371
)
(181
)
(302
)
(262
)
(107
)
(92
)
Other
(171
)
(134
)
16,795
18,712
5,937
6,594
Shareholders’ funds under US GAAP
9,517
9,571
Diluted earnings per share under US GAAP are US
0.1 cents (2001: US 0.1 cents) less than the above earnings per share figures.
The Group’s financial statements have been
prepared in accordance with generally accepted accounting principles in the
United Kingdom (UK GAAP), which differ in certain respects from those in the
United States (US GAAP). The effect of adjusting net earnings and shareholders’
funds for the following differences in treatment under US GAAP is set out above.
Goodwill –
For 1997 and prior years, UK
GAAP permitted the write off of purchased goodwill on acquisition directly against
reserves. For acquisitions in 1998 and subsequent years, goodwill is capitalised
and amortised over its expected useful life under UK GAAP. Under US GAAP goodwill
is capitalised and, until 2001, was amortised by charges against income over
the period during which it was expected to be of benefit, subject to a maximum
of 40 years. Goodwill previously written off directly to reserves in the UK
GAAP financial statements was therefore reinstated and amortised, under US GAAP.
From 1 January 2002, goodwill and indefinite lived intangible assets are no
longer amortised but are reviewed annually for impairment under FAS 142. Goodwill
amortisation of US$42 million charged against UK GAAP earnings for 2002 is added
back in the US GAAP reconciliation. No impairment write downs were required
on the initial introduction of FAS 142. Implementation of FAS 141 resulted in
the reclassification of US$340 million from goodwill to finite lived intangible
assets.
Asset write downs –
Following the implementation
of FRS 11 in 1998, impairment of fixed assets under UK GAAP is recognised and
measured by reference to the discounted cash flows expected to be generated
by the asset. Under US GAAP, impairment of tangible fixed assets held by subsidiaries
is recognised only when the anticipated undiscounted cash flows are insufficient
to recover the carrying value of the asset. Where an asset is found to be impaired
under US GAAP, the amount of such impairment is generally similar under US GAAP
to that computed under UK GAAP, except where the US GAAP carrying value includes
additional goodwill. The asset write downs in 2002, under US GAAP, include amounts
recognised in 2001 under UK GAAP and also an adjustment for goodwill.
Tax –
The adjustments are similar to those
made in the reconciliation with Australian GAAP, which are explained on page
20.
Stock based compensation –
The Group has
implemented FAS 123 in 2002 and has restated all periods presented to reflect
stock based employee compensation costs under the fair value based method of
accounting, as permitted by FAS 148.
Exchange differences under US GAAP:
Debt –
The Group finances its operations
primarily in US dollars and a significant proportion of the Group's US dollar
debt is located in its Australian operations. Under UK GAAP, this debt is dealt
with in the context of the currency status of the Group as a whole and exchange
differences reported by the Australian operations are adjusted through reserves.
US GAAP permits such exchange gains and losses to be taken to reserves only
to the extent that the US dollar debt hedges US dollar assets in the Australian
group. Post-tax exchange gains of US$177 million on US dollar debt that do not
qualify for hedge accounting under US GAAP have therefore been recorded in US
GAAP earnings.
Derivatives –
The Group is party to derivative
contracts in respect of some of its future transactions in order to hedge its
exposure to fluctuations in exchange rates against the US dollar. Under UK GAAP,
these contracts are accounted for as hedges: gains and losses are deferred and
subsequently recognised when the hedged transaction occurs. However, certain
of the Group's derivative contracts do not qualify for hedge accounting under
FAS 133, principally because the hedge is not located in the entity with the
exposure. Unrealised post-tax gains of US$111 million on such derivatives have
therefore been taken to US GAAP earnings.
23
Back to Contents
Metal prices and exchange rates
Years ended 31 December
Metal
prices
Year
2002
Year
2001
Change
Average market prices for the year
were:
Copper
— US cents/lb
71c
72c
(1%
)
Aluminium
— US cents/lb
61c
66c
(8%
)
Gold
— US$/troy oz
US$309
US$271
14%
Exchange rates in US$
Annual Average
Year end
2002
2001
Change
2002
2001
Change
Sterling
1.50
1.44
4%
1.60
1.45
11%
Australia
0.54
0.52
4%
0.57
0.51
11%
Canada
0.64
0.65
(2%
)
0.63
0.63
—
South Africa
0.095
0.117
(19%
)
0.116
0.083
39%
Accounting principles
The financial information
included in this preliminary announcement has been prepared in accordance
with United Kingdom Accounting Standards and an Order under section 340
of the Australian Corporations Act 2001 issued by the Australian Securities
and Investments Commission on 9 April 2001. The financial information has
been drawn up on the basis of accounting policies consistent with those
applied in the financial statements for the year ended 31 December 2001,
except for the implementation of FRS 19 'Deferred Tax'
Prior to the adoption
of FRS 19, Rio Tinto provided for deferred tax where, in the opinion of
the directors, it was probable that a timing difference would reverse within
the foreseeable future. Under FRS 19, full provision is made for deferred
taxation on all timing differences that have arisen but not reversed at
the balance sheet date, except in limited circumstances. The main exceptions
are as follows:–
Tax payable on the future remittance of the past earnings of subsidiaries,
associates and joint ventures is provided only to the extent that dividends
have been accrued or there is a binding agreement to distribute such past
earnings (where previously the Group recognised such deferred tax to the
extent that it was probable that a liability would crystallise).–
Deferred tax is not recognised on revaluations of non-monetary assets arising
on acquisitions unless there is a binding agreement to sell the asset and
the gain or loss expected to arise from the disposal has been recognised
(where previously the Group recognised deferred tax for certain of these
adjustments).–
Deferred tax assets are recognised only to the extent that it is more likely
than not that they will be recovered.
FRS 19 requires that
provisions for deferred tax are made in respect of tax benefits related
to goodwill that was charged directly to reserves on acquisitions made prior
to 1998. Such provisions are released when the related goodwill is charged
through the profit and loss account on disposal or closure. Under the previous
accounting policy, such tax benefits were taken up in the profit and loss
account in the year in which they were received.
The balance sheet
at 31 December 2001 has been restated following the implementation of
FRS 19 ' Deferred Tax', which has reduced shareholders' funds by US$133
million. The restatement also included an increase in deferred tax provisions
of US$57 million, an increase in investment in associates of US$10 million
and a reduction of US$86 million in property, plant and equipment. The
application of FRS 19 did not impact significantly on net earnings for
2002 or 2001. Accordingly, prior year earnings have not been restated.
Financial information
This preliminary announcement does
not constitute the Group's full financial statements for 2002, which will
be approved by the Board and reported on by the auditors on 20 February
2003 and subsequently filed with the Registrar of Companies and the Australian
Securities and Investments Commission. Accordingly, the financial information
for 2002 is unaudited. The preliminary announcement contains financial
information for 2001 which has been extracted from the audited financial
statements for that year, as restated to comply with FRS 19. The accounts
of Rio Tinto plc and Rio Tinto Limited for 2001 were the subject of an
unqualified audit report and have been delivered to the Registrar of Companies
in the UK and the Australian Securities and Investments Commission, respectively.
NOTES TO FINANCIAL INFORMATION
BY BUSINESS UNIT.
(Pages 6 and 7)
(a)
Gross turnover includes 100 per
cent of subsidiaries' turnover and the Group's share of the turnover of
joint ventures and associates.
(b)
EBITDA of subsidiaries, joint ventures
and associates represents profit before: tax, net interest payable, depreciation
and amortisation.
(c)
Net earnings represent after tax
earnings attributable to the Rio Tinto Group. Earnings of subsidiaries are
stated before interest charges but after the amortisation of the discount
related to provisions. Earnings attributable to joint ventures and associates
include interest charges.
(d)
Rio Tinto has a 100 per cent interest
in Peak and an 80 per cent interest in the Northparkes joint venture.
(e)
Includes Anglesey Aluminium in
which Rio Tinto's interest is 51 per cent.
(f)
Includes Morro do Ouro in which
Rio Tinto's interest is 51 per cent.
(g)
Capital expenditure comprises
the net cash flow on purchases less disposals of property, plant and equipment.
The details provided include 100 per cent of subsidiaries' capital expenditure
and include Rio Tinto's share of the capital expenditure of joint ventures
and associates. Amounts relating to joint ventures and associates not
specifically funded by Rio Tinto are deducted before arriving at total
capital expenditure.
(h)
Operating assets of subsidiaries
comprise net assets before deducting net debt, less outside shareholders'
interests which are calculated by reference to the net assets of the relevant
companies. For joint ventures and associates, Rio Tinto’s net investment
is shown. For joint ventures and associates shown above, Rio Tinto's shares
of operating assets, defined as for subsidiaries, are as follows:
Escondida US$913 million (2001 - US$855 million), Freeport joint venture
US$412 million (2001 - US$398 million), Freeport associate US $578 million
(2001 - US$496 million), Kaltim Prima US$111 million (2001 - US$144 million).
(i)
Business units have been classified
in the analysis on pages 6 and 7 according to the Group's management structure.
Generally, this structure has regard to the primary product of each business
unit but there are exceptions. For example, the Copper group includes the
gold revenues of Kennecott Utah Copper and Freeport (Rio Tinto share) and
the businesses of Rio Tinto Aluminium and Zinkgruvan. This summary differs
therefore, from the Product Analysis in which the contributions of individual
business units are attributed to several products as appropriate.
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