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Rio Tinto announces record first half underlying earnings of $5.8 billion

Thursday, August 5th, 2010

– Record underlying earnings1 of $5.8 billion, 125 per cent above 2009 first half.
– Underlying EBITDA1 of $11.3 billion, 85 per cent above 2009 first half.
– Cash flow from operations up 78 per cent from 2009 first half to $9.9 billion.
– Net debt reduced to $12.0 billion at 30 June 2010, from $18.9 billion at 31 December 2009. Gearing improved to 20 per cent.
– Renewed focus on growth. $3 billion approved in 2010 to date for multiple projects including expansion of Pilbara iron ore, funding for Simandou, increased investment in Ivanhoe, Iron Ore Company of Canada expansion, construction of Eagle nickel/copper mine and the molybdenum autoclave project at Kennecott Utah Copper.
– Joint venture agreement signed with Chalco for the development and operation of the Simandou iron ore project in Guinea. $170 million investment approved for the project, associated with optimising mine, rail and port development. Mining operations anticipated within five years.
– $790 million capital approved for preparation of the expansion of iron ore operations in Western Australia related to marine works and long lead items, to support the Pilbara operations’ overall capacity increase to 330 million tonnes a year and beyond. This is in addition to $200 million recently approved for dredging contracts.
– Full year investment in capital expenditure is expected to approach $6 billion. 2011 capital expenditure anticipated to be approximately $9 billion subject to stable investment conditions.
– Divestments completed during 2010 first half for total consideration of $3.6 billion.
– Interim dividend of 45 US cents per share declared, in line with previous guidance.
Chairman’s comments
Rio Tinto’s chairman Jan du Plessis said: “This was an outstanding half reflecting higher prices and Rio Tinto’s strengths in operational excellence. I was pleased to see this reflected in a substantial further reduction in our net debt to $12 billion – compared with $39 billion at 30 June 2009. Our business is robust with a strong balance sheet which is able to withstand volatility or further shocks from the global economy. Developing our relationship with China is a key priority for Rio Tinto and I was very pleased to sign the agreement with Chalco last week for the Simandou joint venture. We are firmly focused on high quality growth with many tier one options ahead. We look to the future with confidence.”
Chief executive’s comments
Tom Albanese, Rio Tinto’s chief executive said, “Safety remains the highest priority throughout Rio Tinto. This year we have seen further reductions in the frequency of lost time injuries and also in the rate of all injuries. Regrettably we have suffered two fatalities at managed operations. We continue to work towards our goal of zero harm. I believe that our excellent safety record together with our focus on process safety positions us as the leader in our industry in this critical area.
“We achieved a first half record of $5.8 billion in underlying earnings following a strong recovery in our key markets. We have reaped the benefits of the cost reduction efforts implemented in 2009 and have been pushing our production hard to benefit from a strong pricing environment, leading to record first half cash flows from operations of $9.9 billion. Together with divestment proceeds, this enabled us to reduce our net debt to $12.0 billion at 30 June 2010.
“Growth is the first priority for our cash flows: the relatively low levels of capital expenditure in the first half of $1.8 billion reflected the cash preservation efforts in 2009. We expect second half capital expenditure to rebound significantly: we have approved $3 billion in project development so far this year, including $1 billion towards the expansion of our Pilbara operations to 330 million tonnes per annum and $170 million to progress the Simandou iron ore project in Guinea. Earlier this year we committed new funds for iron ore expansion in Canada, a new nickel mine in the US and expanded molybdenum production at Kennecott Utah Copper. We also have scope for targeted investment in aluminium and alumina, and to develop the major Oyu Tolgoi copper / gold project in Mongolia.
“In early July, the Australian government announced the proposed introduction of a Mineral Resource Rent Tax in 2012. We now have further opportunity to work constructively with the government to ensure that the tax system continues to encourage investment in Australia.
“Last week we signed the joint venture agreement with Chalco for the development and operation of the Simandou project in Guinea. We continue to engage with the Guinean Government and to invest funds to keep this world-class iron ore project moving forward and we anticipate mining operations would start within five years.
“We continue to progress the proposed Western Australian iron ore production joint venture with BHP Billiton, with a key focus on obtaining regulatory approval.
“Global growth of nearly four per cent is predicted by the IMF for both this and next year, with Chinese GDP expected to grow at approximately nine per cent. This would have positive implications for metals and minerals markets but it is clear that economic conditions on a global scale will be volatile. Our longer term view remains that industrialisation and urbanisation in China, followed by India, will drive robust commodity demand growth.
“Our strategic focus on large, long-life, low-cost assets – those that remain profitable through all parts of the economic cycle – will serve us well in an increasingly volatile world.”
(Ref 1591)

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