Annual report and financial statements

Transcription

1 Annual report and financial statements

2 A world leader in mining Rio Tinto is a world leader in finding, mining and processing the earth s mineral resources. In order to deliver superior returns to our shareholders over many years, we take a long term and responsible approach to exploring for first class orebodies and developing large, efficient operations capable of sustaining competitive advantage. In this way, we help to meet the global need for minerals and metals which contribute to essential improvements in living standards as well as making a direct contribution to economic development and employment in those countries in which we invest. Wherever we operate, we aim to work closely with our hosts, and strive to respect laws and customs, minimise adverse impacts, and ensure transfer of benefits and enhancement of opportunities. We believe that our competitiveness and future success depend not only on the unrivalled quality and diversity of our assets but also on our record as good neighbours and partners around the world. Accordingly, we set ourselves high environmental and community standards. Our commitment to health, safety and the enhancement of the skills and capabilities of our employees is second to none in mining. We seek to make lasting contributions to local communities and to be sensitive to their culture and way of life.

3 2001 Annual report and financial statements Form 20-F Item Annual report contents Page Chairman s letter 2 Chief executive s report 4 3 Key Information Selected financial data 7 Risk factors & Cautionary statement regarding forward looking statements 8 4 Information on the Company About Rio Tinto 9 Tables of production; reserves; resources 12 Information on Group mines 24 Map of Group operations 28 5 Operating and Financial Review and Prospects Financial review 29 Operational review 32 Iron Ore 32 Energy 34 Industrial Minerals 36 Aluminium 38 Copper 39 Diamonds & Gold 42 Exploration 44 Technology 45 Society & environment 46 6 Directors, Senior Management and Employees Senior management and employees 47 Directors 48 Remuneration report 50 Corporate governance 55 Audit committee 56 Directors report 57 7 Major Shareholders and Related Party Transactions Major shareholders and related party transactions 59 8 Financial Information Financial information 60 9 The Offer and Listing Share prices and market listings Additional Information Exchange controls and taxation Quantitative and Qualitative Disclosures about Market Risk Treasury management and financial instruments Defaults, Dividend Arrearages and Delinquencies Statement of no default Material Modifications to the Rights of Security Holders Changes in securities 63 and Use of Proceeds 18 Financial Statements 2001 Audited financial statements 65 Supplementary information for US investors 120 Financial summary Rio Tinto share ownership, definitions, exchange rates, financial calendar & useful addresses 130 FORM 20-F The information referenced in this Annual report will be incorporated into Rio Tinto s Annual report on Form 20-F that will be filed with the US Securities and Exchange Commission. This filing will include some additional data and so the index to Form 20-F is for general reference only. The attention of readers is drawn to the Risk factors and Cautionary statement regarding forward looking statements on page 8. ANNUAL REPORT AND FINANCIAL STATEMENTS Rio Tinto s Annual reports and financial statements encompass Australian, UK and relevant US statutory requirements. The majority of shareholders have chosen to receive a shorter Annual review but those who wish to receive the full Annual report and financial statements in place of the Annual review for all future years may do so by writing to the Companies registrars. Front cover picture: Kennecott s Bingham Canyon mine near Salt Lake City, Utah, US, provided the gold, silver and copper for the 2002 Winter Olympic and Paralympic medals Rio Tinto Annual report and financial statements 1

4 Chairman s letter Adjusted earnings US$m 1,220 1,103 1,282 1,507 1, Dear Shareholder Record adjusted earnings despite the economic environment 2001 was a tumultuous year which gave us all a sharp reminder that we cannot take a stable business environment for granted. I am pleased to be able to report that we achieved a record level of earnings despite the unfavourable economic conditions. We saw a synchronised downturn in the major economies of the US, EU and Japan and consequent weakening in both the demand and price for many of our products. However, our financial results were substantially protected by the quality of our asset base, the strength of our margins and further strong economic growth in China. Favourable currency movements and the strength of our iron ore and coal businesses contributed to our improved performance in a year that also saw good progress in integrating the acquisitions made over the last two years. Rio Tinto s adjusted earnings in 2001 were US$1,662 million, up ten per cent on the previous year. Net earnings, after an exceptional charge, were US$1,079 million. Cash flow from operations was US$3,415 million. Dividends equivalent to 59.0 US cents per share have been declared for the year as a whole. Last August, we announced a policy of paying future interim dividends equivalent to 50 per cent of the previous year s total dividend. This means that the interim dividend for 2002, payable in September, can be predicted to be 29.5 US cents per share. Consolidation, acquisitions and new projects We are already benefiting from the US$4 billion of acquisitions made in 2000 and early Capital savings on the West Angelas railway in Western Australia stand at US$110 million and we expect significant savings in rail operating costs. The newly acquired mines adjoining Coal & Allied s existing operations in the Hunter Valley of New South Wales, Australia, are generating substantial operating cost savings, with more anticipated. We also took the opportunity to increase our stake in some of our businesses: Queensland Alumina, Coal & Allied Industries and Palabora Mining Company. We acquired new assets in the industrial salt and talc businesses, complementing our existing operations. Our commitment to developing new projects and enhancing existing ones continues with important projects in our iron ore, copper, diamonds, coking coal and alumina businesses Rio Tinto Annual report and financial statements

5 Dividends per share US cents UK pence Australian cents Strategy Rio Tinto s strategy of delivering value over time is consistent and simple. Our portfolio of worldclass assets diverse in terms of product range and location provides a degree of stability and a resilience to economic and political change. We do not chase arbitrary growth targets. Investment decisions are made on the basis of the quality of opportunity, taking into account our understanding of all the risks and implications. The commodity in question is part of that assessment but rarely the most important part. A key to the successful implementation of this strategy is effective risk analysis and the ability to respond decisively to changing circumstances, particularly in times of economic uncertainty. Equally, it depends on efficient, well focused management of our operations. Rio Tinto s success in implementing this strategy over time is reflected in the comparison of total shareholder return (that is the total of share price gain plus dividends) of Rio Tinto with 15 other major mining companies. In the past five consecutive four-year periods, Rio Tinto has been in the top quartile of returns; and in all of the 15 overlapping four year periods during which we have made the comparison, Rio Tinto has been above the median. Corporate social responsibility Investor interest in the non financial performance of companies has never been greater. In Rio Tinto, social and environmental responsibility is an integral part of our business. That is why we are taking a leading role in the Global Mining Initiative. The GMI involves a process of extensive dialogue with non corporate stakeholders such as local communities and non government organisations. We are trying to define ways in which our industry as a whole, not just Rio Tinto, can handle some of the issues surrounding our business more effectively in the future than we have done in the past. The Dow Jones STOXX Sustainability Index ranked Rio Tinto as sustainability leader in the Basic Resources market sector in the 2002 version, published in October Rio Tinto s people There were two Board changes during In August, Gary Pemberton retired as a non executive director of Rio Tinto and, in December, Paul Skinner joined as a non executive director. Gary delivered broad and valuable experience to Rio Tinto during his five years with us, and I, on behalf of the board, thank him most sincerely. Cash flow from operations US$m 2,979 2, ,071 2, ,015 2, ,440 2, ,415 2, Dividends from associates and joint ventures Chris Bull, our finance director, retires from the board in April this year having made an important contribution to the Group in the 11 years since his appointment. He will be replaced as finance director by Guy Elliott who has been with the Group for 22 years and joined the board in January Sadly, Ian Falconer, who was company secretary of Rio Tinto Limited and had worked for the Group for 28 years, died in January this year. We shall miss his calm professionalism. Rio Tinto s financial performance is only possible with the constant effort of our people around the world. I would like to pay tribute to their unstinting commitment and to their broad skills, which enable us to embrace the challenges our industry faces with such confidence and enthusiasm. Outlook As far as Rio Tinto s business is concerned, the economic downturn in the US began well before 11 September and was, in fact, apparent even before the year began. For 2002, we simply do not know what will happen in the world economy. The signals are mixed with the more favourable ones implying that the US economy has begun to stabilise. We shall have to wait and see but, in any event, significant improvement seems unlikely before the middle of the year at the earliest. Neither Europe nor, especially, Japan is expected to lead the recovery process. Continuing weakness in these regions may well mean that economic recovery will be gradual rather than sharp. Compared with many occasions in the past, the mining industry has been relatively responsive to the emerging supply and demand imbalances. This may be evidence of an industry that is now more committed than previously to improving shareholder returns. We have shown that Rio Tinto can deliver good financial performance even in weak market conditions. With our high quality asset base and with new investments under construction, we clearly have the potential to generate excellent returns in more buoyant markets. Sir Robert Wilson Chairman Operating cash flow 2001 Rio Tinto Annual report and financial statements 3

6 Chief executive s report Margins (earnings before interest, tax and exceptional items to sales revenue) Our financial performance in 2001 reflected the actions we have taken, and continue to take, to help offset those factors beyond our control. Several actions have yet to be fully reflected in our results but our systematic search for efficiency gains, prompt action in response to changing markets and our rigorous approach to developing opportunities all play a role. Operating performance Product group earnings after tax were US$1,906 million, compared with US$1,779 million in The exceptional charge of US$583 million in 2001 related to the impairment of asset carrying values, principally at Kennecott Utah Copper, and is not included in the 2001 earnings shown above. Earnings in 2001 were achieved despite a backdrop of generally declining metal prices and weaker demand for some of our products. Bulk commodities remained strong and provided much of the impetus for our improved performance. This, together with favourable currency movements as well as further cost containment, enabled us to maintain our margins at nearly 30 per cent. Each of our businesses responded quickly to market circumstances. The approaches varied but included production and sales volume adjustments as well as continuing to seek efficiency gains. Lower traded metal prices reduced earnings by US$280 million. Average copper and aluminium prices were 13 per cent and six per cent, respectively, below those in Coal and, to a more modest extent, iron ore benefited from price improvements, with benchmark prices for seaborne traded coal up by 20 per cent and iron ore up by four per cent. Improved bulk commodity prices contributed US$121 million to earnings and, with favourable exchange rate movements adding another US$140 million, mitigated the impact of lower metal prices to a considerable degree. Higher sales volumes contributed US$119 million to earnings. Production volumes were higher due to the iron ore, aluminium and coal acquisitions of 2000 and In the existing businesses, volume was maintained overall but within this, we saw output varying in line with market demand and tonnages being diverted to new markets to mitigate the risk from reduced demand evident in some of our traditional markets. Iron ore contributed strongly to the robust result, with record iron ore production and record shipments into China by Hamersley. At Comalco, attributable aluminium production increased by 12 per cent. Comalco s shipments were largely unaffected by the slowdown in Japan as some sales were redirected to the US and Europe. Coal production was up 13 per cent, with the Energy group accounting for 22 per cent of Group turnover and contributing 22 per cent of adjusted earnings. Increased domestic demand in the US and acquisitions in New South Wales, Australia, which doubled our managed capacity there, benefited the business. The Group s mined copper and gold production was higher as was titanium dioxide feedstock. However, titanium dioxide and borate shipments were lower and diamond sales were down substantially, in the absence of sales from inventories in 2000 and reduced allocations to customers later in Sustained margins Rio Tinto is ahead of major competitors in terms of operating margins. Each of our businesses responded quickly to their individual market circumstances. The approaches varied but included production and sales volume adjustments as well as continuing to seek efficiency gains. Rio Tinto s Borax business is centred on the world s largest borate mine and processing operation at Boron in California s Mojave desert Rio Tinto Annual report and financial statements

7 Product group earnings US$m 1,452 1,451 1,439 1,779 1, We also continued to deliver cost savings. Excluding the US$16 million effect of higher fuel and other energy prices, real terms cash cost savings were US$57 million. The outcome would have been better but for higher cell reconstruction, caustic soda costs and refinery maintenance at Comalco, as well as the cost of mining through old underground coal workings at Blair Athol and mine changes at Kestrel in the Energy group. Established efficiency improvement efforts, particularly in Hamersley, continued to deliver gains, as did programmes in Borax. Work also progressed on the asset utilisation programme where we are focused on working our capital harder. Hamersley s Yandicoogina mine, for example, was expanded, largely utilising surplus capital equipment from elsewhere in Hamersley following improved performance. At the same time, we took decisive action in businesses that are underperforming. At Kennecott Utah Copper, for example, the North Concentrator has been permanently closed and smelter maintenance outsourced. Elsewhere, we have reviewed the potential for future underperformance and, where necessary, pulled back from existing developments. The protracted downturn in the US steel industry, for instance, resulted in the refurbishment of the Iron Ore Company of Canada s Sept-Iles pellet plant being suspended. The project is capable of being completed when the market recovers. Good progress was made during the year in realising synergies from acquisitions in our iron ore and coal businesses. In Western Australia, we are building on a mutually beneficial agreement with our Robe partners to share rail infrastructure with Hamersley and for the Pilbara Rail Company to begin operations by the end of Lost time injuries employees and contractors (number of injuries) the first quarter of We are also looking at potential port, power and procurement benefits. The integration of Coal & Allied s acquisitions in New South Wales is well under way with further cost savings and efficiencies to be achieved across the combined operations. In January 2002, we acquired additional premium coal reserves in the US Powder River Basin that will extend the life of the Jacobs Ranch mine for a further 18 years at current production levels. Safety, health, environment and communities Rio Tinto places the utmost importance on health and safety in the workplace. Strenuous efforts are made to improve our safety performance year on year. I am, therefore, very sad to report the deaths of six people, including three contractors employees, at managed Group operations during There were 19 per cent fewer lost time injuries, with the lost time frequency rate improving by 22 per cent. Our goal remains to eliminate all injuries and we must never lose sight of that in anything we do. Rio Tinto seeks to minimise environmental risks and impact through effective management practices. This involves working with host governments, local communities who are our immediate neighbours, non government organisations and our own employees to enable us to understand better the issues emerging from our presence. In addition to our Group report covering these matters, Rio Tinto s individual businesses publish their own social and environmental reports Total Corporate activity The US$4 billion of investment opportunities seized in 2000 and early 2001 are being Lost day Restricted work day At acquisitions consolidated into our business. In Western Australia, capital savings on the West Angelas railway and savings in rail operating costs in the order of ten per cent are anticipated. Optimising power supplies and better utilisation of ports offer further potential to the iron ore businesses. We took an opportunity to increase our interest in Coal & Allied following its acquisition of the Peabody Group s Australian coal businesses and the Lemington mine. Several of these properties adjoin Coal & Allied s existing Hunter Valley operations in New South Wales. All the newly acquired mines are producing at higher rates, with initial pre-tax operating savings of approximately US$10 million a year achieved. There will be more significant savings as we further integrate adjacent mines. Coal & Allied also increased its interest in the Warkworth Mining Joint Venture from per cent to per cent and subsequently reached agreement for the sale of its Ravensworth and Narama interests in the Hunter Valley. The sale process for Coal & Allied s share of the Moura coal mine in Queensland is expected to conclude in Dampier Salt became the world s largest salt exporter with its acquisition of Cargill Australia s Port Hedland salt operation, while Luzenac acquired the Three Springs mine in Western Australia to add to its talc business. Comalco acquired an additional 8.3 per cent interest in Queensland Alumina, increasing its overall interest to 38.6 per cent and we purchased an additional 0.7 per cent in Palabora Mining Company, taking our holding to 49.2 per cent. Our offer to purchase all the issued and Safety first Strenuous efforts are made to improve our safety performance year on year. Our goal remains to eliminate all injuries and we must never lose sight of that in anything we do. Fire and rescue training drills take place frequently at all operations, as illustrated here at Weipa and Warkworth mines, Australia Rio Tinto Annual report and financial statements 5

8 Chief executive s report continued Production volumes Nine major products valued at constant prices Index (1990 = 100) Production value (excluding major acquisitions) Impact of major acquisitions: outstanding units of the Labrador Iron Ore Royalty Income Fund expired in April, with Rio Tinto now owning 20.3 per cent. We also continued to pursue opportunities as they arose to realise shareholder value through divestments. In 2001, for instance, we sold our stake in Norzink, as well as other non strategic interests acquired as a result of the North and Ashton purchases in Projects Investment in new projects during 2001 embraced a number of our commodities. Around the world, Rio Tinto invested US$1.4 billion in capital expenditure. Subject to government approvals, Hamersley Iron has agreed to construct and operate a US$64 million iron ore mine, by about 2004, under an unincorporated joint venture with Shanghai Baosteel Group Corporation, China s biggest steel producer. Hamersley will have a 54 per cent equity share in the joint venture and the new mine will use Hamersley s existing processing, rail and port infrastructure. At the Diavik diamond project in Canada s Northwest Territories, all critical materials for the year s construction programme were hauled over the winter ice road. Work on the US$900 million development progressed on schedule towards production in the first half of Construction of Palabora s US$410 million underground copper mine in South Africa is on track, as is work on the US$1 billion Phase 4 expansion at Escondida in Chile. Meanwhile, Pacific Coal began development of the US$210 million Hail Creek coking coal project in Queensland, Australia in response to longer term market conditions. Work on Robe River s US$450 million West Angelas iron ore mine and port facilities in Western Australia continued towards the first shipment in mid Construction of the US$76 million second block cave at the underground Northparkes copper-gold mine in New South Wales, Australia, began in February 2001 and site preparation began in December for construction of Comalco s US$750 million alumina refinery at Gladstone, Queensland. Paths to growth We do not limit ourselves to any single growth path in Rio Tinto. In the past two years, we have achieved merger and acquisition success across the spectrum of commodities. Last year, we focused on integration of the acquisitions. However, greenfield projects, such as Diavik diamonds, Hail Creek coking coal and the new alumina refinery, remain an important avenue for growth when market conditions are appropriate. There are also considerable brownfield opportunities at our existing operations, such as Yandicoogina iron ore, and our exploration and technology efforts have also borne fruit. Regardless of where the growth comes from, we remain focused on achieving growth in shareholder value through the business cycle. Leigh Clifford Chief executive Paths to growth We do not limit ourselves to any single growth path. In addition to synergies from acquisitions, we have considerable green and brownfield opportunities and our exploration and technology efforts have also borne fruit. Regardless of where growth comes from, we remain focused on shareholder value. Left: Overlooking Pit D at the Three Springs Talc mine, Western Australia Rio Tinto Annual report and financial statements

9 Selected financial data for Rio Tinto Group for the period 1997 to 2001 Gross turnover US$m Profit before tax and exceptional items US$m Earnings before interest, taxes, depreciation & amortisation US$m 9,434 SELECTED FINANCIAL DATA 9,221 9,310 9,972 10,438 2,072 1,951 2,031 2,509 2,698 3,180 3,171 3,399 4,028 4, and 2001 exclude exceptional asset write-downs Adjusted earnings US$m Net earnings US$m Adjusted earnings per share US cents 700 1,220 1,103 1,282 1,507 1,662 1,220 1,282 1,507 1, Net earnings in 1998 and 2001 were after exceptional asset write-downs Adjusted and net earnings per share were the same except in 1998 and 2001 when net figures were 50.4 and 78.5 US cents, respectively Dividends per share US cents UK pence Australian cents Shareholders funds US$m Total capital US$m Net debt: total capital % 7,044 6,419 7,096 7,344 7,176 10,600 10,350 10,240 13,258 13, Exchange rates for the periods are shown on page Rio Tinto Annual report and financial statements 7

10 RISK FACTORS RISK FACTORS The following describes some of the risks that could affect Rio Tinto. In addition, some risks may be unknown to Rio Tinto and others, which are currently believed to be immaterial, could turn out to be material. All of these could significantly affect the Group s business, revenues, income, assets, liquidity and capital resources. They should also be considered in connection with any forward looking statements in this document and the cautionary statement below regarding them. Economic conditions Commodity prices, and demand for the Group s products, are influenced strongly by world economic growth, particularly that in the US. Commodity prices can fluctuate widely and have a material impact on the Group s results. Further discussion can be found on page 11, Business environment, and on page 31, Commodity prices. Exchange rates The Group s assets, earnings and cash flows are influenced by a wide variety of currencies due to the geographic diversity of the Group s sales and the countries in which it operates. Further discussion can be found on page 30, Exchange rates, reporting currencies and currency exposure. Acquisitions The Group has grown partly through the acquisition of other businesses. There are numerous risks commonly encountered in business combinations and Rio Tinto cannot guarantee that management will be able effectively to integrate businesses acquired, or generate the cost savings and synergies anticipated. Exploration and new projects The Group seeks to identify new mining properties through an active exploration programme. However, there is no guarantee that such expenditure will be recouped. The Group develops new mining properties and expands its existing operations as a means of generating shareholder value. However, there are increasing regulatory, environmental and social approvals required that can potentially result in significant delays in construction and may adversely impact upon a project s economics. Reserve estimation There are numerous uncertainties inherent in estimating ore reserves and estimates that are valid at the time of estimation may change significantly when new information becomes available. Fluctuations in the price of commodities, increased production costs or reduced recovery rates may render lower grade reserves uneconomic and may, ultimately, result in the reserves being restated. Political The Group has some operations in countries where a relatively high degree of political risk may adversely impact upon the profitability or, in extreme cases, the viability of the operation. These risks include civil unrest, expropriation, nationalisation, renegotiation or nullification of existing contracts, mining leases and permits or other agreements, changes in laws, taxation policies, currency restrictions and changing political conditions. e-business The Group has invested in and is involved with e-business initiatives. Several technical aspects are still unproven and the eventual commercial impacts cannot be assessed with any certainty. Accordingly, the costs and benefits from participating in e-business and the consequent effects on the Group s future earnings, balance sheet and cash flows may vary widely from present expectations. Land and resource tenure The Group operates in several countries where title to land is sometimes unclear and disputes may arise over land ownership or its use for resource development. Identifying all the affected owners and structuring compensation arrangements that are fair and equitable, and acceptable to affected communities, is often extremely complex and difficult. Failure to address these issues may disrupt some mining projects and impede the Group s ability to develop other mining properties. Since 1992, native title has been accepted as part of Australia s common law. The Native Title Act 1993 provides, amongst other things, a framework for the validation of title, including mining tenements, that might be affected by the existence of native title; the determination of native title claims; a right to negotiate process with respect to the grant of new exploration and mining tenements and certain compulsory acquisitions of land; and the negotiation and registration of indigenous land use agreements. The nature and content of native title and its relationship with other concurrently existing rights, such as exploration or mining tenements, is subject to development by Australian common law. Native title can extend to offshore areas but it has yet to be decided whether it extends to the ownership or control of mineral resources and petroleum. Other legislation, such as heritage legislation, has conferred other rights on Aboriginal people which could also restrict or prohibit exploration and mining activities in parts of Australia. Health, safety and environment Rio Tinto operates in an industry that is subject to numerous health, safety and environmental laws and regulations and community expectations. Evolving regulatory standards and expectations may result in increased capital and operating costs although the timing and quantification cannot be predicted. Also, potentially expensive trans-national litigation can result from allegations of failures to meet the required standards. Mining operations Mining operations are vulnerable to a number of circumstances beyond the Group s control, including transport disruption, weather and other natural disasters such as cyclones and flooding, unexpected maintenance problems, collapse or damage to pit walls, unexpected geological variations and industrial actions. These can affect costs at particular mines for varying periods. Mining, smelting and refining processes also rely on key inputs, for example fuel and electricity. Appropriate insurance can provide protection from some, but not all, of the costs that may arise from unforeseen events. Disruption to the supply of key inputs, or changes in their pricing, may have a significant impact on future earnings. Rehabilitation Costs associated with rehabilitating land disturbed during the mining process and addressing environmental, health and community issues, as far as practicable, are usually estimated and dealt with before a property is sold or closed. However, there is a risk that estimates may be insufficient and/or further issues may be identified subsequently that result in claims or demands for additional rehabilitation or compensation costs. Non-managed operations Rio Tinto cannot guarantee that local management of mining assets where it does not have managerial control will comply with the Group s standards or objectives. CAUTIONARY STATEMENT: FORWARD LOOKING STATEMENTS Forward looking statements have been made throughout this report within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities and Exchange Act of 1934, as amended. These include estimated reserves, anticipated production or construction commencement dates, costs, outputs and productive lives of assets. These involve known and unknown risks, uncertainties and other factors, many beyond Rio Tinto s control. For example, future revenues 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 similar factors include the ability to produce and transport products profitably, the impact 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. Consequently, Rio Tinto cannot give assurances or guarantees that the forward looking statements made will not differ materially from actual results Rio Tinto Annual report and financial statements

11 About Rio Tinto INTRODUCTION Rio Tinto Limited and Rio Tinto plc operate as one business organisation, referred to as Rio Tinto, the Rio Tinto Group or, more simply, the Group, in this report. These collective expressions are used for convenience only since both Companies and the individual companies in which they directly or indirectly own investments are separate and distinct entities. Limited, plc, Pty, Inc, Limitada, or SA has generally been omitted from Group company names, except to distinguish between Rio Tinto plc and Rio Tinto Limited. Except where indicated, financial data are derived from, and should be read in conjunction with, the Rio Tinto Group s consolidated financial statements which are in United States dollars (US$). Solely for convenience, pound sterling ( ) and Australian dollar (A$) amounts not derived from the financial statements have been translated at the rates shown at the end of this document. Rio Tinto Group turnover, profit before tax and net earnings, and operating assets at the end of, 2000 and 2001 attributable to the Group s products and geographical areas, are shown in notes 23 and 24 to the Financial statements on pages 90 to 94. In the Operational review, operating assets and turnover are consistent with the financial information by business unit on page 116. The tables on pages 12 to 15 show production for 1999, 2000 and 2001 and include estimates of proved and probable reserves and mineral resources. The weights and measures used are mainly metric units; conversions into other units are shown on page 135. Words and phrases, often technical, have been used which have particular meanings; definitions of these terms are on pages 132 to 134. Throughout this report, the financial and operating data reflect the composition of each product group for the year to 31 December The results by product group for 2000 have been restated accordingly. AN OVERVIEW OF RIO TINTO Rio Tinto is a leading international mining group, combining Rio Tinto plc and Rio Tinto Limited in a dual listed companies (DLC) structure as a single economic entity. Nevertheless, both Companies remain legal entities with separate share listings and registers. Rio Tinto plc is incorporated in England and Wales and Rio Tinto Limited is incorporated in Australia. Rio Tinto s international headquarters is in London whilst the Australian representative office in Melbourne provides support for operations, undertakes external and investor relations and fulfils statutory obligations there. For legal purposes, Rio Tinto s US agent is Ms S Crompton, Secretary of Rio Tinto s US holding companies, 1343 South 1800 East, Salt Lake City, UT Investor relations in the US are provided by Makinson Cowell US Limited, One Penn Plaza, 250 W 34th St, Suite 1935, New York, NY Rio Tinto s address and telephone details are shown on the inside back cover of this report. Objective, strategy and management structure Rio Tinto s fundamental objective is to maximise the overall long term return to its shareholders by operating responsibly and sustainably in areas of proven expertise where the Group has competitive advantage. Its strategy is to maximise the net present value per share by investing in large, long life, cost competitive mines. Investments are driven by the quality of opportunity, not choice of commodity. Rio Tinto s substantial mining interests are diverse both in geography and product. The Group consists of wholly and partly owned subsidiaries, joint ventures, associated companies and joint arrangements, the principal ones being listed in notes 29 to 32 of the Financial statements on pages 107 and 108. Rio Tinto s management structure is designed to facilitate a clear focus on business performance and the Group s objective. The management structure, which is reflected in this report, is based on six principal product and two global support groups: Iron Ore Energy Industrial Minerals Aluminium Copper Diamonds & Gold Exploration, and Technology. The chief executive of each group reports to the chief executive of Rio Tinto Financial summary On 31 December 2001, Rio Tinto plc had a market capitalisation of 14.0 billion (US$20.3 billion) and Rio Tinto Limited had a market capitalisation of A$18.5 billion (US$9.5 billion). The combined Group s market capitalisation in publicly held shares at the end of 2001 was US$26.2 billion. At 31 December 2001, Rio Tinto had consolidated operating assets of US$12.9 billion; 45 per cent were located in Australia and New Zealand and 40 per cent in North America. Group turnover, or sales revenue, in 2001 was US$10.4 billion (or US$8.2 billion excluding Rio Tinto s share of joint ventures and associates turnover). After an exceptional charge related to the impairment of carrying values, net earnings in 2001 were US$1,079 million. Excluding the exceptional charge, adjusted earnings in 2001 were US$1,662 million. History Rio Tinto plc was formed in 1962 by the merger of two English companies, The Rio Tinto Company and The Consolidated Zinc Corporation. At the same time, the Australian interests of these two companies were also merged to form Rio Tinto Limited. The Rio Tinto Company was formed in 1873 to mine ancient copper workings at Rio Tinto in southern Spain. The Consolidated Zinc Corporation was incorporated in 1905, initially to treat zinc bearing mine waste at Broken Hill, New South Wales, Australia. Between 1962 and 1995, Rio Tinto plc and Rio Tinto Limited discovered important mineral deposits, developed major mining projects and also grew through acquisition. Their DLC merger in 1995 was structured to ensure that, as far as possible, the shareholders of both Companies are in substantially the same economic position as if they held shares in a single enterprise which owns all the Companies assets. A more detailed description of the DLC can be found on page 59. Following the DLC merger, Rio Tinto has continued to invest in developments and acquisitions in keeping with its strategy. RECENT DEVELOPMENTS Share buybacks and issues 2001 In April 2001, Rio Tinto plc shareholders renewed approvals for the buyback of up to ten per cent of its own shares. Under the Australian Corporations Act, Rio Tinto Limited is permitted to buy back up to ten per cent of its shares, through certain permitted means, in any 12 month period without seeking shareholder approval. In addition, in 1999 Rio Tinto Limited obtained shareholder approval to buy back up to all the Rio Tinto Limited shares held by Tinto Holdings Australia, a wholly owned subsidiary of Rio Tinto plc. Rio Tinto plc will seek renewal of the April 2001 shareholder approvals at its annual general meeting in April The number of shares, if any, which may be bought back under this new authority will continue to be determined by the directors, based on what they consider to be in the best interests of the continuing shareholders. In the year to 31 December 2001, neither Rio Tinto plc nor Rio Tinto Limited purchased publicly held shares for cancellation in either Company. However, a further 398,000 Rio Tinto plc and 10,000 Rio Tinto Limited shares were issued in connection with the acquisition of Ashton Mining. Additionally, 681,000 Rio Tinto plc and 79,000 Rio Tinto Limited shares were issued in respect of the Companies employee share plans. Following approval by warrantholders and sanction by the Court in April 2001, Rio Tinto plc s proposed conversion of its share warrants to bearer into registered ordinary shares became effective in June As a result, share warrants to bearer have been delisted and, since there has ceased to be any need to distinguish between registered and bearer shares, references to registered shares have been omitted in all documentation. Rio Tinto extended a share savings plan to employees of subsidiary companies worldwide in September. In aggregate, approximately 24 per cent of eligible employees took out a savings contract for a fixed monthly amount over periods of up to five years and were granted options for 1.0 million Rio Tinto plc shares and 1.4 million Rio Tinto Limited shares. Share buybacks and issues During 1999, Rio Tinto Limited purchased off market and cancelled 15.5 million of its shares held by Tinto Holdings Australia, a wholly owned indirect subsidiary of Rio Tinto plc, at an average price of A$26.45 per share. As a consequence the public s interest in Rio Tinto Limited rose from 51.3 per cent to 52.6 per cent. Rio Tinto plc s preference share capital was also cancelled and repaid at a cost of 11 million. ABOUT RIO TINTO 2001 Rio Tinto Annual report and financial statements 9

12 About Rio Tinto continued ABOUT RIO TINTO In 2000, 3.2 million Rio Tinto plc shares and 2.1 million Rio Tinto Limited shares were issued in connection with the acquisition of Comalco s publicly held shares. Rio Tinto Limited and Rio Tinto plc also issued 0.4 million and 0.04 million shares, respectively, in connection with the acquisition of Ashton Mining. Rio Tinto plc purchased and cancelled 1.2 million of its shares at an average price of per share and Rio Tinto Limited purchased and cancelled 0.74 million of its shares at an average price of A$25.13 per share. Within the DLC, Rio Tinto Limited also purchased off market and cancelled a further 91 million of its shares held by Tinto Holdings Australia at an average price of A$25.43 per share. As a consequence, the public interest in Rio Tinto Limited rose from 52.6 per cent to 62.4 per cent, exceeding the Australian Government s requirement when it approved the DLC. Operations acquired and divested 2001 In January 2001, Coal & Allied Industries acquired the Peabody Group s Australian coal businesses for US$455 million and the assumption of US$100 million in debt. Two of the Peabody mines adjoin Coal & Allied s existing Hunter Valley Operations in New South Wales, Australia. Coal & Allied increased its interest in the Warkworth mine from per cent to per cent for a consideration of US$27 million in mid year. In March, Rio Tinto acquired, on market, an additional 1.83 per cent interest in Coal & Allied for A$29 million (US$15 million), increasing its interest to per cent. In April, the Norzink smelter was sold resulting in a gain of US$54 million after tax for Rio Tinto s 50 per cent share. In May, Rio Tinto sold North Forest Products for A$335 million (US$171 million). Following a review of the Ashton Mining assets, Rio Tinto sold its 34.8 per cent interest in Aurora Gold as well as other minority interests, acquired as part of the takeover of Ashton Mining in 2000, whilst increasing its interest in Ashton Mining of Canada, a publicly quoted diamond exploration company, to 63.8 per cent. Rio Tinto s offer to purchase all the issued and outstanding units of the Labrador Iron Ore Royalty Income Fund expired in April. It resulted in Rio Tinto holding approximately six million units, purchased for C$87 million (US$56 million), representing 20.3 per cent of the units in the Fund. In May, Rio Tinto issued a compulsory acquisition notice to acquire the units in the Western Australian Diamond Trust that it did not already own. Following the receipt of objections, Rio Tinto has applied to the Supreme Court of Victoria seeking approval of the acquisition. In July, Rio Tinto purchased additional shares in Palabora Mining Company on market, increasing its interest by approximately 0.7 per cent to 49.2 per cent. In August, Dampier Salt acquired Cargill Australia s Port Hedland salt operation in Western Australia for US$95 million plus contingent performance based payments, to be paid over a number of years, and not to exceed US$15 million in aggregate. With effect from September, Comalco acquired an additional 8.3 per cent interest in Queensland Alumina for US$189 million, increasing its overall interest to 38.6 per cent. In September, Rio Tinto acquired the Three Springs talc mine in Western Australia for US$28 million. In December, conditional agreement was reached for the sale of Coal & Allied Industries Ravensworth and Narama interests in the Hunter Valley, New South Wales for US$64 million. Coal & Allied has also conditionally agreed to sell its 55 per cent share of the Moura coal mine in Queensland for US$166 million and the sale is expected to conclude in A conditional agreement for the sale of Rio Tinto s 49 per cent interest in Somincor for US$78 million, including some deferred payments, was agreed in January Kennecott Energy acquired some 488 million tonnes of additional reserves adjacent to its Jacob Ranch mine for US$379 million in January The recent acquisitions and development projects have been funded using the US commercial paper market, the 2001 bond issue, the European medium term note facility, internally generated funds and the proceeds of disposals. Operations acquired and divested In 1999, Rio Tinto increased its beneficial interest in the Blair Athol mine in Queensland from 57.2 to 71.2 per cent for US$43 million in January. In February, Rio Tinto purchased an 80 per cent interest in the Kestrel coal mine in Queensland for US$150 million. Between January and May, Rio Tinto purchased additional Comalco shares in the market at a total cost of A$64.9 million (US$41.9 million), increasing the Group s shareholding from approximately 70.4 to 72.4 per cent. In June, Rio Tinto s wholly owned subsidiary Queensland Coal acquired an additional 19.5 per cent interest in the Clermont coal deposit for US$14 million, increasing its shareholding to 55 per cent. Plans to merge Rio Tinto, Coal & Allied Industries and Mitsubishi coal interests in New South Wales, Australia were approved in September and, as a result, Rio Tinto had a 70.9 per cent interest in and continued to manage the merged Coal & Allied Industries mines. Rio Tinto sold its Las Cruces copper deposit in southern Spain during September and its 33 per cent interest in Minera in Bolivia and Argentina during December. In 2000, the Group s one third interest in Carbones del Cerrejon in Columbia was sold in January to the other partners and an after tax profit of US$55 million realised. In July, Comalco became wholly owned as a result of Rio Tinto s A$9.50 cash per share offer with a scrip alternative for the approximately 155 million publicly held shares. The acquisition involved the payment of some US$0.8 billion in cash and the issue of 3.2 million Rio Tinto plc and 2.1 million Rio Tinto Limited shares. Rio Tinto s A$4.75 per share cash offer for North, which closed in August, was also successful and cost US$2.0 billion. Rio Tinto s unconditional A$2.20 per share cash offer with a scrip alternative was accepted by Ashton Mining s shareholders in November. As a result, the Group s interest in the Argyle Diamond mine increased to 99.8 per cent. The acquisition of Ashton Mining cost US$418 million in cash and the issue of 0.4 million Rio Tinto Limited shares and 0.04 million Rio Tinto plc shares. Coal & Allied Industries acquired the Lemington coal mine and related interests for US$134 million in December. Development projects 2001 Rio Tinto invested US$1.4 billion in 2001 on capital expenditures around the world. At the Diavik diamond project in the Northwest Territories, Canada, all critical materials for the 2001 construction programme were hauled over the winter ice road. Work on the US$900 million development progressed on schedule towards production in the first half of Construction of the US$76 million second block cave at the underground Northparkes copper-gold mine in New South Wales, Australia began in February. In addition, the New Cobar Open Cut mine will be mined over the next four years at the nearby Peak Gold mine to supplement production from the US$20 million underground New Occidental mine where development was completed in Elsewhere, construction of Palabora s US$410 million underground copper mine in South Africa is on schedule for production in late Work on the US$1.1 billion Phase 4 expansion at the Escondida copper mine in Chile continued towards completion in In the US, Kennecott Utah Copper suspended operations at its North Concentrator, originally scheduled for closure in 1988, in June and closed it permanently in December. Minera Alumbrera in Argentina began construction of a third mill line and pebble crusher which will increase throughput by 30 per cent. Freeport Indonesia continued to develop the DOZ underground block cave. This is now scheduled to achieve design capacity of 25,000 tonnes of ore per day in 2002 instead of mid Pacific Coal began development of the US$210 million Hail Creek coking coal project in Queensland, Australia. The open cut mine will produce 5.5 million tonnes annually following start up in Subject to governmental and respective board approvals, Hamersley Iron has agreed to construct and operate a US$64 million iron ore mine by about 2004 under an unincorporated joint venture with Shanghai Baosteel Group Corporation. Hamersley will have a 54 per cent equity share in the joint venture. The new mine will use Hamersley s existing processing, rail and port infrastructure. Hamersley has adequate capacity to meet its commitment under the joint venture to supply an average ten million tonnes per year of standard Hamersley ore products for 20 years commencing in Work on Robe River s US$450 million West Angelas iron ore mine and associated expansion of the Cape Lambert port facilities in Western Australia continued towards the first shipment in mid In July, the Robe River partners agreed to share rail infrastructure with Rio Tinto Annual report and financial statements

13 Hamersley Iron, resulting in capital cost savings of US$110 million, and also agreed to contemplate port sharing. The agreement suspended the Japanese participants legal action launched in Detailed cost and other studies for a commercial sized HIsmelt plant at Kwinana in Western Australia continued. The Iron Ore Company of Canada suspended reconditioning of its Sept-Iles, Quebec, pellet plant in September due to US market deterioration. Site preparation began in December for construction of Comalco s US$750 million alumina refinery at Gladstone, Queensland. Initial shipments from the 1.4 million tonne per year plant are expected in the first quarter of Work on e-business initiatives included a number of Group businesses web sites being established and Rio Tinto investing in the electronic marketplace, Quadrem, and in globalcoal, which commenced operations in May. Rio Tinto Shipping became a shareholder in LevelSeas, which provides voyage management services and a chartering system for bulk ocean transport. Further detail on these investments and projects is provided in the Operational review on pages 32 to 46. Development projects Among Rio Tinto s wide range of projects at various stages of development, Hamersley s US$360 million Yandicoogina iron ore mine in Western Australia was completed under budget and ahead of schedule and shipped its first ore in January Production in 1999 exceeded expectations due to strong demand for its ore. In Canada, following the successful commissioning of QIT s upgraded slag plant in late 1999, equipment modifications to achieve a rated annual capacity of 250,000 tonnes were introduced in In addition, options to raise capacity to 350,000 tonnes a year without adding significant equipment are being evaluated. BUSINESS ENVIRONMENT Rio Tinto produces a broad range of metals and minerals, sold in a variety of markets, which now include electronic marketplaces, with differing characteristics and pricing mechanisms. Non ferrous metals are generally sold under contract, often long term, at prices determined by reference to prevailing prices on terminal markets such as the London Metal Exchange and COMEX in New York. Fluctuations in these prices, particularly for aluminium, copper and gold, inevitably affect Rio Tinto s financial results. Prices for many of the Group s other products, such as coal, iron ore and industrial minerals, are directly negotiated under contract and are less susceptible to short term variation. In commodity businesses, especially where there are terminal markets, excess capacity often results in prices falling to levels which may make some producers periodically unprofitable. Following 4.7 per cent growth in 2000, the world economy slowed sharply to grow by only 2.4 per cent in World trade grew scarcely at all following growth of over 12 per cent in Central to the global slowdown was the performance of the US economy which went into a technical recession for the first time in a decade. The economy was already slowing in 2001 as a result of the bursting of the technology investment bubble and high oil prices when business confidence was further depressed by terrorist attacks on the World Trade Centre on 11 September. For the year as a whole, US growth averaged just one per cent. A decline in US imports, particularly those for the technology sector, rapidly transmitted the effects of recession to the export orientated economies of Asia, such as Taiwan and Singapore. Japan, already suffering weak domestic demand, was also unable to counter the effects of slowing exports and its GDP shrank 0.4 per cent. With trade and profits in Europe being in turn hit by the slowing of growth in Asia and the US, the OECD saw its first synchronised economic downturn in two decades. The only two major economic regions to show strong growth in 2001 were Russia, helped by high oil prices, and China, where high inflows of foreign investment and strong infrastructure spending by the state, resulted in growth of 7.3 per cent. As a result of the slowing world economy, demand for nonferrous metals suffered a sharp reversal. Global consumption of aluminium fell by four per cent relative to 2000, while that for copper was down by three per cent, their steepest falls in nearly 20 years. Although production of these metals was also constrained, by power shortages in North America and Brazil in the case of aluminium and by price induced cutbacks in the case of copper, this was insufficient to prevent stocks accumulating and prices weakening. The Economist index of nonferrous metals prices, in US dollar terms, fell by 12 per cent in 2001, with the average aluminium price down by seven per cent and that for copper down by 13 per cent. Continuing US dollar strength, though it helped contain production costs in Australia, Canada and South Africa, also acted as a depressive influence on US dollar based prices. The gold price declined 2.9 per cent to average US$271 per oz for the year despite a price rally in the wake of the events of 11 September. The experience of the industrial and bulk minerals was more mixed. Demand for most industrial minerals weakened along with that of the metals, though those dependent on still buoyant housing markets, such as borates used in insulation fibreglass, did relatively better. In the bulk commodities, modest iron ore price rises of three to four per cent were agreed in March. Demand for seaborne iron ore in 2001 fell only fractionally relative to 2000, partly reflecting the fact that the biggest steel production cuts came in North America which is largely self sufficient in iron ore, and partly reflecting strong import demand from China. Thermal coal also had a good year in 2001, the reference price for which was increased by 20 per cent. Power shortages in the US boosted demand and prices for its domestic coal, while in the traded coal market a ten per cent growth in Asian demand kept supplies tight through to the third quarter. A discussion of the financial results for the two years to 31 December 2001 is given in the Financial review on pages 29 to 31. Comments on the financial performance of the individual product groups for the three years to 31 December 2001 are included in the Operational review on pages 32 to 46. Details of production, reserves and resources, and information on Group mines are given on pages 12 to 23 and 24 to 28, respectively. ABOUT RIO TINTO 2001 Rio Tinto Annual report and financial statements 11

14 Metals and minerals production METALS AND MINERALS PRODUCTION Production (a) Production (a) Production (a) Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto % share (b) share share share ALUMINA ( 000 tonnes) Eurallumina (Italy) (c) , Queensland Alumina (Australia) (c) (d) , ,762 1,017 3,624 1,204 Rio Tinto total 1,185 1,530 1,761 ALUMINIUM (refined) ( 000 tonnes) Anglesey (UK) Bell Bay (Australia) (c) Boyne Island (Australia) (c) Tiwai Point (New Zealand) (c) Rio Tinto total BAUXITE ( 000 tonnes) Boké (Guinea) (c) , , , Weipa (Australia) (c) ,386 8,188 11,767 10,507 11,326 11,326 Rio Tinto total 8,506 11,005 11,795 BORATES ( 000 tonnes) (e) Boron mine (US) Tincalayu (Argentina) Rio Tinto total COAL ( 000 tonnes) Coal & Allied Industries (f) Bengalla (Australia) (g) SC ,894 1,418 Hunter Valley Operations (Australia) (h) SC ,319 4,284 5,762 4,084 8,209 5,945 MC ,004 2,118 2,823 2,001 4,034 2,913 Mount Thorley Operations (Australia) SC ,213 1,252 2,164 1,224 2,376 1,373 MC ,448 1,385 2,225 1,259 2,171 1,255 Moura (Australia) (g) SC , MC ,713 1,080 Narama (Australia) (g) SC , Ravensworth East (Australia) (g) SC ,511 1,096 Warkworth (Australia) (g) SC ,141 2,070 MC Total Coal & Allied Industries 9,039 8,568 19,026 Pacific Coal Blair Athol Coal (Australia) SC ,110 7,915 11,040 7,864 10,592 7,546 Kestrel Coal (Australia) (i) SC , , MC , ,167 1,733 2,068 1,654 Tarong Coal (Australia) SC ,116 5,116 4,847 4,847 5,276 5,276 Total Pacific Coal 14,338 15,348 15,437 Total Australian coal 23,377 23,917 34,464 Kaltim Prima Coal (Indonesia) (j) SC ,013 7,007 13,135 6,568 15,611 7,806 Carbones del Cerrejon (Colombia) (k) SC 0.0 1, Kennecott Energy Antelope (US) SC ,579 20,579 20,837 20,837 22,344 22,344 Colowyo (US) SC (l) 5,053 5,053 4,691 4,691 5,231 5,231 Cordero Rojo (US) SC ,436 41,436 35,038 35,038 39,452 39,452 Decker (US) SC ,954 4,977 9,057 4,529 8,510 4,255 Jacobs Ranch (US) SC ,371 26,371 25,678 25,678 26,612 26,612 Spring Creek (US) SC ,975 9,975 10,253 10,253 8,767 8,767 Total US coal 108, , ,661 Rio Tinto total 139, , ,930 Coal type: SC steam/thermal coal, MC metallurgical/coking coal. See notes on page Rio Tinto Annual report and financial statements

15 Production (a) Production (a) Production (a) Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto % share (b) share share share COPPER (mined) ( 000 tonnes) Alumbrera (Argentina) (m) Bingham Canyon (US) Escondida (Chile) Grasberg FCX (Indonesia) (n) Grasberg Joint Venture (Indonesia) (n) Neves Corvo (Portugal) (o) Northparkes (Australia) (m) Palabora (South Africa) (p) Rio Tinto total COPPER (refined) ( 000 tonnes) Atlantic Copper (Spain) (n) Escondida (Chile) Kennecott Utah Copper (US) Palabora (South Africa) (p) Rio Tinto total DIAMONDS ( 000 carats) Argyle (Australia) (q) ,699 17,730 26,475 17,168 26,097 26,045 Merlin (Australia) (q) Rio Tinto total 17,730 17,205 26,100 GOLD (mined) ( 000 ounces) Alumbrera (Argentina) (m) Barney s Canyon (US) Bingham Canyon (US) Cortez/Pipeline (US) , , , Escondida (Chile) Grasberg FCX (Indonesia) (n) , , , Grasberg Joint Venture (Indonesia) (n) , , , Greens Creek (US) Kelian (Indonesia) Lihir (Papua New Guinea) (r) Morro do Ouro (Brazil) Northparkes (Australia) (m) Peak (Australia) Rawhide (US) Ridgeway (US) Rio Tinto Zimbabwe (Zimbabwe) Others (s) Rio Tinto total 2,987 2,730 3,577 GOLD (refined) ( 000 ounces) Kennecott Utah Copper (US) IRON ORE ( 000 tonnes) Channar (Australia) ,110 6,066 10,602 6,361 11,088 6,653 Corumbá (Brazil) Hamersley (Australia) ,997 44,997 55,095 55,095 58,828 58,828 Iron Ore Company of Canada (Canada) (m) ,136 3,442 14,562 8,169 Robe River (Australia) (m) ,785 6,776 30,706 16,274 Rio Tinto total 51,830 72,453 90,566 See notes on page 15 METALS AND MINERALS PRODUCTION 2001 Rio Tinto Annual report and financial statements 13

16 Metals and minerals production continued METALS AND MINERALS PRODUCTION Production (a) Production (a) Production (a) Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto % share (b) share share share LEAD ( 000 tonnes) Greens Creek (US) Zinkgruvan (Sweden) (m) Others (s) Rio Tinto total MOLYBDENUM ( 000 tonnes) Bingham Canyon (US) NICKEL (mined) ( 000 tonnes) Fortaleza (Brazil) NICKEL (refined) ( 000 tonnes) Empress (Zimbabwe) SALT ( 000 tonnes) Dampier (Australia) ,250 3,409 4,599 2,987 6,541 4,248 SILVER (mined) ( 000 ounces) Bingham Canyon (US) ,859 3,859 3,939 3,939 4,475 4,475 Escondida (Chile) ,525 1,057 3, , Grasberg FCX (Indonesia) (n) , , , Grasberg Joint Venture (Indonesia) (n) , , Greens Creek (US) ,261 7,213 9,237 6,494 10,964 7,703 Zinkgruvan (Sweden) (m) ,496 1,496 Others (s) 7,060 2,843 2,436 1,316 3,378 1,729 Rio Tinto total 15,973 14,428 17,703 SILVER (refined) ( 000 ounces) Kennecott Utah Copper (US) ,291 4,291 3,218 3,218 2,882 2,882 TALC ( 000 tonnes) Luzenac Group (Australia/Europe/N. America) (t) ,269 1,268 1,262 1,260 1,268 1,267 TIN (tonnes) Neves Corvo (Portugal) (o) ,158 1,057 1, , TITANIUM DIOXIDE FEEDSTOCK ( 000 tonnes) Rio Tinto Iron & Titanium (Canada/South Africa) (u) ,428 1,428 1,368 1,368 1,427 1,427 URANIUM (tonnes U 3 O 8 ) Energy Resouces of Australia (Australia) (m) ,764 1,207 4,211 2,880 Palabora (South Africa) (p) Rössing (Namibia) ,171 2,175 3,201 2,195 2,640 1,811 Rio Tinto total 2,217 3,446 4,705 ZINC (mined) ( 000 tonnes) Greens Creek (US) Zinkgruvan (Sweden) (m) Others (s) Rio Tinto total ZINC (refined) ( 000 tonnes) Norzink (Norway) (v) Others (s) Rio Tinto total See notes on page Rio Tinto Annual report and financial statements

17 Production data notes (a) Mine production figures for metals refer to the total quantity of metal produced in concentrates or doré bullion irrespective of whether these products are then refined onsite, except for the data for iron ore and bauxite which represent production of saleable quantities of ore. (b) Rio Tinto percentage share, shown above, is as at the end of 2001 and has applied over the period except for those operations where the share has varied during the year and the weighted average for them 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 Atlantic Copper (n) Argyle (q) Bengalla (f) (g) 29.0 Carbones del Cerrejon (k) 33.3 Comalco (c) Grasberg (n) Hunter Valley Operations (f) (h) Lihir (r) Mount Thorley(f) Moura (f) (g) 39.9 Narama (f) (g) 36.2 Palabora (p) Queensland Alumina (c) (d) Ravensworth East (f) (g) 72.5 Warkworth (f) (g) 40.3 (c) Rio Tinto progressively increased its interest in Comalco from 70.4 per cent to 72.4 per cent during the first half of During 2000, Rio Tinto acquired all the outstanding shares in Comalco. Rio Tinto s share of production has been calculated using the weighted average, for each individual operation, of Rio Tinto s interest over the relevant periods. (d) Comalco increased its holding in Queensland Alumina Limited from 30.3 per cent to 38.6 per cent, with effect from September (e) Borate quantities are expressed as B 2 O 3. (f) During March 2001, Rio Tinto increased its stake in Coal & Allied from 70.9 per cent to 72.7 per cent. (g) Production data are shown from 29 January 2001, the effective date of Coal & Allied s acquisition of the Australian coal businesses of the Peabody Group. Effective on the same date, Coal & Allied acquired an additional 11.8 per cent interest in the Warkworth mine. An agreement to sell Coal & Allied s share of Narama and Ravensworth, subject to certain conditions, was announced in December In February 2002, Coal & Allied conditionally agreed to sell its interest in the Moura coal mine in Queensland. (h) Hunter Valley Operations include the Howick and Hunter Valley mines plus the Lemington mine which Coal & Allied acquired with effect from 20 December (i) Rio Tinto acquired Kestrel Coal, formerly Gordonstone, in February 1999 and production commenced in June (j) Rio Tinto has a 50 per cent share in Kaltim Prima and, under the terms of its Coal Agreement, the Indonesian Government is entitled to a 13.5 per cent share of Kaltim Prima s production. Rio Tinto s share of production shown is before deduction of the Government share. (k) Rio Tinto disposed of its interest in Carbones del Cerrejon with effect from 1 January (l) Kennecott Energy has a partnership interest in the Colowyo mine, but as it is responsible under a management agreement for the operation of the mine, all of Colowyo s output is included in Rio Tinto s share of production. (m) Rio Tinto s share of production from the assets owned by North Limited is shown with effect from 11 August 2000, the effective date of the acquisition. (n) Rio Tinto s initial interests in the Grasberg mine and in the Atlantic Copper smelter were acquired in 1995 by virtue of an acquisition of shares in Freeport-McMoRan Copper & Gold (FCX). As a result of FCX share buy backs, Rio Tinto s interest in FCX has changed and, as of 31 December 2001, was 16.6 per cent. Rio Tinto then had, by virtue of its FCX shareholding, a 14.3 per cent share in Grasberg and a 16.6 per cent share in Atlantic Copper. From 1 January 1998, under the Joint Venture agreement with FCX, Rio Tinto is entitled to 40 per cent of additional material mined as a consequence of the expansion of the Grasberg facilities. The additional entitlement is shown separately in the main table. (o) In January 2002, Rio Tinto agreed to sell its interest in the Neves Corvo mine subject to certain conditions. (p) Rio Tinto increased its interest in Palabora Mining Company from 46.5 per cent to 48.6 per cent during November 2000 and then to 49.2 per cent in July (q) On 10 November 2000, Rio Tinto acquired control of Ashton Mining Limited. As a result of this purchase, Rio Tinto s effective interest in Argyle Diamonds increased from 59.7 per cent to 99.8 per cent. Rio Tinto also acquired the Merlin mine with Ashton. (r) Effective 14 February 2000, Rio Tinto s interest in Lihir decreased from per cent to 16.3 per cent following a merger under a scheme of arrangement with Niugini Mining. (s) Up until 31 December 1999, the above table included Rio Tinto s share of production from its one third interest in Minera S.A. This was sold at the end of (t) Talc production includes some products derived from purchased ores. The Three Springs talc mine in Western Australia was acquired in September 2001 and is included in the data from that date. (u) Quantities comprise 100 per cent of QIT and 50 per cent of Richards Bay Minerals production. (v) Rio Tinto completed the sale of its interest in Norzink on 17 April METALS AND MINERALS PRODUCTION 2001 Rio Tinto Annual report and financial statements 15

18 Ore reserves ORE RESERVES Estimates of ore reserves and mineral resources in this report (for Rio Tinto managed operations) were produced in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves, September 1999 (the JORC Code), as required by the Australian Stock Exchange (ASX). Codes or Guidelines similar to JORC with only minor regional variations have been adopted in South Africa, Canada, US and Europe and together these represent current best practice for reporting ore reserves and mineral resources. Rio Tinto continues to support the development of an International Code, expected during 2002, and moves towards international reciprocal recognition of the professionals responsible for ore reserve and mineral resource estimation. Ore reserve and mineral resource information in this report is based on information compiled by Competent Persons (as defined by JORC), or recognised mining professionals as defined by the ASX, most of whom are full time employees of Rio Tinto or related companies. Each has a minimum of five years relevant estimation experience and is a member of a recognised professional body whose members are bound by a professional code of ethics. Each Competent Person consents to the inclusion in this report of information they have provided in the form and context in which it appears. A register of the names of Competent Persons who are responsible for the estimates is maintained by the company secretaries in London and Melbourne and is available on request. The estimated ore reserve figures in the following tables are as of 31 December Summary data for 31 December 2000 are shown for comparison. Metric units are used throughout. The figures used to calculate Rio Tinto s share of reserves are often more precise than the rounded numbers shown in the tables, hence small differences might result if the calculations are repeated using the tabulated figures. Type of Proved ore reserves Probable ore reserves Total ore reserves 2001 compared with 2000 Rio Tinto share mine (a) at end 2001 at end 2001 Tonnage Grade Tonnage Grade Tonnage Interest Recoverable % mineral millions millions millions millions millions BAUXITE (b) of tonnes of tonnes of tonnes of tonnes of tonnes Reserves at operating mine Weipa (Australia) O/P Marketable product millions millions millions millions millions BORATES (c) of tonnes of tonnes of tonnes of tonnes of tonnes Reserves at operating mines Boron (US) O/P Tincalayu (Argentina) O/P Total 31.4 COAL (d) Coal type Recoverable % Yield Marketable reserves Marketable coal quality (e) reserves to give total marketable Proved Probable Total Total Marketable reserves (f) (f) reserves Reserves at operating mines millions millions millions millions millions Calorific Sulphur millions of tonnes of tonnes of tonnes of tonnes of tonnes value content of tonnes MJ/kg % Coal & Allied Industries (g) Bengalla (Australia) (h) O/C SC Hunter Valley Operations (Australia) (i) O/C SC+MC Mount Thorley Operations (Australia) O/C SC+MC Moura (Australia) (h) O/C SC+MC Narama (Australia) (h) O/C SC Ravensworth East (Australia) (h) O/C SC Warkworth (Australia) (h) O/C SC+MC Sub-total 504 Kaltim Prima Sangatta (Indonesia) O/C SC Kennecott Energy Antelope (US) O/C SC Colowyo (US) (j) O/C SC Cordero Rojo (US) O/C SC Decker (US) (k) O/C SC Fort Union (US) (k) O/C SC Jacobs Ranch (US) O/C SC Spring Creek (US) O/C SC Sub-total 1,417 Pacific Coal Blair Athol (Australia) O/C SC Kestrel (Australia) U/G SC+MC Tarong-Meandu (Australia) O/C SC Sub-total 286 Total reserves at operating mines 2,438 See notes on page Rio Tinto Annual report and financial statements

19 COAL CONTINUED (d) Type of Coal type Recoverable % Yield Marketable reserves Marketable coal quality Rio Tinto share mine (e) reserves to give (a) total marketable Proved Probable Total Total Interest Marketable reserves (f) (f) % reserves millions millions millions millions millions Calorific Sulphur millions of tonnes of tonnes of tonnes of tonnes of tonnes value content of tonnes Other undeveloped reserves (l) MJ/kg % Coal & Allied Industries Maules Creek (Australia) O/C SC+MC Mount Pleasant (Australia) O/C SC+MC Oaklands (Australia) O/C SC Ravensworth West (Australia) (h) O/C SC Sub-total 605 Gokwe North (Zimbabwe) O/C SC Kaltim Prima Bengalon (Indonesia) O/C SC Pacific Coal Clermont (Australia) O/C SC Hail Creek (Australia) O/C MC SW Yarraman (Australia) (m) O/C SC Tarong-Kunioon (Australia) (n) O/C SC Valeria (Australia) O/C SC Sub-total 505 Total undeveloped reserves 1,358 ORE RESERVES Proved ore reserves Probable ore reserves Total ore reserves 2001 compared with 2000 Average Rio Tinto share at end 2001 at end 2001 mill recovery % Tonnage Grade Tonnage Grade Tonnage Grade Interest Recoverable % metal millions millions millions millions millions COPPER of tonnes %Cu of tonnes %Cu of tonnes of tonnes %Cu %Cu of tonnes Reserves at operating mines and mines under construction Alumbrera (Argentina) O/P Bingham Canyon (US) open pit (o) O/P underground block cave U/G underground skarn ores U/G Escondida (Chile) sulphide O/P ,574 1, low grade sulphide O/P oxide O/P Fortaleza (Brazil) U/G Grasberg (Indonesia) (p) O/P+U/G , ,584 2, of which: FCX Joint Venture Neves Corvo (Portugal) (q) copper ore U/G tin-copper ores U/G Northparkes (Australia) open pit and stockpiles O/P underground U/G Palabora (South Africa) open pit O/P underground block cave U/G surface stockpiles (r) Total Recoverable diamonds millions carats millions carats millions millions carats carats millions DIAMONDS (b) of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne of carats Reserves at operating mines and mines under construction Argyle (Australia) (s) AK1 pipe O/P Alluvials O/P Diavik (Canada) O/P+U/G Murowa (Zimbabwe) O/P Total See notes on page Rio Tinto Annual report and financial statements 17

20 Ore reserves continued ORE RESERVES Type of Proved ore reserves Probable ore reserves Total ore reserves 2001 compared with 2000 Average Rio Tinto share mine at end 2001 at end 2001 mill (a) recovery Tonnage Grade Tonnage Grade Tonnage Grade % Interest Recoverable % metal millions grammes millions grammes millions millions grammes grammes millions GOLD of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne of ounces Reserves at operating mines Alumbrera (Argentina) O/P Barneys Canyon (US) O/P Bingham Canyon (US) open pit (o) O/P underground block cave U/G underground skarn ores U/G Cortez/Pipeline (US) O/P Grasberg (Indonesia) (p) O/P+U/G , ,584 2, of which: FCX Joint Venture Greens Creek (US) (t) U/G Kelian (Indonesia) (u) O/P Lihir (PNG) (u) O/P Morro do Ouro (Brazil) (v) O/P Mount Muro (Indonesia) (w) O/P Northparkes (Australia) open pit and stockpiles O/P underground U/G Peak (Australia) (x) U/G Rawhide (US) O/P Rio Tinto Zimbabwe U/G Total Marketable product millions millions millions millions millions IRON ORE (b) of tonnes %Fe of tonnes %Fe of tonnes of tonnes %Fe %Fe of tonnes Reserves at operating mines and mines under construction Channar (Australia) O/P Corumbá (Brazil) (y) O/P Hamersley (Australia) (z) O/P Iron Ore Company of Canada (Canada) O/P Nammuldi (Australia) O/P Robe River (Australia) Pannawonica (pisolite ore) O/P West Angelas (Marra Mamba ore) O/P Yandicoogina (Australia) O/P Total 1,920 millions millions millions millions millions MOLYBDENUM of tonnes %Mo of tonnes %Mo of tonnes of tonnes %Mo %Mo of tonnes Reserves at operating mine Bingham Canyon (US) open pit (o) O/P underground block cave U/G Total millions millions millions millions millions LEAD of tonnes %Pbof tonnes %Pbof tonnes of tonnes %Pb %Pb of tonnes Reserves at operating mines Greens Creek (US) (t) U/G Zinkgruvan (Sweden) U/G Total See notes on page Rio Tinto Annual report and financial statements

21 Type of Proved ore reserves Probable ore reserves Total ore reserves 2001 compared with 2000 Average Rio Tinto share mine at end 2001 at end 2001 mill (a) recovery Tonnage Grade Tonnage Grade Tonnage Grade % Interest Recoverable % metal millions millions millions millions millions NICKEL of tonnes %Ni of tonnes %Ni of tonnes of tonnes %Ni %Ni of tonnes Reserves at operating mine Fortaleza (Brazil) U/G millions grammes millions grammes millions millions grammes grammes millions SILVER of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne of ounces Reserves at operating mines Bingham Canyon (US) open pit (o) O/P underground block cave U/G underground skarn ores U/G Grasberg (Indonesia) (p) O/P+U/G , ,584 2, of which: FCX Joint Venture Greens Creek (US) (t) U/G Mount Muro (Indonesia) (w) O/P Neves Corvo (Portugal) (q) copper ore U/G tin-copper ore U/G Rawhide (US) O/P Zinkgruvan (Sweden) U/G Total Marketable product millions millions millions millions millions TALC (c) of tonnes of tonnes of tonnes of tonnes of tonnes Reserves at operating mines Luzenac Group (aa) O/P+U/G (Europe/North America/Australia) Recoverable metal millions millions millions millions millions TIN of tonnes %Sn of tonnes %Sn of tonnes of tonnes %Sn %Sn of tonnes Reserves at operating mine Neves Corvo (Portugal) (q) tin-copper ores U/G Marketable product millions millions millions millions millions TITANIUM DIOXIDE FEEDSTOCK (c) of tonnes of tonnes of tonnes of tonnes of tonnes Reserves at operating mines Rio Tinto Iron & Titanium (bb) O/P+D/O (Canada/South Africa) Recoverable metal millions millions millions millions millions URANIUM of tonnes %U 3 O 8 of tonnes %U 3 O 8 of tonnes of tonnes %U 3 O 8 %U 3 O 8 of tonnes Reserves Energy Resources of Australia (Australia) Ranger #3 (u) O/P Jabiluka U/G Rössing (Namibia) open pit O/P stockpiled ore Total millions millions millions millions millions ZINC of tonnes %Zn of tonnes %Zn of tonnes of tonnes %Zn %Zn of tonnes Reserves at operating mines Greens Creek (US) (t) U/G Zinkgruvan (Sweden) U/G Total See notes on page 20 ORE RESERVES 2001 Rio Tinto Annual report and financial statements 19

22 Ore reserves continued ORE RESERVES Notes (a) Type of mine: O/P = open pit, O/C = open cut, U/G = underground, D/O = dredging operation. (b) Reserves of iron ore, bauxite and diamonds are shown as recoverable reserves of saleable product after accounting for all mining and processing losses. Mill recoveries are therefore not shown. Al 2 O 3 grades are not shown for commercial reasons. (c) Reserves of industrial minerals are expressed in terms of marketable product, i.e. after all mining and processing losses. In the case of borates, the saleable product is B 2 O 3. (d) In a change from previous years, coal reserves are shown as both recoverable and marketable. The yield factors shown reflect the impact of further processing, where necessary, to provide marketable coal. (e) Coal type: SC = steam/thermal coal; MC = metallurgical/coking coal. (f) Analyses of coal from the US and Indonesia (Kaltim Prima) were undertaken according to American Standard Testing Methods (ASTM) on an As Received moisture basis whereas the coals from Australia have been analysed on an Air Dried moisture basis according to Australian Standards (AS). MJ/kg = megajoules per kilogramme. (g) During March 2001, Rio Tinto increased its stake in Coal & Allied from 70.9 per cent to 72.7 per cent. (h) Coal & Allied purchased the Australian coal businesses of the Peabody Group in January 2001; data for Bengalla, Moura, Narama, Ravensworth East, Ravensworth West and Warkworth are included for the first time. Effective on the same date, Coal & Allied acquired an additional 11.8 per cent interest in the Warkworth mine. An agreement to sell Coal & Allied s share of Narama and Ravensworth, subject to certain conditions, was announced in December In February 2002, Coal & Allied conditionally agreed to sell its interest in the Moura coal mine in Queensland. (i) Reserve figures now include reserves from the Carrington mine (22 million tonnes at end 2000) and Lemington mine (31 million tonnes at end 2000) that are now merged into Hunter Valley Operations; these were previously reported separately. (j) Kennecott Energy has a partnership interest in the Colowyo mine, but as it is responsible under a management agreement for the operation of the mine, all of Colowyo s reserves are included in Rio Tinto s share shown above. Recoverable reserves at Colowyo have decreased as a result of changes to the mine plan. (k) Recoverable reserves at Decker and Fort Union have decreased as a result of revisions to the mine plans at both operations. (l) The term other undeveloped reserves is used here to describe material that is economically viable on the basis of technical and economic studies but for which mining and processing permits have yet to be requested or obtained. There is a reasonable, but not absolute, certainty that the necessary permits will be issued and that mining can proceed when required. (m) Reserves at SW Yarraman are quoted for the first time. This deposit was previously reported under resources as part of the Tarong-Kunioon deposit. (n) Reserves at Tarong-Kunioon have increased following a major review of the deposit and the development of a detailed long term mine plan. (o) The reserves at Bingham Canyon have been re-assessed in the light of new long term metal price assumptions. (p) Rio Tinto is entitled to a share in metal production from Freeport s Grasberg operations due to its direct shareholding in Freeport-McMoRan Copper and Gold (FCX). In addition, under the terms of a joint venture agreement between Rio Tinto and FCX, Rio Tinto is entitled to a direct 40 per cent share in reserves discovered after 31 December Rio Tinto s share of reserves due to these two entitlements are shown separately. (q) In January 2002, Rio Tinto agreed to sell its interest in the Neves Corvo mine subject to certain conditions. (r) At Palabora, all reserves in the surface stockpile have been transferred to Foskor in exchange for that part of the existing underground reserve which is within the Foskor area. (s) On 10 November 2000, Rio Tinto acquired control of Ashton Mining Limited. As a result of this purchase, Rio Tinto s effective interest in Argyle Diamonds increased from 59.7 per cent to 99.8 per cent. (t) Reserves at Greens Creek have reduced as a result of reclassifying some material as resources and due to the use of lower metal prices. (u) Proved reserves at Kelian, Lihir and Ranger #3 include 11.6, 20.4 and 7.9 million tonnes respectively stockpiled at the end of December 2001 for future treatment. At Lihir, reserves have increased following additional drilling and a revised pit design. (v) Reserves at Morro do Ouro increased following drilling in 2000/2001 and process modifications that resulted in higher mill feed rates and gold recovery. Lower cost projections have also added to the increase in reserves. (w) Rio Tinto s interest in the Aurora Gold operations, including Mt Muro, Toka Tindung, Morobe and Lake Carey, gained through the acquisition of Ashton Mining Limited in November 2000, were sold in November (x) Reserves at Peak include the individual deposits of Peak, New Occidental, Perseverance and New Cobar. (y) Reserves at Corumbá have decreased after testwork indicated that fine material, previously quoted in the reserves, does not meet market specifications. (z) Reserves shown for Hamersley Iron s wholly owned operating mines include Mt Tom Price, Paraburdoo, Marandoo and Brockman. (aa) The Three Springs talc mine in Western Australia was acquired in September 2001 and is included in the total talc reserves. (bb) Comprises reserves at QIT-Fer et Titane (Rio Tinto 100 per cent) and Richards Bay Minerals (RBM) (Rio Tinto 50 per cent) Rio Tinto Annual report and financial statements

23 Mineral resources As required by the Australian Stock Exchange, the following tables contain details of other mineralisation that has the potential to become economic in the future but which is not yet classified as proved or probable reserves. This material is defined as mineral resources under the JORC Code. Estimates of such material are based largely on geological information with only preliminary consideration of mining, economic and other factors. While in the judgement of the Competent Person there are realistic expectations that all or part of the mineral resources will eventually become proved or probable reserves, there is no guarantee that this will occur as the result depends on further technical and economic studies and prevailing economic conditions in the future. Resources are stated as additional to the reserves reported earlier. Likely Measured resources Indicated resources Inferred resources Total resources 2001 compared with 2000 Rio Tinto mining at end 2001 at end 2001 at end 2001 interest method Tonnage Grade Tonnage Grade Tonnage Grade Tonnage Grade % (a) MINERAL RESOURCES millions millions millions millions millions BAUXITE of tonnes of tonnes of tonnes of tonnes of tonnes Weipa (Australia) O/P 301 3,300 3,601 3, Coal type Coal resources at end 2001 (b) Measured Indicated Inferred millions millions millions millions millions COAL of tonnes of tonnes of tonnes of tonnes of tonnes Coal & Allied Industries (Australia) Bengalla (c) O/C SC Hunter Valley Operations (d) O/C SC+MC ,886 1, Maules Creek O/C+U/G SC+MC Mount Pleasant O/C SC+MC 1,030 1,030 1, Mount Thorley Operations O/C SC+MC Moura (c) U/G SC+MC 302 1, , Oaklands O/C SC Ravensworth East (c) O/C SC Ravensworth West (c) O/C SC Vickery O/C+U/G SC+MC Warkworth (c) O/C+U/G SC Gokwe North (Zimbabwe) O/C SC ,151 1, Kaltim Prima (Indonesia) Bengalon O/C SC Sangatta O/C+U/G SC 1,164 1,035 2,199 2, Kennecott Energy (US) Colowyo (e) O/C+U/G SC Decker (e) O/C SC Fort Union (e) O/C SC Pacific Coal (Australia) Blair Athol O/C SC Clermont (f) O/C SC Hail Creek O/C+U/G MC Kestrel U/G SC+MC Kestrel West U/G SC SW Yarraman (g) O/C SC Tarong Kunioon O/C SC Tarong Meandu O/C SC Valeria O/C SC Winchester South O/C SC Measured resources Indicated resources Inferred resources at end 2001 at end 2001 at end 2001 millions grade millions grade millions grade millions millions COPPER of tonnes %Cu of tonnes %Cu of tonnes %Cu of tonnes of tonnes %Cu %Cu Escondida (Chile) sulphides O/P low grade sulphides O/P oxides O/P mixed O/P Escondida Norte (Chile) (h) sulphides O/P ,166 1, oxides O/P mixed O/P Grasberg (Indonesia) (i) O/P+U/G ,273 1, Northparkes (Australia) open pit O/P underground U/G Neves Corvo (j) U/G Palabora (South Africa) surface stockpiles Zinkgruvan (Sweden) U/G See notes on page Rio Tinto Annual report and financial statements 21

24 Mineral resources continued MINERAL RESOURCES Likely Measured resources Indicated resources Inferred resources Total resources 2001 compared with 2000 Rio Tinto mining at end 2001 at end 2001 at end 2001 interest method Tonnage Grade Tonnage Grade Tonnage Grade Tonnage Grade % (a) millions carats millions carats millions carats millions millions carats carats DIAMONDS of tonnes per tonne of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne Argyle (Australia) (k) AK1 pipe O/P Alluvials O/P Diavik (Canada) all pipes O/P+U/G Merlin (Australia) (k) O/P Murowa (Zimbabwe) O/P millions grammes millions grammes millions grammes millions millions grammes grammes GOLD of tonnes per tonne of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne Cortez/Pipeline (US) O/P Grasberg (Indonesia) (i) O/P+U/G ,273 1, Greens Creek (US) U/G Kelian (Australia) O/P Lake Carey/Fortitude (Australia) (l) O/P Lake Cowal (Australia) (m) Endeavour 42 O/P Endeavour 41 and 46 O/P Lihir (PNG) (n) O/P Morobe (PNG) (l) O/P Morro do Ouro (Brazil) (o) O/P Mount Muro (Indonesia) (l) O/P Northparkes (Australia) open pit O/P underground U/G Peak (Australia) O/P+U/G Rawhide (US) O/P Toka Tindung (Indonesia) (l) O/P Wabu (Indonesia) O/P millions millions millions millions millions IRON ORE of tonnes %Fe of tonnes %Fe of tonnes %Fe of tonnes of tonnes %Fe %Fe Corumbá (Brazil) (p) O/P Hamersley (Australia) Mt Tom Price high grade O/P Mt Tom Price low grade O/P Paraburdoo O/P Channar O/P Marandoo O/P Brockman 2 O/P Yandicoogina (Junction) O/P Nammuldi O/P Undeveloped resources (q) O/P 2, ,870 2, Iron Ore Company of Canada (Canada) O/P , ,037 2, Robe River (Australia) Pisolite developed resources O/P Pisolite undeveloped resources O/P 1, ,070 2, Marra Mamba O/P millions millions millions millions millions LEAD of tonnes %Pb of tonnes %Pb of tonnes %Pb of tonnes of tonnes %Pb %Pb Greens Creek (US) U/G Zinkgruvan (Sweden) U/G millions grammes millions grammes millions grammes millions millions grammes grammes SILVER of tonnes per tonne of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne Grasberg (Indonesia) (i) O/P+U/G ,273 1, Greens Creek (US) U/G Morobe (PNG) (l) O/P Mount Muro (Indonesia) (l) O/P Rawhide (US) O/P Toka Tindung (Indonesia) (l) O/P Wabu (Indonesia) O/P Zinkgruvan (Sweden) U/G millions millions millions millions millions TALC of tonnes of tonnes of tonnes of tonnes of tonnes Luzenac Group (r) O/P+U/G (Europe/N America/Australia) See notes on page Rio Tinto Annual report and financial statements

25 Likely Measured resources Indicated resources Inferred resources Total resources 2001 compared with 2000 Rio Tinto mining at end 2001 at end 2001 at end 2001 interest method Tonnage Grade Tonnage Grade Tonnage Grade Tonnage Grade % (a) millions millions millions millions millions TITANIUM DIOXIDE FEEDSTOCK of tonnes of tonnes of tonnes of tonnes of tonnes Rio Tinto Iron and Titanium (s) O/P+D/O (Canada/South Africa) millions millions millions millions millions URANIUM of tonnes %U of tonnes %U of tonnes %U of tonnes of tonnes %U %U Energy Resources of Australia (Australia) Ranger #3 (t) O/P Jabiluka U/G Rössing (Namibia) O/P MINERAL RESOURCES millions millions millions millions millions ZINC of tonnes %Zn of tonnes %Zn of tonnes %Zn of tonnes of tonnes %Zn %Zn Greens Creek (US) U/G Neves Corvo (Portugal) (j) U/G Zinkgruvan (Sweden) U/G Notes (a) Likely mining method: O/P = open pit; O/C = open cut; U/G = underground.; D/O = dredging operation. (b) Coal type: SC = steam/thermal coal, MC = metallurgical/coking coal. (c) Coal & Allied purchased the Australian coal businesses of the Peabody Group in January 2001; data for Bengalla, Moura, Ravensworth East, Ravensworth West and Warkworth are included for the first time. Effective on the same date, Coal & Allied acquired an additional 11.8 per cent interest in the Warkworth mine. An agreement to sell Coal & Allied s share of Narama and Ravensworth, subject to certain conditions, was announced in December In February 2002, Coal & Allied conditionally agreed to sell its interest in the Moura coal mine in Queensland. (d) Resource figures now include resources from Carrington (Authorisation million tonnes at end 2000), EL 5606 (707 million tonnes at end 2000), EL 5417 (14 million tonnes at end 2000) and Lemington (735 million tonnes at end 2000) that are now merged into Hunter Valley Operations; these were previously reported separately. (e) Kennecott Energy has a partnership interest in the Colowyo mine, but as it is responsible under a management agreement for the operation of the mine, all of Colowyo s resources are included in Rio Tinto s share shown above. Resources at Decker and Fort Union are reported for the first time following the re-classification of some reserves as measured resources. This is as a result of revisions to the mine plans at both operations. (f) Resources at Clermont have decreased due to the transfer of 17 million tonnes into reserves and the removal of 8 million tonnes from the resource following reassessment of viability in order to meet JORC requirements. (g) Resources at SW Yarraman are quoted for the first time. This deposit was previously included as part of the Tarong-Kunioon deposit. (h) The resources at Escondida Norte are based on a resource model developed in March 2001 with the sulphide resource quoted at a new cut-off grade; this accounts for most of the change in the tonnage. Mixed material has mixed oxide and sulphide mineralogy and will be processed either to cathode or concentrate. (i) Resources at Grasberg have increased as a result of additional drilling and the inclusion of additional material adjacent to one of the block caves. (j) In January 2002, Rio Tinto agreed to sell its interest in the Neves Corvo mine subject to certain conditions. (k) On 10 November 2000, Rio Tinto acquired control of Ashton Mining Limited. As a result of this purchase, Rio Tinto s effective interest in Argyle Diamonds increased from 59.7 per cent to 99.8 per cent. Rio Tinto also acquired the Merlin mine with Ashton. (l) Rio Tinto s interest in the Aurora Gold operations, gained through the acquisition of Ashton Mining Limited in November 2000, was sold in November (m) Rio Tinto s interest in the Lake Cowal resources was sold in May (n) Lihir resources have been depleted by mining, conversion to reserves and revised modelling of marginal resources. (o) The increase in resources at Morro do Ouro is a result of additional drilling carried out during the year. (p) Inferred resources at Corumbá have increased due to the acquisition of two adjacent leases. Although the Group only owns 30 per cent of one of the leases, all of the resources within these lease areas are reported because purchase of the remaining 70 per cent is anticipated. (q) Resources in this category consist of 13 separate deposits, all but two of which are wholly owned by Hamersley. Some inferred resources at undeveloped deposits, where initial estimates were made some time ago and modern standards of quality assurance were not applied, have been omitted. (r) The Three Springs talc mine in Western Australia was acquired in September 2001 and is included in the total talc resources. (s) Comprises resources at QIT Fer et Titane (Rio Tinto 100 per cent) and Richards Bay Minerals (RBM) (Rio Tinto 50 per cent). (t) Resources at Ranger have decreased following development of a new mine plan and a stricter resource categorisation strategy Rio Tinto Annual report and financial statements 23

26 INFORMATION ON GROUP MINES Information on Group mines (Rio Tinto s interest 100 per cent unless otherwise shown) Mine Location Access Title/lease IRON ORE GROUP Hamersley Iron Brockman Marandoo Mount Tom Price Paraburdoo Yandicoogina Channar (60%) Iron Ore Company of Canada (56%) (Rio Tinto also holds a 20% interest in the Labrador Iron Ore Royalty Income Fund which owns 19% of IOC) Robe River Iron Associates (53%) Mesa J ENERGY GROUP Coal & Allied Industries (73%) Bengalla (29%) Hunter Valley Operations (73%) Mount Thorley (58%) Warkworth (40%) Energy Resources of Australia (68%) Kaltim Prima Coal (50%) Kennecott Energy Antelope Colowyo (20%) Cordero Rojo Decker (50%) Fort Union Jacobs Ranch Spring Creek Pacific Coal Blair Athol (71%) Kestrel (80%) Tarong Rössing Uranium (69%) INDUSTRIAL MINERALS GROUP Boron California, US Dampier Salt (65%) Hamersley Ranges, Western Australia Labrador City, Province of Newfoundland and Labrador Pannawonica, Pilbara region, Western Australia New South Wales, Australia Northern Territory, Australia Kalimantan, Indonesia Wyoming, Montana and Colorado, US Queensland, Australia Namib Desert, Namibia Dampier, Lake MacLeod and Port Hedland, Western Australia Railway and port (owned and operated by Hamersley Iron) Railway and port facilities in Sept-Iles, Quebec (owned and operated by IOC) Railway and port (owned and operated by Robe River Iron Associates) Road, rail and port Road Conveyor and port (owned) Rail and road Conveyor, road, rail and port Rail, road and port Road, rail and port Road, rail and port Agreements for life of mine with Government of Western Australia Sublease with the Labrador Iron Ore Royalty Income Fund which has lease agreements with the Government of Newfoundland and Labrador that are due to be renewed in 2020 and 2022 Agreements for life of mine with Government of Western Australia Leases granted by State Leases granted by State Coal Agreement with the Indonesian Government entitling the latter to 13.5% of annual production Leases from the US and various State Governments and private parties, with minimum coal production levels, adherence to permit requirements and statutes Leases granted by State Federal lease Owned Mining leases expiring in 2003 at Dampier, 2018 at Port Hedland and 2021 at Lake MacLeod with options to renew in each case Luzenac (99.9%) Trimouns, France (other smaller operations in Australia, Europe and North America) Road and rail Owner of ground (orebody) and long term lease agreement to 2012 QIT-Fer et Titane Saguenay County, Quebec, Canada Rail and port (St Lawrence River) Mining covered by two Concessions granted by State in 1949 and 1951 which, subject to certain Mining Act restrictions, confer rights and obligations of an owner Richards Bay Minerals (50%) Richards Bay, KwaZulu-Natal, South Africa Rail, road and port Long term renewable leases; State lease for Reserve 4 initially runs to end 2022; Ingonyama Trust lease for Reserve 10 runs to Rio Tinto Annual report and financial statements

27 History Type of mine Power source Annual capacity increased to 68 million tonnes during 1990s; Yandicoogina first ore shipped in 1999 and port capacity increased Current operation began in 1962 and has processed over 1 billion tonnes of crude ore since; annual capacity now 17.5 million tonnes of concentrate of which 12.5 million tonnes can be pelletised. Interest acquired in 2000 through North Open pits Open pit Supplied by Hamersley Iron Power Supplied by Newfoundland Hydro under long term contract INFORMATION ON GROUP MINES First shipment in 1972; annual sales reached 30 million tonnes in late 1990s; interest acquired in 2000 through North Open pit Supplied by Robe River Iron Associates Rio Tinto Coal (NSW), Mitsubishi and CNA merged their NSW interests in Lemington acquired late 2000 and integrated with Hunter Valley Operations. Peabody Australian interests acquired in 2001 Open cut State owned grid Mining commenced 1981; interest acquired through North in 2000 Open pit On site diesel/steam power generation Annual capacity of 15 million tonnes built up by 1998 Open cut KPC owned coal fired power station with supplementary diesel generators Antelope, Spring Creek, Decker and Cordero acquired in 1993, Colowyo in 1995, Caballo Rojo and Fort Union in 1997 and Jacobs Ranch in 1998 Open cut Supplied by IPPs and Cooperatives through national grid service Production started for export at Blair Athol and adjacent power station at Tarong in Kestrel acquired and recommissioned 1999 Open cut (Blair Athol and Tarong) and underground (Kestrel) State owned grid Production began in 1978 Open pit Namibian National Power Mine redesign project completed on budget and schedule in 2000 Production of salt started in 1969 at Dampier and Lake MacLeod and of gypsum at Lake MacLeod in 1997; Port Hedland acquired in 2001 Production started in 1885; acquired in (Australian mine acquired in 2001) Open pit Solar evaporation of seawater (Dampier and Port Hedland) and underground brine (Lake MacLeod); dredging of gypsum from surface of Lake MacLeod. Open pit On site co-generation units Dampier supply from Hamersley Iron Power; Lake MacLeod from Western Power and on site generation units; Port Hedland from Western Power Supplied by EdF and on site generation units Production started 1950; interest acquired in 1989 Open pit Long term contract with Quebec Hydro Production started 1977; interest acquired 1989; fifth dredge commissioned 2000 Beach sand dredging Contract with ESCOM 2001 Rio Tinto Annual report and financial statements 25

28 Information on Group mines continued INFORMATION ON GROUP MINES Mine Location Access Title/lease ALUMINIUM GROUP Comalco Weipa, Queensland, Australia Road, rail and port Queensland Government lease expires in 2041 with 21 year extension, then 2 years notice of termination COPPER GROUP Alumbrera (25%) Escondida (30%) Catamarca Province, Argentina Atacama Desert, Chile Rail, road and pipeline Pipeline and road to deep sea port at Colosso Mining lease owned and administered by YMAD, an Argentine statutory authority Rights conferred by Government under Chilean Mining Code Grasberg (14.3% and 40% of joint venture) Papua, Indonesia Pipeline, road and port Indonesian Government Contracts of Work expire in 2021 with two, ten year extensions Kennecott Utah Copper Barneys Canyon Bingham Canyon Near Salt Lake City, Utah, US Pipeline, road and rail Owned Neves Corvo (49%) Castro Verde, Portugal Rail and road Mining rights granted by Portuguese State for 90 years from 1989 Northparkes (80%) Goonumbia, New South Wales, Australia Road and rail State Government mining lease issued in 1991 for 21 years Palabora (49%) Phalaborwa, Northern Province, South Africa Rail and road Lease from South African Government until deposits exhausted; base metal claims owned by Palabora Peak Gold Cobar, New South Wales, Australia Road and air Leases held with the Government of New South Wales CL8 (Peak and New Occidental) expire in 2012 Zinkgruvan Sweden Road Exploration concession with Swedish Government to 2024 DIAMONDS & GOLD GROUP Argyle Diamonds (99.8%) Kimberley Ranges, Western Australia Road and air Mining tenement held under Diamond (Argyle Diamond Mines Joint Venture) Agreement Act with right to extend for 21 years from 2004 Corumbá Matto Grosso do Sul, Brazil Road and river Government licence for undetermined period Fortaleza Minas Gerais, Brazil Road Government licence for undetermined period Kelian (90%) Kalimantan, Indonesia Road, river and port Contract of Work with Indonesian Government for 30 years Kennecott Minerals Cortez/Pipeline (40%) Greens Creek (70%) Rawhide (51%) Nevada and Alaska, US Roads and port (Greens Creek) Patented and unpatented mining claims Lihir Gold (16%) Lihir Island, Papua New Guinea Own road, airstrip and port Special Mining Lease with Papua New Guinea Government expires in 2035 Merlin Northern Territory, Australia Road and air Mining tenement held under NT Mining Act expires in 2022 Morro do Ouro (51%) Minas Gerais, Brazil Road and air Government licence for undetermined period Rio Tinto Zimbabwe (56%) Patchway (56%) Renco (56%) Zimbabwe Road and air Claims and mining leases Rio Tinto Annual report and financial statements

29 History Type of mine Power source Major upgrade completed in 1998 to incorporate Alcan s adjacent Ely reserve in overall mining plan; Rio Tinto interest increased from 72.4 per cent to 100% in 2000 Interest acquired through North in 2000; production started in 1998 Production started in 1990 and expanded in phases to 1998 when new oxide ore treatment facility also completed Interest acquired 1995; capacity expanded to over 200,000 tonnes of ore per day in 1998 Interest acquired in 1989; modernisation includes smelter complex and expanded tailings dam Interest acquired 1985; production started in 1989; conditional sale agreement concluded January 2002 Interest acquired in 2000; production started in 1995 Open cut Open pit Open pit Open pit and underground Open pit Underground Open pit and underground On site generation Supplied by El Bacho sub-station Supplied from SING grid under two contracts with Norgener to 2008 and Nopel (Gas Atacama) to 2009 Long term contract with US- Indonesian consortium operated purpose built coal fired generating station On site generation supplemented by long term contracts with Utah Power and Light Supplied by EdP via grid network Supplied from State grid INFORMATION ON GROUP MINES Development of 20 year underground mine commenced 1996 with full production timed to coincide with open pit closure in 2003 Open pit/underground Supplied by ESKOM via grid network Production started in 1992; resources identified for further exploration brought to reserve status Underground Supplied by Advance Energy Mining began in 1857 and production progressively expanded; acquired by North in 1995 prior to Rio Tinto in 2000 Underground Supplied by State owned power company (Valtenfall) via grid Further development of AK1 pit started in 1998; studies into further development options, including underground mining, continue. Interest increased from 59.7% in 2000 Open pit and alluvial gravels Long term contract with Ord Hydro Consortium and on site generation back up Iron ore production started 1978; interest acquired in 1991; expansion and new barge fleet in 1997 Nickel matte production from open pit mine began 1997; underground mine developed 2000 Gold production started in 1992 and is scheduled to cease in 2004 Gold production started at Cortez in 1969, Pipeline in 1997, and Rawhide in The Greens Creek silver/zinc mine redeveloped in 1997 Open pit Transition from open pit to underground completed by end 2000 Open pit Open pit (Cortez/Pipeline, Rawhide); underground (Greens Creek) Supplied by ENERSUL Supplied by CEMIG Kelian s own 29MW generating station with six identical 4.9MW rated units Public utility (Cortez/Pipeline and Rawhide) and on site diesel generators (Greens Creek) Production started in 1997; refinancing in 1999 and merger with Niugini Mining in 2000 Acquired in 2000; additional drilling undertaken in 2001 and future options being evaluated Gold production started in 1987; throughput expanded in 1997 and plant modifications undertaken in 1999 Patchway acquired by RioZim in 1959; Renco redevelopment completed in 1982 Open pit Multiple small scale open pits Open pit Underground 12 diesel unit power plant 5 diesel unit power plant Supplied by CEMIG Supplied by ZESA 2001 Rio Tinto Annual report and financial statements 27

30 Group operations (wholly owned unless otherwise shown) GROUP OPERATIONS ALUMINIUM Operating sites Anglesey Aluminium (51%) Bell Bay Boké (4%) Boyne Island (54%) Queensland Alumina (39%) Eurallumina (56%) Tiwai Point (79%) Weipa Projects 26 4 Boyne Island (54%) 27 5 Comalco Alumina Refinery BORATES 29 Operating sites 30 9 Boron Coudekerque Plant Tincalayu Wilmington Plant COAL 36 Operating sites Antelope Bengalla (29%) Blair Athol (71%) Colowyo (20%) Cordero Rojo Decker (50%) Hunter Valley Operations (73%) Jacobs Ranch Kaltim Prima (50%) Kestrel (80%) Mt Thorley (58%) Moura (40%) Narama (36%) Ravensworth (73%) Spring Creek Tarong Warkworth (40%) COAL CONTINUED Projects Clermont (55%) Hail Creek (92%) Mt Pleasant (73%) COPPER AND GOLD Operating sites Alumbrera (25%) Atlantic Copper smelter (17%) Barneys Canyon Bougainville (not operating) (54%) Cortez/Pipeline (40%) Escondida (30%) Grasberg (14%) Grasberg joint venture (40%) Kelian (90%) Kennecott Utah Copper Lihir (16%) Morro do Ouro (51%) Neves Corvo (49%) Northparkes (80%) Palabora (49%) Peak Rawhide (51%) Renco and Patchway (56%) Projects Escondida Phase 4 (30%) Northparkes Lift 2 (80%) Palabora underground (49%) Peak New Occidental DIAMONDS Operating sites 40 Argyle (99.8%) Projects Diavik (60%) Murowa (78%) IRON ORE Operating sites Corumbá Hamersley mines: Brockman Marandoo Mt Tom Price Paraburdoo Yandicoogina Channar (60%) Iron Ore Company of Canada (56%) Robe River (53%) Projects HIsmelt IOC Pellet Plant (56%) Robe West Angelas (53%) NICKEL Operating sites Empress Plant (56%) Fortaleza SALT Operating sites Dampier (65%) Lake MacLeod (65%) Port Hedland (65%) TALC Operating sites (only major sites are shown) Ludlow Talc de Luzenac (99.9%) Yellowstone Three Springs TITANIUM DIOXIDE FEEDSTOCK Operating sites QIT-Fer et Titane Lac Allard QIT-Fer et Titane Sorel Plant Richards Bay Minerals (50%) Projects QIT Madagascar Minerals (80%) URANIUM Operating sites ERA (68%) Rössing (69%) ZINC, LEAD, SILVER Operating sites Greens Creek (70%) Zinkgruvan Mines and mining projects Smelters, refineries and processing plants remote from mine Rio Tinto Annual report and financial statements

31 Financial review Financial risk management The Group s policies with regard to risk management are clearly defined and consistently applied, and are a fundamental tenet of the Group s long term strategy. The Group s business is mining and not trading. The Group only sells commodities it has produced. Natural hedges operate in a number of ways to help protect and stabilise earnings and cash flow, obviating the need to use derivatives or other forms of synthetic hedging for this purpose. The Group has a diverse portfolio of commodities and markets, which have varying responses to the economic cycle. The relationship between commodity prices and the currencies of most of the countries where the Group operates provides further natural protection. In addition, the Group s policy of borrowing at floating US dollar interest rates helps to counteract the effect of economic and commodity price cycles. The Group s financial statements and disclosures show the full extent of the Group s financial commitments including debt and similar exposures. The Group s share of the net debt of joint ventures and associates is also disclosed. It has never been the Group s practice to engineer financial structures as a way of avoiding disclosure. Substance rather than form is a fundamental principle of Rio Tinto s reporting. The risk factors to which the Group is subject that are thought to be of particular importance are summarised on page 8. The effectiveness of internal control procedures continues to be a high priority in the Rio Tinto Group. A statement on this is included in Corporate governance on page 55. The Group s policies with regard to currencies, commodities, interest rates and Treasury management are discussed below. Group operating performance 2001 compared with 2000 Adjusted earnings increased by US$155 million or ten per cent to US$1,662 million, compared with US$1,507 million in Net earnings of US$1,079 million, compared with US$1,507 million in 2000, include an exceptional charge of US$583 million relating to the impairment of asset carrying values, of which US$531 million relates to Kennecott Utah Copper (KUC). The impairment provision at KUC was triggered by reductions in the Group s long term metal price assumptions. The lower price assumptions have had a greater effect on KUC than on non US producers because they are associated with a strong US dollar, which mitigates their impact on the margins of producers outside the US. The increase in adjusted earnings was achieved despite the adverse impact of lower quoted metal prices, which reduced earnings by US$280 million. Average copper prices were 13 per cent below the 2000 average, and average aluminium prices were down six per cent. Improvements in bulk commodity prices benefited earnings by US$121 million. Favourable movements in exchange rates benefited earnings by US$140 million. The ten per cent reduction in the average value of the Australian dollar and the 14 per cent reduction in the South African rand strengthened the margins of those operations whose costs are denominated in these currencies and whose selling prices are US dollar based. Higher volumes contributed US$119 million to the increase in earnings. This reflected the full year benefit of the acquisitions made in 2000 and early 2001, principally North, the minority interests in Comalco, Ashton, the Lemington mine and Peabody s Australian coal operations. These acquisitions contributed over US$210 million to earnings before interest and some US$120 million after interest charges. Sales volumes from the Freeport joint venture increased significantly with higher gold grades. Offsetting this, borate and titanium dioxide volumes declined and diamond sales were substantially lower. Real terms reductions in cash costs (excluding fuel and other energy costs) were US$57 million but these only partly offset the effects of inflation and higher energy prices, totalling US$89 million. Overall, higher costs, including increases in non cash costs, reduced earnings by US$46 million. Adjusted earnings include the US$54 million gain on disposal of the Group s 50 per cent interest in Norzink. In 2000, there was a gain of a similar amount resulting from the sale of the Group s Colombian coal interests. Interest charges increased by US$29 million after tax, with the effects of increased debt, following the acquisitions in 2000 and 2001, partly offset by lower interest rates. The Group s effective tax rate was 31.5 per cent, excluding exceptional items, compared with 32.6 per cent in The tax charge benefited from the lower tax rate in Australia, where 2001 earnings were taxed at 30 per cent compared with 34 per cent in compared with 1999 Net earnings increased by US$225 million to US$1,507 million, which was 18 per cent above the US$1,282 million for Adjusted earnings for both 2000 and 1999 were the same as net earnings. Earnings benefited by US$254 million from higher selling prices, with copper prices averaging 14 per cent above 1999 levels and aluminium prices up 13 per cent. Market prices were also higher for the Group s diamonds, iron ore and US domestic coal though prices for seaborne coal were lower. Movements in exchange rates increased earnings by US$144 million. Margins were strengthened by an 11 per cent reduction in the average Australian dollar exchange rate in US dollar terms. Overall, volume changes added US$33 million to earnings. This includes the part year impact of acquisitions made during the year. Sales tonnage increased by nearly 13 per cent at Hamersley. Volumes were lower for separate local reasons in several other operations. In real terms, cash costs were reduced by US$82 million, excluding the effects of higher fuel prices of US$61 million. Non cash costs increased by US$51 million, including a full year s amortisation of the new tailings facilities at KUC and additional depreciation and amortisation charges resulting from the increased stake in Comalco and the North acquisition. Changes in post retirement costs increased earnings by US$38 million after tax, following revisions to actuarial assumptions. Interest charges increased by US$55 million after tax with increased debt following the acquisitions during the year and higher interest rates. The Group s tax rate at 32.6 per cent compares with 27.0 per cent for Earnings in 1999 included a benefit of US$89 million from adjustments to deferred tax provisions as a result of reductions in future tax rates in Australia and South Africa. These one off adjustments recognised that the Australian tax rate would reduce to 30 per cent for 2001 and future years. Overall, acquisitions during the year added US$12 million to earnings after recognising restructuring costs and the costs of financing these investments. The seven months contribution from the additional investment in Comalco had a positive impact on earnings of US$34 million. The earnings impact in just over four months from North and one month from Ashton diluted earnings by US$22 million as a result of restructuring and financing costs and because the benefits of cooperation with the various Group operations were yet to be visible in earnings. Cash flow 2001 compared with 2000 Cash flow from operating activities, together with dividends from joint ventures and associates, totalled US$3,415 million compared with US$3,440 million in An increase in dividends from joint ventures and associates largely offset the reduction in cash flow from operating activities. The reduction in operating cash flow includes the impact of increases of US$227 million in inventories and US$126 million in accounts receivable. The inventory increase reflected a measured response to cyclical changes in market demand. The increase in receivables included the effect of higher selling prices for coal and iron ore, and changes in customer mix in response to weakening demand. Expenditure of US$1,351 million on property, plant and equipment was US$533 million higher than for 2000, reflecting investment in the iron ore projects acquired with North and in the Diavik diamond project. Acquisitions net of disposals involved a cash outlay of US$659 million, compared with US$3,191 million in Acquisitions in 2001 included the purchase of Peabody s Australian coal operations for US$455 million, an increased stake in the Queensland Alumina refinery, and the purchase of the Port Hedland salt and Three Springs talc businesses. Disposals included the North forestry operations and the Group s interest in the Norzink smelter. As a result of these further acquisitions and investment in current operations, the net cash outflow before management of liquid resources and financing was US$590 million compared with 1999 Cash flow from operating activities together with dividends from joint ventures and associates totalled US$3,440 million, an increase of US$425 million above 1999 as a result of increased operating profits. This was despite a US$47 million increase in working capital due to increased sales values in the second half of the year, reflected in accounts receivable. FINANCIAL REVIEW 2001 Rio Tinto Annual report and financial statements 29

32 Financial review continued FINANCIAL REVIEW Net repayments of funds previously advanced to joint ventures and associates reduced to US$40 million (1999: US$399 million). This amount includes the residue of the loan repayments from Freeport out of its share of the Grasberg expansion. These repayments accounted for a large part of the US$399 million repaid in 1999, which also included the replacement of a loan to Richards Bay Minerals with third party finance. Acquisitions less disposals involved a net cash outlay of US$3,191 million (1999: US$279 million). This included the cash consideration of US$0.8 billion paid for the remaining 27.6 per cent of Comalco not already owned by the Group, the acquisitions of North for US$2 billion and Ashton for US$0.4 billion. Other transactions included the purchase of the Lemington coal operation by Coal & Allied and the sale of the Group s interest in Carbones del Cerrejon. In addition to the cash consideration, a total of 6.1 million Rio Tinto Ltd and Rio Tinto plc shares were issued in connection with the Comalco and Ashton acquisitions. As a result of the Group s strong operating cash flow, the net cash outflow before management of liquid resources and financing was contained at US$2,291 million in the year, despite the large investment in acquisitions. Balance sheet During the year, shareholders funds decreased by US$168 million to US$7,176 million. After the exceptional charge and dividends, profits of US$267 million were retained. However, the decline in exchange rates, particularly for the Australian dollar and South African rand, resulted in a reduction of US$449 million in net asset values on translation into US dollars. Net debt increased by US$661 million to US$5,711 million as a result of capital expenditure and acquisitions during The ratio of net debt to total capital increased from 38.1 per cent at the end of 2000 to 41.6 per cent at the end of The balance sheet remained in a strong condition with interest charges covered eleven times before taking into account exceptional asset write-downs and eight times after these exceptional charges. As detailed in note 16 to the Financial statements, some US$3,835 million, 60 per cent of the Group s borrowings at the end of 2001, will mature in At 31 December 2001, US$2,889 million of the Group s debt took the form of commercial paper, mainly raised through markets in the US. Under UK accounting rules, this is regarded as short term debt even though US$1.9 billion of it is backed by three year bank standby facilities. Under Australian and US accounting practices, this portion of the commercial paper would be grouped with non current borrowings, and the Group regards it as such in managing the maturity profile of its debt. At the year end, medium and long term borrowings (excluding commercial paper backed up by three year bank facilities, as mentioned above) totalled US$2,566 million. A total of US$866 million was drawn under the US$2 billion European Medium Term Notes facility, of which US$446 million is repayable within one year. A US$500 million five year bond was issued. In addition to the above, the Group s share of the third party net debt of joint ventures and associates totalled US$1,257 million at 31 December 2001, as detailed in note 26 to the Financial statements. Save for US$42 million, this debt is without recourse to Rio Tinto. Liquidity management Both Rio Tinto plc and Rio Tinto Limited continue to enjoy double A long term credit ratings assigned by Moody s and Standard & Poor s. The unified credit status of the Group is maintained through cross guarantees whereby contractual obligations of Rio Tinto plc and Rio Tinto Limited are automatically guaranteed by the other. The Group has been on negative outlook with both agencies since making major acquisitions in The rating outlook assesses the potential direction of a long term credit rating over the intermediate to longer term. An outlook is not necessarily a precursor of a rating change or future credit watch action. The ratings provide financial flexibility and consistent access to major capital markets. The Group also enjoys the highest available short term credit ratings, enabling extremely competitive terms to be obtained on commercial paper issues. The Group s commercial paper programme is fully backed by committed bank standby facilities of US$3.6 billion, of which US$1.9 billion is on three year terms and the remainder mainly on 364 day terms. These facilities can be drawn upon at any time in the unlikely event of disruption in the commercial paper market. The Group s standby facilities are with a core of highly rated banking counterparties. The only financial undertaking contained within the three year facilities is that the Group s consolidated income before interest and taxes for any annual accounting period shall be not less than three times consolidated interest payable for such period. The Group does not have any financial agreements that would be affected to any material extent by a reduction in the Group s credit rating. At 31 December 2001, the Group had contractual cash obligations, other than short term debt in the form of commercial paper and bank borrowings repayable on demand, arising in the ordinary course of business, as follows: Payments due by period Total less between between After 5 than 1 1 and 3 3 and 5 years US$m year years years Contractual cash obligations Medium and long term debt (including finance leases) 3, , Operating leases Unconditional purchase obligations 2, ,307 Other long term obligations (including capital commitments) Total 6,139 1,525 1,343 1,628 1,643 In addition to the above, the Group has contingent liabilities totalling US$139 million relating to indemnities and other performance guarantees on which no material loss is expected. Of these, US$47 million expire within one year but US$78 million continue beyond five years. In the opinion of the directors, the Group has sufficient working capital for its present requirements. Exchange rates, reporting currencies and currency exposure Rio Tinto s assets, earnings and cash flows are influenced by a wide variety of currencies due to the geographic diversity of the Group s sales and the countries in which it operates. The US dollar, however, is the currency in which the majority of the Group s sales are denominated. Operating costs are influenced by the currencies of those countries where the Group s mines and processing plants are located and also by those currencies in which the costs of imported equipment and services are determined. The Australian and US dollars are the most important currencies influencing costs. In any particular year, currency fluctuations may have a significant impact on Rio Tinto s financial results. A strengthening of the Australian dollar would have an adverse effect on Rio Tinto s net earnings. The approximate effect on the Group s net earnings of a five US cent movement from the 2001 full year average Australian dollar value of 52 US cents would be US$95 million. This is based on 2001 prices, costs and volumes and assumes all other variables remain constant. This sensitivity allows for the effect of US$/A$ hedges maturing in 2002, as disclosed in note 27 to the Financial statements. However, in the case of the Australian dollar there is a significant 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. Given the dominant role of the US currency in the Group s affairs, the US dollar is the currency in which financial performance is measured and in which financial results are presented both internally and externally. It is also the natural currency for borrowing and holding surplus cash. Modest amounts of cash are held in other currencies for short term operational reasons. The Group finances its operations primarily in US dollars and a significant proportion of the Group's US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Exchange gains and losses relating to US dollar debt, impact on the profit and loss accounts of such subsidiaries. However, such exchange gains and losses are excluded from the Group's profit and loss account on consolidation with a corresponding adjustment directly to reserves. This means that financing in US dollars impacts in a consistent manner on the Group's consolidated accounts irrespective of the functional currency of the particular subsidiary where the debt is located. Under US generally accepted accounting principles (GAAP), the above exchange differences must be charged against the profit for the year except to the extent that the US dollar debt is effective as a hedge of assets accounted for in US dollars in the particular companies in which the debt resides. This gives rise to an adjustment in the US GAAP Rio Tinto Annual report and financial statements

33 reconciliation for 2001, reducing US GAAP earnings by US$148 million; but no adjustment to US GAAP shareholders funds is required. The Group does not generally believe that active currency hedging would provide long term benefits to shareholders. Currency protection measures may be deemed appropriate in specific commercial circumstances and are subject to strict limits laid down by the Rio Tinto boards. As set out in note 27 to the Financial statements, at 31 December 2001 there were forward contracts (including synthetic forwards) to purchase A$2,362 million, C$342 million and NZ$1,135 million in respect of future trading transactions. From the Group s perspective, these forward contracts offset the impact of exchange rate variations on a portion of the local currency costs incurred by various subsidiaries. Much of the above hedge book was acquired with North Limited. North held a substantial hedge book on acquisition, which has been retained but is not being renewed as maturities occur. In the last two years, the Group has also entered into forward currency contracts in respect of certain capital commitments and business acquisitions. As at 31 December 2001, it held contracts to purchase A$1,617 million and C$248 million in respect of future capital expenditure. Interest rates Rio Tinto s interest rate management policy is generally to borrow and invest cash at floating rates. Short term US dollar rates are normally lower than long term rates, resulting in lower interest costs to the Group. Furthermore, cyclical movements of interest rates tend to compensate, to an extent, for those of commodity prices. In some circumstances, an element of fixed rate funding may be considered appropriate. At the end of 2001, only 12 per cent of the Group s net debt was fixed rate. Based on the Group s net debt at 31 December 2001 and with other variables unchanged, the approximate effect on the Group s net earnings of a one percentage point increase in US dollar LIBOR interest rates would be a reduction of US$40 million. Commodity prices The Group s normal policy is to sell its products at prevailing market prices. Exceptions to this rule are subject to strict limits laid down by the Rio Tinto boards and to rigid internal controls. Rio Tinto s exposure to commodity prices is diversified by virtue of its broad commodity spread and the Group does not generally believe commodity price hedging would provide long term benefit to shareholders. As set out in note 27 to the Financial statements, at 31 December 2001 price risks relating to certain subsidiary companies were partly offset by outstanding forward sales contracts relating to 483,000 ounces of gold. Metals such as copper and aluminium are generally sold under contract, often long term, at prices determined by reference to prevailing market prices on terminal markets, such as the London Metal Exchange and COMEX in New York, usually at the time of delivery. Prices fluctuate widely in response to changing levels of supply and demand but, in the long run, prices are related to the marginal cost of supply. Gold is also priced in an active market in which prices respond to daily changes in quantities offered and sought. Newly mined gold is only one source of supply; investment and disinvestment can be important elements of supply and demand. Contract prices for many other natural resource products are generally agreed annually or for longer periods with customers, although volume commitments vary by product. Approximately 35 per cent of Rio Tinto s 2001 net earnings from operating businesses came from products whose prices were terminal market related and the remainder came from products priced by direct negotiation. The approximate effect on the Group s net earnings of a ten per cent change from the full year average market price in 2001 for the following metals would be: Average Effect of 10% market price change in full for 2001 year average US$m Copper 72 c/lb ± 95 Aluminium (3 month forward) 66 c/lb ± 80 Gold US$271/oz ± 45 This is based on 2001 volumes and assumes all other variables remain constant. The sensitivities allow for the effect of the commodity hedges maturing in 2002, as disclosed in note 27 to the Financial statements. Treasury management and financial instruments Treasury activities operate as a service to the business of the Rio Tinto Group and not as a profit centre. Strict limits on the size and type of transaction permitted are laid down by the Rio Tinto boards and are subject to rigorous internal controls. Corporate funding and overall strategic management of Rio Tinto s balance sheet is handled by the London based Group Treasury. Rio Tinto does not acquire or issue derivative financial instruments for trading or speculative purposes; and does not believe that it has exposure to such trading or speculative holdings through its investments in joint ventures and associates. Such instruments are used to separate funding and cash management decisions from currency exposure and interest rate management. The Group has used interest rate swaps in conjunction with longer term funds raised in the capital markets to achieve a floating rate obligation which is consistent with the Group s interest rate policy. Currency swaps have been used to convert debt or investments into currencies, primarily the US dollar, which are consistent with the Group s policy on currency exposure management. No material exposure is considered to exist by virtue of the possible non performance of the counterparties to financial instruments held by the Group. Substantially all of the derivative contracts in which the Group is involved have been valued for the purposes of the Financial instrument disclosures in the Financial statements by reference to actively quoted market prices. Dividends Dividends paid on Rio Tinto plc and Rio Tinto Limited shares are equalised on a net cash basis, that is without taking into account any associated tax credits. Dividends are determined in US dollars. Rio Tinto s progressive dividend policy aims to increase the US dollar value of dividends over time, without cutting them in economic downturns. Rio Tinto plc shareholders receive dividends in pounds sterling and Rio Tinto Limited shareholders receive dividends in Australian dollars, which are determined by reference to the exchange rates applicable to the US dollar two days prior to the announcement of dividends. Changes in exchange rates could result in a reduced sterling or Australian dollar dividend in a year in which the US dollar value is maintained or increased. The policy from 2002 onwards is that the interim dividend for each year in US dollar terms will be equivalent to 50 per cent of the previous year s total US dollar dividends. Critical accounting policies As explained in detail in the Outline of dual listed companies structure and basis of financial statements, the consolidated financial statements of the Rio Tinto Group deal with the results and assets and liabilities of both of the dual listed companies, Rio Tinto plc and Rio Tinto Limited and their subsidiaries. They are prepared under UK GAAP and satisfy the obligations of Rio Tinto Limited, as laid down by the Australian Securities and Investments Commission. This Annual report also includes reconciliation statements setting out the effect of the adjustments to net earnings and to shareholders funds for the Group that would be required, respectively, under Australian and under US GAAP. The US dollar is the principal currency used in these financial statements, as it most reliably reflects the Group s global business performance, but pound sterling and Australian dollar figures are also given. UK accounting standard FRS 3 provides for the presentation of an adjusted measure of earnings. As presented by Rio Tinto, this excludes the effect of exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the Group s underlying performance. Another accounting policy of particular note is the treatment of gains and losses on US dollar debt, which is described in the section dealing with Exchange rates, reporting currencies and currency exposure, above. Forward looking statements Forward looking statements are contained in this Financial review and attention is drawn to the Cautionary statement: forward looking statements on page 8. FINANCIAL REVIEW 2001 Rio Tinto Annual report and financial statements 31

34 Operational review OPERATIONAL REVIEW Iron Ore group Iron Ore (Rio Tinto share) million tonnes MINED Iron Ore net earnings contribution US$m Iron Ore (Rio Tinto share) million tonnes RESERVES 1, , , , , Rio Tinto s Iron Ore group wholly owns Hamersley Iron in Western Australia. Hamersley wholly owns five mines and also operates the 60 per cent owned Channar mine, a joint venture with an Australian subsidiary of the China Iron & Steel Industry & Trade Group. The Iron Ore group also includes Rio Tinto s effective 53 per cent interest in Robe River Iron Associates in Western Australia and Rio Tinto s 56.1 per cent interest in the Iron Ore Company of Canada. The Iron Ore group is the operator of both enterprises, which were acquired with the acquisition of North in In addition, the Iron Ore group includes the HIsmelt direct smelting technology developed in Western Australia. At 31 December 2001, the Iron Ore group accounted for 20 per cent of Rio Tinto s operating assets. In 2001, the group contributed approximately 16 per cent of the Group s turnover and 30 per cent of adjusted earnings. Chris Renwick, chief executive Iron Ore, is based in Perth, Western Australia. FINANCIAL PERFORMANCE 2001 compared with 2000 The Iron Ore group s contribution to 2001 earnings was US$502 million, US$135 million higher than in As a result of the downturn in steel production in the second half of 2001, the Iron Ore group s total shipments, including IOC and Robe on a full year basis for 2000, were down marginally to 110 million tonnes. Despite this, earnings were favoured by modest price increases in 2001, of 3.2 per cent for lump, 4.3 per cent for fines and 1.7 per cent for pellets, and by significant operational improvements, including lower operating costs compared with 1999 The Iron Ore group s contribution to 2000 earnings, including US$23 million related to North businesses, was US$367 million. This was US$108 million higher than in Hamersley earnings benefited from record shipments, which rose 13 per cent to 67.1 million tonnes in 2000, and price increases of some five per cent. Earnings also reflected the lower Australian corporate tax rate and, in real terms, lower operating costs despite higher diesel fuel prices. Hamersley Iron (Rio Tinto: 100 per cent) Hamersley s six mines in Western Australia, together with its 630 kilometres of dedicated railway and port and infrastructure facilities at Dampier, are run as one operation. Hamersley s rated capacity is 68 million tonnes per year, making it one of the world s largest exporters of iron ore. It employs approximately 2,100 people. In December 2001, Hamersley reached agreement with Shanghai Baosteel Group Corporation, China s largest iron and steelmaker, to form an unincorporated joint venture to supply 10 million tonnes of standard Hamersley iron ore products per year over 20 years from Subject to all relevant government and respective board approvals, Hamersley will hold a 54 per cent equity share in the joint venture. The joint venture will develop and operate a new mine, ten kilometres east of Paraburdoo, by about 2004, at a cost of US$64 million operating performance Hamersley s total production in 2001 was a record 69.9 million tonnes, of which Rio Tinto s share was 65.5 million tonnes. This represented an increase of seven per cent on 2000 and allowed Hamersley to rebuild port stockpiles which were at their lowest levels. Despite some softness in the second half of 2001, demand for Hamersley s products remained strong, due largely to increased pig iron production and replacement of domestic iron ore in China. Total shipments by Hamersley were the second highest in its history and totalled 65.4 million tonnes, including sales from the Channar joint venture. Hamersley s shipments to China reached record levels at 23.7 million tonnes. China was the single largest destination for Hamersley s shipments. Work continues in developing leadership, safety and communication throughout Hamersley under the One Business programme, which delivers benefits by means of stringent sales, production, cost and safety targets. Process improvement continues to be a major focus, including the Breakthrough programme, which seeks to find and implement fast solutions to problems through teamwork, short timeframes and stretch targets. Considerable improvements have been achieved in capacity, efficiency and reliability throughout the mine, rail and port operations with minimal cost or capital investment. Annual maintenance down time at the Parker Point outload circuit was reduced by more than 35 per cent. Despite higher material movement, the mining fleet at Mt Tom Price was reduced from 12 to ten haul trucks, resulting in operational and capital cost savings. Concentrator capacity at Mt Tom Price and plant capacity at Paraburdoo were increased by more than 15 per cent, reducing handling costs, preserving lump and high grade resources, and extending the life of the Mt Tom Price mine. Further opportunities for cost improvement and revenue enhancement projects will continue to be sought and aggressively pursued in 2002, enhancing the annualised cost reductions achieved in 2001 which approached A$30 million. Ore reserves changed in line with delineation drilling to improve confidence, annual extraction and updated mine planning factors. At Mt Tom Price, 32 million tonnes of Marra Mamba and low grade stockpile product previously reported as reserves was returned to undeveloped resources, pending update work to the mine plan. There was no significant change in resources although the results of the 2001 drilling programmes are currently being evaluated. Hamersley s total sales of iron ore to major markets in 2001 Million tonnes China 23.7 Japan 20.6 Other Asia 16.4 Europe 4.7 Total 65.4 Note: This table includes 100% of Channar s shipments of 10.2 million tonnes Rio Tinto Annual report and financial statements

35 Robe River Iron Associates (Rio Tinto: 53 per cent) Robe River Iron Associates (Robe) is an unincorporated joint arrangement in which Mitsui (33 per cent), Nippon Steel (10.5 per cent) and Sumitomo Metal Industries (3.5 per cent) also have interests. Robe is the world s fourth largest seaborne trader in iron ore. It employs approximately 700 people. Current mining activity is centred on Pannawonica, 1,400 kilometres north of Perth, and connected by a 200 kilometre dedicated railway to Robe s iron ore processing and port facilities at Cape Lambert. Robe exports its production of pisolitic fines and lump ore under medium and long term supply contracts with major integrated steel mill customers in Japan, Europe, Korea and the US, and under short term contracts in China. Robe s second mine, in the West Angelas area some 300 kilometres south east of Pannawonica, is scheduled to come on stream in mid 2002 and will lift Robe s capacity from 32 million tonnes to at least a nominal 50 million tonnes per year. West Angelas has large deposits of high grade, Marra Mamba type iron ore (see Iron Ore group projects, below) operating performance Robe s total production in 2001 was 30.7 million tonnes. Total sales were 31.1 million tonnes and demand for Robe ore was strong in all major markets, particularly Japan. In addition, low margin sales into Europe were reduced. Customer acceptance of lump ore, Robe s highest margin product, is increasing and the outlook for 2002 is strong. Technical presentations on the West Angelas product have been made to all major customers. On a commercial level, Robe is working actively to convert all letters of intent to sales contracts. Robe also established an office in Shanghai which will provide a platform for the marketing of West Angelas ore into China. Significant process improvement initiatives undertaken in 2001 resulted in improved operating costs and productivity gains. These included rationalisation of the mining fleet, a 20 per cent reduction in train loading times, and significant improvements in lump recovery at the port production facility. A Business Awareness programme and monthly scoreboard were introduced to increase employee understanding of the business and a share plan was introduced for all employees. Robe achieved a substantial improvement in safety performance in 2001, reducing its lost time injury frequency rate to 1.6 from 4.0 in Robe s total sales of iron ore to major markets in 2001 Million tonnes Japan 18.7 Europe 9.3 Korea 1.6 China 1.1 US 0.4 Total 31.1 Iron Ore Company of Canada (Rio Tinto: 56.1 per cent) Iron Ore Company of Canada (IOC), in which Mitsubishi (25 per cent) and the Labrador Iron Ore Royalty Income Fund (18.9 per cent) are also shareholders, is Canada s largest iron ore pellet producer. IOC operates an open pit iron ore mine, concentrator and pellet plant at Labrador City, Newfoundland and Labrador, together with a 420 kilometre railway to port facilities and a presently idle pellet plant at Sept-Iles, Quebec. Products are transported on IOC s Quebec North Shore and Labrador railway to Sept-Iles. The port facilities are open all year and handle ore carriers of up to 255,000 tonnes. IOC exports its concentrate and pellet products to major North American, European and Asia Pacific steel makers. A US$240 million refurbishment and reactivation of one line at the Sept-Iles pellet plant, which was closed in 1982, was suspended in September 2001 in response to US market conditions. IOC employs approximately 2,100 people and in April 1999 signed a five year agreement with the United Steelworkers of America operating performance 2001 was a difficult year for IOC. Declining economic conditions caused a protracted downturn in the steel industry in North America and added to the difficulties being experienced by North American steel companies. In addition, increases in natural gas prices caused all North American and European direct reduced iron capacity to be idled for a significant part of the year. The transformation of IOC continued during 2001 with the business being recapitalised and expanded, and when this is combined with the operational improvements the result will be a significantly more competitive cost structure. During 2001, progress was made on the rationalisation of the mining pits, replacement of the haul truck fleet, the upgrading of the concentrator and productivity improvements through the accelerated retirement programme. A dramatic improvement was seen in IOC s safety performance in the second half of 2001, with the implementation of a safety observation programme and the Rio Tinto minimum safety standards being contributory factors. IOC s total sales of iron ore to major markets in 2001 Million tonnes North America 4.5 Europe 5.4 Asia Pacific 3.2 Total 13.1 IRON ORE GROUP PROJECTS West Angelas (Rio Tinto: 53 per cent) West Angelas contains approximately 450 million tonnes of reserves in two adjacent deposits. The Western Australian Government formally endorsed the development of West Angelas in March In July 2001, the Robe River partners reached an agreement to share rail infrastructure with Hamersley Iron. Under the agreement, the Pilbara Rail Company, a 50:50 joint venture between Rio Tinto Iron Ore and Robe, will operate and maintain the rail assets owned by Hamersley and Robe. The agreement, which also contemplates port sharing, reduced the capital cost of the West Angelas project by US$110 million and suspended the legal action launched by the Japanese participants in Construction of the rail work commenced progressively from July 2001 on receipt of all necessary approvals. The US$450 million project is planned to come on stream in mid 2002 at an initial rate of seven million tonnes of iron ore a year, rising to 20 million tonnes per year by HIsmelt (Rio Tinto: 100 per cent) Studies, including environmental assessment, on a HIsmelt direct smelting technology plant producing up to 800,000 tonnes of hot metal per year in Western Australia are being carried out. If approved and if this next stage of development proves successful, a further plant could be added, increasing overall capacity to more than 1.5 million tonnes of hot metal per year. OPERATIONAL REVIEW 2001 Rio Tinto Annual report and financial statements 33

36 Operational review continued OPERATIONAL REVIEW Energy group Coal (Rio Tinto share) million tonnes MINED Energy group net earnings contribution US$m Coal (Rio Tinto share) million tonnes RESERVES at working operations 1, , , , , Rio Tinto Energy group s principal coal interests are in Australia, Indonesia and the US. They supply internationally traded and domestic US and Australian markets. Following the disposal of Rio Tinto s coal interest in Colombia in early 2000, acquisitions in late 2000 and early 2001 enhanced the existing interests in New South Wales, Australia. The group also includes Rössing in Namibia and, following the acquisition of North in 2000, Energy Resources of Australia which supply uranium oxide for use in electricity generation. At 31 December 2001, the Energy group accounted for 14 per cent of Group operating assets and, in 2001, contributed 22 per cent of both Rio Tinto s turnover and adjusted earnings. Greg Boyce, chief executive Energy, is based in London. FINANCIAL PERFORMANCE 2001 compared with 2000 The Energy group s contribution to adjusted earnings was US$373 million, US$109 million higher than in Integration of the Lemington and Peabody properties at Coal & Allied, increased sales volumes at Kennecott Energy and higher coal prices were the primary contributors to the improved result compared with 1999 The Energy group s earnings contribution in 2000 was 20 per cent higher at US$264 million. Operational improvements and efficiency gains, together with exchange rate changes, more than offset lower volumes and prices. Seaborne steam coal prices were six per cent lower and the group s attributable output was five per cent down. Kennecott Energy s earnings improved by US$5 million to US$81 million despite planned production cutbacks. In Australia, both Coal & Allied and Pacific Coal contributions to earnings increased, by 75 per cent to US$49 million and 16 per cent to US$93 million, respectively. Operational efficiencies outweighed lower prices. Kaltim Prima Coal in Indonesia produced less coal and its contribution was 31 per cent lower at US$18 million. Kennecott Energy (Rio Tinto: 100 per cent) Kennecott Energy (KEC) wholly owns and operates four open cut coal mines in the Powder River Basin of Montana and Wyoming, US, and has a 50 per cent interest in, but does not operate, the Decker mine in Montana. Kennecott Energy also manages the Group s interest in Colowyo Coal in Colorado, US and in total employs approximately 1,650 people. One of the largest US producers, KEC sells to electricity generators in mid-western and southeastern States. Sales are made under multiple year contracts and on a spot basis for one year or less. The domestic US market for low sulphur coal continues to grow due to its competitive cost per delivered energy unit and restrictions on sulphur emissions by utilities. In the longer term, continued strong demand for low sulphur coal is projected following the announcement for the first time in many years of plans for construction of new coal fired generating capacity in the US operating performance KEC s production of million tonnes of coal was six per cent higher than in 2000, in response to improved domestic demand. Spot market coal prices eased during the second half of 2001 following significant price increases from late Earnings of US$84 million were broadly in line with those in Cost reduction initiatives focused on improving maintenance to give higher equipment availability and reduce maintenance costs. KEC varies its production, and commits to contracts in response to changing market conditions. During 2001, KEC purchased PacifiCorp s interest in a coal supply contract for US$190 million. KEC s output is effectively fully committed in 2002, with contracts for 95 per cent of production. In its first full year of operation, the KennecottDirect website, launched by KEC to enable small tonnages of short and medium term coal sales to customers, had 135 transactions comprising almost three million tonnes. In January 2002, KEC successfully bid US$379 million for approximately 488 million tonnes of premium, low sulphur reserves adjacent to its Jacobs Ranch mine. The reserves will extend the life of the mine from five to 23 years at current production levels and result in operational efficiencies and expanded production. Pacific Coal (Rio Tinto: 100 per cent) Pacific Coal manages the Group s Queensland, Australia interests which include the Blair Athol, Kestrel and Tarong coal mines, the US$210 million Hail Creek development project and the Clermont deposit. Around 60 per cent of Blair Athol (Rio Tinto: 71.2 per cent) thermal coal is sold under contracts extending to 2010 to its two Japanese joint venturers at market related prices. The rest is sold by long term and annual agreements to European, southeast Asian and South American customers. Production from the wholly owned Tarong mine is sold to an adjacent State owned power utility. A ten year contract for up to seven million tonnes annually expires in Kestrel (Rio Tinto: 80 per cent) was acquired in The previously closed underground mine was redeveloped and thermal and metallurgical coal production recommenced in June In November 2001, a court decision precluded an application for an extension of the surface area of the Kestrel mining lease. The court found that the lease was ineffective in granting rights over this land, comprising approximately 20 per cent of the area of the lease. Contingent mining plans are being developed and the Government of Queensland has indicated it will address a solution as a priority. Pacific Coal employs some 670 people operating performance Pacific Coal s earnings of US$117 million benefited from the lower Australian dollar and the increase in seaborne traded coal prices, partly offset by higher costs at Blair Athol associated with mining through old underground workings. Total production at Blair Athol of 10.6 million tonnes was marginally down on 2000 whilst shipments of 10.3 million tonnes were affected by rail and port congestion. These Rio Tinto Annual report and financial statements

37 followed a major train derailment in the third quarter on the Queensland rail system and the deferral of ships due to operational problems at some customers plants. Production of 3.3 million tonnes and shipments of 3.5 million tonnes of coking and thermal coal from Pacific Coal s Kestrel mine were broadly in line with At Tarong, production increased to 5.3 million tonnes in line with increased demand from the nearby power station. During 2001, Tarong s new ten year coal supply agreement with Tarong Energy began. The Queensland Government announced changes to the State Coal Mining Royalty Regime that will disallow deductions for rail and road haulage costs. This will lead to an estimated increase in royalties payable of approximately US$3 million per year from 2002 onwards for Pacific Coal and its joint venture partners. Coal & Allied Industries (Rio Tinto: 72.7 per cent) Coal & Allied Industries (CNA) is publicly listed and had a market capitalisation of A$2.0 billion (US$1.0 billion) at 31 December Rio Tinto acquired an additional 1.83 per cent interest in CNA on market for US$15 million in March CNA s assets are principally in New South Wales, Australia. CNA acquired the Lemington coal mine and related interests for US$134 million in December The mine is adjacent to and has been merged with CNA s wholly owned Hunter Valley Operations, consisting of the merged Hunter Valley No1 and Howick mines. CNA also has an 80 per cent interest in the Mount Thorley mine, a 37 per cent interest in Port Waratah Coal Services, and owns the Mount Pleasant project. In January 2001, CNA purchased Peabody s Australian coal assets for US$455 million and the assumption of US$100 million of debt. The major Hunter Valley operations involved comprise Warkworth, in which CNA subsequently increased its percentage interest from to for US$27 million, and Bengalla (CNA: 40 per cent). Warkworth is contiguous with CNA s Mt Thorley mine, and Bengalla with CNA s Mt Pleasant project. Interests in Narama, Ravensworth and Moura, which were also acquired, are to be sold. During 2001, a New South Wales power provider brought proceedings against CNA in both the Federal Court and the Supreme Court of New South Wales regarding matters arising from the Peabody mines acquisition. CNA successfully defended the Supreme Court Action. The Federal Court hearing is scheduled in late February 2002 and will also be defended vigorously. CNA produces thermal, semi soft and metallurgical coal. Most of CNA s thermal coal is sold under long term contracts to electrical or industrial customers in Japan and elsewhere in Asia, as well as to Israel, Chile and Europe. The balance is sold in Australia, mainly under long term contracts with New South Wales power providers. CNA s semi-soft and metallurgical coal is exported to industrial customers in Asia and Europe under long term contracts. CNA employed approximately 2,700 people in operating performance CNA more than doubled its managed capacity with the acquisition of the Lemington and Peabody s Australian mines. Rio Tinto s share of production was 122 per cent higher at 19.0 million tonnes whilst safety was significantly improved. Earnings of US$102 million, compared to US$49 million in 2000, benefited from the lower Australian dollar and higher contract prices and sales volumes. The focus on cost reduction programmes continued. Integration of the acquisitions progressed well during 2001 with benefits flowing from more efficient use of employees and equipment and the introduction of generic brand sales contracts. The consolidation period will continue in 2002 with further expected cost savings and efficiencies across the combined Hunter Valley operations. Kaltim Prima Coal (Rio Tinto: 50 per cent) PT Kaltim Prima Coal (KPC) mines high quality, low sulphur, thermal coal under a Coal Agreement with the Indonesian Government that entitles the Government to 13.5 per cent of annual production. Some 80 per cent of KPC s coal is sold under long term contracts with the balance sold on the spot market. Asia, predominantly Japan, Taiwan and Hong Kong, accounts for 75 per cent of sales with the rest mainly in Europe and the US. KPC has 2,700 employees and 4,000 contractors. A new, two year labour agreement was signed by all unions in Under its Coal Agreement with the Government of Indonesia, KPC is required to offer its shares to Indonesian participants in accordance with a specified schedule. In July 2001, the East Kalimantan Provincial Government filed a civil suit in the District Court of South Jakarta seeking, amongst other things, damages of US$776 million in relation to KPC s alleged failure to meet its obligations to offer its shares for sale. The Government of Indonesia has not claimed that KPC is in default of its divestment obligations. KPC believes that the claims are baseless and is contesting them vigorously. KPC, nevertheless, remains committed to fulfilling its obligations in accordance with the process set out in the Coal Agreement and continues to work with the Government of Indonesia to this end operating performance Earnings from Kaltim Prima Coal of US$42 million improved significantly compared with 2000, benefiting from higher coal prices and increased sales volumes. Production shortfalls caused by a major maintenance contractor strike and illegal mine blockades by land claimants in the first half of 2001 were recovered in the second half. Rio Tinto s share of production was 7.8 million tonnes, 19 per cent higher than in In 2001, KPC negotiated an Umbrella Compensation Agreement with land claimants and other stakeholders. The agreement has been effective and there have been no disruptions to operations as a result of land claims in the second half of the year. Rössing Uranium (Rio Tinto: 68.6 per cent) Rössing produces and exports uranium oxide from Namibia to European, US and Asia Pacific electricity producers. Production has been lower than the 4,500 tonnes per year capacity for some years due to market conditions. Rössing employs approximately 800 people operating performance Total production of 2,640 tonnes of uranium oxide was adversely affected by mining limitations in the open pit and the matching of output to market conditions in order to rationalise inventories. Rössing continued to benefit from a strong contract position and, during the year, concluded three new contracts for deliveries in 2003 and Savings flowing from the business improvement programme, begun in 2000, have resulted in annualised savings of N$150 million. Energy Resources of Australia (Rio Tinto: 68.4 per cent) Rio Tinto s interest in Energy Resources of Australia (ERA) resulted from its acquisition of North. ERA is publicly listed and had a market capitalisation of A$370 million (US$189 million) at 31 December ERA employs approximately 230 people. ERA produces uranium oxide at the Ranger open pit mine, 260 kilometres east of Darwin in the Northern Territory. ERA also has title to a nearby uranium orebody at Jabiluka. Ranger has a 6,000 tonnes per year capacity and began production in Estimated ore reserves are sufficient for more than ten years at current mining rates. Ranger is located adjacent to the World Heritage listed Kakadu National Park and especially stringent environmental requirements and governmental oversight apply. Uranium oxide from Ranger is sold to base load electricity utilities in Japan, Korea, Europe and North America operating performance Uranium oxide production was in line with 2000 at a total of 4,211 tonnes, whilst sales were down slightly in response to soft demand. Cost reduction initiatives continued and a performance enhancement process was begun in late ENERGY GROUP PROJECTS Hail Creek (Rio Tinto: 92 per cent). Following changes in supply and demand for metallurgical coal and further evaluation, development of Pacific Coal s Hail Creek project in central Queensland commenced in The US$210 million project will produce 5.5 million tonnes per year of high quality coking coal and is expected to start up in Clermont Coal (Rio Tinto: 55 per cent) The Clermont deposit is near Pacific Coal s Blair Athol mine. It is suited to open cut development when Blair Athol s reserves are depleted. Mount Pleasant (Rio Tinto: 72.7 per cent) CNA received development consent during 2000 for the Mount Pleasant coal deposit in the Hunter Valley, New South Wales, and submitted a mining lease application. The deposit is capable of supporting an open cut mining operation producing approximately seven million tonnes of coal for 20 years in response to anticipated demand in the next decade. OPERATIONAL REVIEW 2001 Rio Tinto Annual report and financial statements 35

38 Operational review continued OPERATIONAL REVIEW Industrial Minerals group Borates (Rio Tinto share) 000 tonnes B2O3 content PRODUCTION Titanium dioxide feedstock (Rio Tinto share) 000 tonnes PRODUCTION 1, , , , , Industrial Minerals group g net earnings contribution US$m Borates (Rio Tinto share) 000 tonnes B2O3 content RESERVES 26, , , , Titanium dioxide feedstock (Rio Tinto share) 000 tonnes RESERVES 82,300 80,500 78,600 76, , , Rio Tinto s Industrial Minerals group produces borates, industrial salt, talc and titanium dioxide feedstock and its principal businesses are leading suppliers of their respective products. Recognising their increased significance, the Group s diamond interests were transferred to Rio Tinto s reconstituted Diamonds & Gold group in 2000, following the acquisition of Ashton Mining and the approval of the Diavik Diamonds development. The Industrial Minerals group employed approximately 7,100 people in At 31 December 2001, the Industrial Minerals group accounted for 16 per cent of the Group s operating assets and contributed approximately 17 per cent of Rio Tinto s turnover and 19 per cent of adjusted earnings in Tom Albanese, chief executive Industrial Minerals, is based in London. FINANCIAL PERFORMANCE 2001 compared with 2000 Industrial Minerals contribution to 2001 earnings was US$323 million. This compares with US$324 million in 2000 despite the generally difficult market conditions encountered in compared with 1999 Industrial Minerals contribution to earnings in 2000 was US$324 million, eight per cent lower than in Rio Tinto Borax s earnings were four per cent down at US$119 million. Continued competitive pressure in Europe outweighed strong North American and recovering Asian markets. Rio Tinto Iron & Titanium (RIT) earnings at US$173 million were nine per cent lower than in Oversupply of higher grade feedstock was accentuated by customers reducing their inventories. Rio Tinto Borax (Rio Tinto: 100 per cent) Rio Tinto Borax s Boron mine in California s Mojave Desert is the world s largest borate mine. Borates are commonly used in the US for vitreous applications, such as fibreglass, glass wool, high temperature glasses and enamels. The perborate industry, the most important market in Europe, uses borates as bleach in detergents. Other uses include ceramics, fertilisers, flame retardants, wood preservatives and corrosion inhibitors. Rio Tinto Borax s commitment to customer service remains a source of competitive strength. US and UK research laboratories provide technical support and participate in collaborative projects with customers operating performance Production of borates was five per cent down at 564,000 tonnes. Earnings at US$102 million were 14 per cent lower than Sales suffered in most major markets from the global economic slowdown and from competitive pressures. In addition, perborate substitution adversely affected European market demand. Cost reduction gained momentum and partly offset the effects of the downturn in sales. Multi-year labour agreements were negotiated at Borax s US operations that will provide additional operational flexibility and efficiency. Rio Tinto Iron & Titanium (Rio Tinto: 100 per cent) Rio Tinto Iron & Titanium (RIT) comprises the wholly owned QIT Fer et Titane (QIT) in Quebec, Canada and the 50 per cent interest in Richards Bay Minerals (RBM) in KwaZulu-Natal, South Africa. Both produce titanium dioxide feedstock used by customers to manufacture pigments for paints and surface coatings, plastics and paper, as well as iron and zircon co-products. QIT s proprietary process technology enables it to supply both the sulphate and chloride pigment manufacturing methods. In particular, its upgraded slag plant supplies product to the growing chloride sector. This facility is designed for expansion in line with demand up to a capacity of 600,000 tonnes per year from its current level of 250,000 tonnes. RBM s ilmenite has a low alkali content which makes its feedstock suitable for the chloride pigment process. A US$170 million fifth dredge mining plant was commissioned in late 1999 permitting RBM to sustain its annual one million tonnes of feedstock production operating performance RIT s share of titanium dioxide feedstock production in 2001 increased by four per cent to 1.43 million tonnes. Earnings at US$180 million were four per cent higher, benefiting from the decline in the value of the rand against the US dollar in the latter part of RIT s robust underlying performance, in a difficult year for its industry, demonstrated the quality of its assets. Steadily deteriorating market conditions during 2001, led to weaker demand for feedstocks, resulting in increased current market oversupply, particularly for conventional slag product. Shipments were lower and production was adjusted in line with demand as the year progressed. The market environment for RIT s iron and steel co-products remained difficult. Zircon markets were strong for most of Operations in Canada and South Africa performed well and new cost reduction initiatives were begun that will further strengthen the competitive position of the business. A new five year labour agreement was reached at RIT s Sorel operation in Canada. Dampier Salt (Rio Tinto: 64.9 per cent) Dampier Salt (DSL), now the world s largest salt exporter, remains a major business in the Industrial Minerals group. DSL produces industrial salt by solar evaporation at Dampier and Lake MacLeod, and also mines gypsum at Lake MacLeod, in Western Australia. In August 2001, DSL acquired a three million tonne per year salt operation at Port Hedland, Western Australia. The chemical industry in Asia is the principal customer for DSL s salt and cement and wallboard manufacture is gypsum s main use operating performance Total salt production for 2001 at 6.5 million tonnes was 1.9 million tonnes or 42 per cent higher, largely due to the acquisition of the Port Hedland salt operation in Western Australia in the second half of Production levels at Dampier and Lake MacLeod benefited from favourable evaporation conditions throughout 2001, having fully recovered from the effects of Cyclone Steve in Rio Tinto Annual report and financial statements

39 Luzenac Group (Rio Tinto: 99.9 per cent) The Luzenac group owns and operates talc mines and processing facilities in Europe, North America and Australia. They include the world s largest talc mine in south west France as well as smaller operations in Austria, Belgium, Canada, Italy, Mexico, Spain, the UK and the US. In addition, the Three Springs talc mine and processing plant in Western Australia was acquired in September The mine is capable of producing up to 200,000 tonnes of higher value talc annually and broadens Luzenac s product range to the Asia Pacific markets. Luzenac is a leading supplier whose products are used internationally. Principal talc uses are in paper, paint and plastics. OPERATIONAL REVIEW 2001 operating performance Talc production was marginally higher at 1.27 million tonnes, enhanced by production from the Three Springs operation. Sustained sales volume growth was achieved in European markets, in particular paper and specialities, although a decline was noted towards year end. The North American markets were affected by the weak economy with sales down in all major business sectors, especially paper. INDUSTRIAL MINERALS GROUP PROJECTS QIT Madagascar Minerals (Rio Tinto: 80 per cent) RIT manages QIT Madagascar Minerals (QMM), in which an agency of the Government of Madagascar has a 20 per cent interest, to evaluate and, if appropriate, develop large mineral sand deposits in the south east of Madagascar. In November 2001, QMM was granted an environmental permit by the Government for the proposed mineral sands project. This followed a thorough, three and a half year environmental permitting phase, comprising detailed social and environmental studies which were submitted to a Government review process that included extensive public consultations. The permit requires QMM to comply with a full range of social and environmental obligations throughout the project life. Evaluation of the project is now entering a new phase in which market and engineering studies will be advanced to determine the overall feasibility. In parallel, programmes will be put in place in collaboration with all interested and affected parties to address a range of regional issues Rio Tinto Annual report and financial statements 37

40 OPERATIONAL REVIEW 36 Operational review continued Aluminium group Weipa bauxite (Rio Tinto share) million tonnes MINED Alumina (Rio Tinto share) 000 tonnes PRODUCTION , , , , Comalco net earnings contribution US$m Earnings attributable to Rio Tinto Earnings attributable to minority interests Note: the last of the minority interests were purchased in Weipa bauxite (Rio Tinto share) million tonnes RESERVES Aluminium (Rio Tinto share) 000 tonnes PRODUCTION Rio Tinto s Aluminium group encompasses its wholly owned, integrated aluminium subsidiary, Comalco. Rio Tinto completed the acquisition of the publicly held 27.6 per cent of Comalco in July At 31 December 2001, the Aluminium group accounted for 15 per cent of Rio Tinto s operating assets and in 2001 contributed 14 per cent of Group turnover and 19 per cent of adjusted earnings. Sam Walsh, chief executive Aluminium, is based in Brisbane, Queensland. FINANCIAL PERFORMANCE 2001 compared with 2000 Comalco s contribution to 2001 earnings was US$313 million, a decrease of seven per cent. Lower prices reduced earnings by US$67 million with the average three month aluminium price in 2001 at 66 US cents per pound compared with 70 US cents in Continued weakness in the Australian and New Zealand currencies and Rio Tinto s increased ownership in Comalco benefited Comalco s earnings by US$16 million and US$22 million, respectively compared with 1999 Comalco s contribution to 2000 earnings was US$338 million compared with US$157 million in 1999, an increase of 115 per cent. Higher prices contributed US$65 million to earnings in The average three month aluminium price was eight US cents higher than the 62 US cents per pound in Alumina prices increased significantly and Comalco s earnings also benefited from weakness in the Australian and New Zealand currencies. Comalco continued to benefit from the performance enhancement process, with metal production 17,000 tonnes higher than in 1999, and a further significant reduction in costs. Rio Tinto s purchase of the Comalco minorities increased product group earnings by US$55 million in Comalco (Rio Tinto: 100 per cent) Comalco is a major, Australian based supplier of bauxite, alumina and primary aluminium to world markets. It employs approximately 3,400 people. Comalco is also entitled to four per cent of bauxite output from the Boké mine in Guinea. In March 2001, Comalco signed an historic agreement which recognises and respects the inherent Native Title rights of Traditional Owners and allows for consultation over future development of mining operations at Weipa on Western Cape York Peninsula, Queensland. Approximately 90 per cent of the bauxite from Comalco s wholly owned Weipa bauxite mine is shipped to alumina refineries in Gladstone, Queensland and Sardinia, Italy. Comalco has a 56.2 per cent consortium interest in Eurallumina and increased its interest in Queensland Alumina from 30.3 to 38.6 per cent for US$189 million in September In January 2002, Comalco began to construct a wholly owned, US$750 million alumina refinery to produce 1.4 million tonnes of alumina annually at Gladstone, Queensland. Smelters at Bell Bay (100 per cent) and Boyne Island (54.2 per cent), Australia, and Tiwai Point (79.4 per cent), New Zealand produce Comalco s primary aluminium. More than 75 per cent of Comalco s aluminium is exported to Asia, the US and Europe. From January 2001, Comalco s products have been marketed in North America through a metal trading company. Since 1997, Comalco s performance enhancement process has generated significant shareholder value and has become embedded in Comalco s annual planning process operating performance Softer traded market demand and lower production levels at the Queensland Alumina and Eurallumina refineries resulted in lower Weipa bauxite shipments of 11.0 million tonnes. Total bauxite production at 11.3 million tonnes was marginally lower than 2000, in line with reduced demand. Intermittent equipment and process problems at the alumina refineries adversely affected production levels. This impact was offset partly by Comalco s increased share of production from Queensland Alumina. By year end, both refineries were producing at capacity. Higher caustic soda prices and increased maintenance costs unfavourably affected earnings at the refineries. Total aluminium production from Comalco's three smelters was similar to Metal shipments of 690,000 tonnes were largely unaffected by the slow down in Asian consumption during 2001 as some sales were redirected to the US and Europe. Smelter earnings were adversely affected by higher cell reconstruction costs, lost production at Tiwai Point due to power shortages and higher freight costs associated with redirecting sales to US and European markets. ALUMINIUM GROUP PROJECTS Comalco Alumina Refinery (Rio Tinto: 100 per cent) Following approval in October 2001 and ground work preparation in December, large scale construction of the US$750 million first stage of a new greenfield alumina refinery began in January The refinery will enable Comalco to add further value to the Weipa bauxite deposit and strengthen both Comalco s and Australia s position in the world alumina market. The majority of the refinery s output will go into Comalco smelters, with the balance placed in the traded alumina market and for possible expansions of Comalco s smelting capacity. Comalco will, however, become a more significant player in the traded alumina market after the 1.4 million tonnes per year refinery comes into production. Initial shipments are expected in the first quarter of 2005 and full capacity by the end of There is potential for the refinery capacity to increase to over four million tonnes per year when market conditions allow. Boyne Island Smelter (Rio Tinto: 54.2 per cent) Comalco has commenced work on a possible expansion of the Boyne Island smelter in Gladstone Rio Tinto Annual report and financial statements

41 Copper group Copper (Rio Tinto share) 000 tonnes MINED Copper (Rio Tinto share) 000 tonnes REFINED Copper group net earnings contribution US$m Note: 2001 excludes exceptional asset write-downs. Copper (Rio Tinto share) 000 tonnes RESERVES 19, , , , , In 2001, Rio Tinto s Copper group comprised Kennecott Utah Copper in the US and interests in the copper mines of Alumbrera in Argentina, Escondida in Chile, Grasberg in Indonesia, Neves Corvo in Portugal, Northparkes in Australia and Palabora in South Africa as well as the Zinkgruvan zinc mine in Sweden. Responsibility for the Peak Gold mine in Australia and the Anglesey Aluminium smelter in the UK was transferred from the Diamonds & Gold to the Copper group at the end of Rio Tinto s interests in Northparkes (80 per cent) and Alumbrera (25 per cent) as well as the wholly owned Zinkgruvan zinc mine resulted from the acquisition of North in Management of Northparkes and Peak Gold has been consolidated. At 31 December 2001, the Copper group, which also produces a large amount of gold as co-product, accounted for 27 per cent of the Group s operating assets and, in 2001, contributed approximately 22 per cent of Rio Tinto s turnover, of which 12 per cent was from copper and the remainder mostly from gold. The group accounted for 16 per cent of adjusted earnings in Oscar Groeneveld, chief executive Copper, is based in London. FINANCIAL PERFORMANCE 2001 compared with 2000 The Copper group s contribution to adjusted earnings was US$262 million compared with US$323 million in The average price of copper was 72 cents per pound, a decrease of 13 per cent from The average gold price of $271 per ounce decreased by three per cent. Kennecott Utah Copper s contribution to adjusted earnings was down 19 per cent at US$81 million mainly due to lower prices. An exceptional charge relating to the impairment of asset carrying values was recorded during the year. This was triggered by the Group s reduction in long term metal price assumptions. Earnings at Escondida decreased by 58 per cent to US$41 million due to lower copper production and prices. Grasberg s earnings contribution increased 26 per cent to US$92 million as a result of higher gold grades and recoveries. Earnings at Palabora were broadly in line with 2000 as the weakness of the rand against the US dollar offset the impact of declining copper prices compared with 1999 The Copper group s earnings in 2000 were 12 per cent higher at US$323 million. The average copper price rose 14 per cent to 82 US cents per pound whilst that of gold was unchanged. Kennecott Utah Copper s earnings contribution was US$26 million higher at US$100 million with improving ore grades and increased milling rate. Escondida s US$97 million contribution was up by 15 per cent and Neves Corvo returned to profitability. Grasberg s contribution was 20 per cent down at US$73 million; attributable copper production was higher but gold fell by 21.5 per cent. At Palabora, lower recovery rates and refined copper production reduced its earnings contribution by US$12 million to US$15 million. Kennecott Utah Copper (Rio Tinto: 100 per cent) Kennecott Utah Copper (KUC) operates the Bingham Canyon mine and Garfield smelter complex, near Salt Lake City, US. KUC s US$510 million expanded tailings facility commenced operation in mid KUC supplies more than ten per cent of annual US refined copper requirements and employs approximately 1,900 people. The present six year labour contract will expire on 30 September Large scale underground mining is expected to extend the mine s life by 15 years after open pit reserves are exhausted around Because of its proximity to Bingham Canyon, KUC manages the wholly owned Barneys Canyon gold mine which employs approximately 20 people. Mining and milling at Barneys Canyon ended in 2001 but leaching will continue until operating performance Significant increases in copper and gold ore grades at Bingham Canyon resulted in higher production of metals in concentrate, except for molybdenum. Refined metal production was lower due to major maintenance on the flash converter and anode furnaces. In December, KUC permanently closed the North Concentrator, following temporary suspension of operations in June. This, together with the decision to outsource smelter maintenance, is part of a program to reduce costs and improve efficiencies. As a result of the closure, concentrate sales, which had averaged about 100,000 tonnes per year, will cease. Principal operating statistics at KUC Rock mined ( 000 tonnes) 150, , ,908 Ore milled ( 000 tonnes) 56,595 58,662 48,566 Head grades: Copper (%) Gold (grammes/tonne) Silver (grammes/tonne) Molybdenum (%) Copper concentrates produced ( 000 tonnes) 1,051 1,137 1,108 Production of metals in copper concentrates Copper ( 000 tonnes) Gold ( 000 ounces) Silver ( 000 ounces) 3,859 3,939 4,475 Molybdenum concentrates produced ( 000 tonnes) Contained molybdenum ( 000 tonnes) Concentrate smelted on site ( 000 tonnes) 1,065 1, Production of refined metals Copper ( 000 tonnes) Gold ( 000 ounces) Silver ( 000 ounces) 4,291 3,218 2,882 OPERATIONAL REVIEW 2001 Rio Tinto Annual report and financial statements 39

42 Operational review continued OPERATIONAL REVIEW Grasberg (Rio Tinto: 40 per cent of joint venture plus 14.3 per cent of the balance through its interest in FCX) Grasberg, in Papua, Indonesia, is one of the world s largest copper and gold mines in terms of reserves and production. It is owned and operated by PT Freeport Indonesia (PTFI), the principal and per cent owned subsidiary of the US based Freeport-McMoRan Copper & Gold Inc (FCX). Rio Tinto has a 16.6 per cent direct interest in FCX. At least one per cent of Grasberg s net sales revenues has been committed to support village based programmes. In addition, two new trust funds were established in 2001 in recognition of the traditional land rights of the local Amungme and Komoro tribes. In 2001, PTFI contributed US$19.9 million and Rio Tinto US$3.6 million in total to the funds. As a result of training and educational programmes, Papuans represented more than a quarter of PTFI s approximately 9,000 workforce by the end of A new, two year labour agreement was signed in June operating performance At Grasberg, lower copper grade as a result of the mining sequence reduced total copper production. However, higher recoveries and grades contributed to a significant increase in total gold production. Rio Tinto s overall share of production declined by eight per cent for copper to 187,900 tonnes but increased by 72 per cent for gold to 1,267,000 ounces. Demand for Grasberg s concentrate remained strong. Cost reduction initiatives continued to be pursued across the operation. The DOZ mine development was progressed and is expected to reach original design capacity of 25,000 tonnes of ore per day in 2002, one year earlier than anticipated. A feasibility study into extending DOZ production is nearing completion. Principal operating statistics for PTFI Ore milled ( 000 tonnes) 80,561 81,803 86,787 Head grades: Copper (%) Gold (grammes/tonne) Silver (grammes/tonne) Production of metals in concentrates Copper ( 000 tonnes) Gold ( 000 ounces) 3,086 2,436 3,596 Silver ( 000 ounces) 4,917 4,985 5,545 Escondida (Rio Tinto: 30 per cent) Escondida has been expanded in phases to the current capacity of approximately 800,000 tonnes of copper in concentrate and 150,000 tonnes of copper cathode per year. In response to market conditions, however, a decision to process lower grade ore from November 2001 until the third quarter of 2002 will curtail copper output by approximately ten per cent. Work on the Phase 4 development project, which will more than compensate for the declining ore grade for five years from 2003, continues as planned. The Escondida oxide plant was expanded to 150,000 tonnes per year capacity from March Escondida employs approximately 2,140 people directly together with 1,400 permanent contractors operating performance Reduced copper production was due in part to the lower ore grade and mill recoveries. Late in the second half, Escondida announced a ten per cent production cut back due to the poor market conditions. Rio Tinto s share of 2001 production, at 232,400 tonnes, was down by 15 per cent. Earnings benefited from cost savings but were adversely affected by the weak copper price. Principal operating statistics at Escondida Rock mined ( 000 tonnes) 249, , ,968 Ore milled ( 000 tonnes) 46,023 46,905 43,042 Head grade: Copper (%) Production of metals in concentrates Copper ( 000 tonnes) Gold ( 000 ounces) Silver ( 000 ounces) 3,525 3,282 3,198 Copper cathode ( 000 tonnes) Palabora (Rio Tinto: 49.2 per cent) Palabora Mining Company (Palabora) is publicly quoted with a market capitalisation of Rand 1.8 billion (US$153 million) at 31 December Rio Tinto acquired an approximately 0.7 per cent additional interest in Palabora through the market in July Palabora is developing a US$410 million underground mine, full production from which is scheduled to coincide with closure of the present open pit mine in Approximately 1.4 million tonnes of copper are expected to be produced over its 20 year life. Palabora supplies most of South Africa s copper needs and exports the balance. It employs approximately 2,300 people and labour agreements are negotiated annually operating performance As the open pit nears the end of its life, mined copper production was 33 per cent down at 78,400 tonnes. Production of refined copper was slightly lower, due mainly to the effects of a strike by mine and smelter operators. The heavy minerals and zirconia plants were closed permanently during 2001 due to reduced feed from the open pit. The weakness of the Rand against the US dollar partly offset the impact of the lower copper price. Continued progress on the underground mine development was marked by commissioning of the first phase of the ore handling system, which includes a crusher, underground conveying systems and production shaft, and the commencement of drawing ore from the block cave itself. Palabora arranged a US$125 million medium term loan facility with a consortium of local and foreign banks during 2001 that will be used to repay short term borrowings and finance the completion of the underground project. Principal operating statistics at Palabora Rock mined ( 000 tonnes) 25,419 19,591 12,345 Ore milled ( 000 tonnes) 28,343 25,737 14,522 Head grade: Copper (%) Copper concentrates produced ( 000 tonnes) Contained copper ( 000 tonnes) New concentrates smelted on site ( 000 tonnes) Refined copper produced ( 000 tonnes) Neves Corvo (Rio Tinto: 49 per cent) Sociedade Minera de Neves-Corvo (Somincor) owns and operates the high grade Neves Corvo copper and tin mine in Portugal. Rio Tinto agreed to sell its interest in Somincor for US$78 million in January 2002 subject to certain conditions operating performance Increased mill throughput resulted in higher copper production despite a lower copper ore grade. Actions were implemented during 2001 to reduce operating costs, including reductions in the numbers of employees and the use of contractors and closure of part of the tin plant. Principal operating statistics at Neves Corvo Ore milled ( 000 tonnes): Copper* 2,210 1,689 2,021 Tin Head grades: Copper (%) Tin (% tin ores only) Copper concentrates produced ( 000 tonnes) Contained copper ( 000 tonnes) Tin concentrates produced ( 000 tonnes) Contained tin ( 000 tonnes) * Total ore treated for copper production from both ore bodies. Alumbrera (Rio Tinto: 25 per cent) Rio Tinto s interest in Minera Alumbrera resulted from the acquisition of North. The other shareholders are MIM Holdings (50 per cent) and BHP Billiton (25 per cent). Minera Alumbrera was formed in 1993 to develop and operate an open pit copper and gold mine and processing facilities at Alumbrera, a 316 kilometre concentrate slurry pipeline to, and filter plant and rail loading facilities at, Cruz del Norte and port facilities at San Martin in Argentina. The project was developed at a cost of US$1.2 billion and began commercial production in early The mine is operated under an agreement with an Argentine statutory authority that owns the property and is entitled to 20 per cent of net profits after costs. A 15 year mine plan was developed during 1999/2000 and total annual production is expected to average approximately 178,000 tonnes of copper in concentrate and almost 590,000 ounces of gold in concentrate and Rio Tinto Annual report and financial statements

43 doré for ten years; production will decline thereafter. Concentrates are shipped to international smelters under long term contracts that provide for periodic negotiation of certain charges. Alumbrera s main markets are in the Far East (42 per cent), Europe/Africa (39 per cent) and the Americas (19 per cent). Alumbrera employs 800 people and 450 contractor personnel operating performance Higher head grades for copper and gold benefited production whilst a number of operational improvements resulted in lower cash operating costs. A third mill line and pebble crushing circuit is due for completion in early Principal operating statistics at Alumbrera Rock mined ( 000 tonnes) 105, , ,191 Ore milled ( 000 tonnes) 29,785 26,503 29,181 Head grade: Copper (%) Gold (grammes/tonne) Production of contained metals Copper ( 000 tonnes) Gold ( 000 ounces) Northparkes (Rio Tinto: 80 per cent) Rio Tinto s interest in the Northparkes coppergold mine also resulted from the acquisition of North. Northparkes is a joint arrangement with the Sumitomo Group (20 per cent). Following an initial open pit operation at Northparkes in central New South Wales, Australia, underground block cave mining has been undertaken since The mine was the first in Australia to employ this technique. With present and future developments, the operation has a remaining life of 15 years at current production rates. The copper concentrate produced is shipped under long term contracts, that provide for periodic negotiation of certain charges, and spot sales to smelters in Japan (42 per cent), Korea (40 per cent), India (13 per cent) and Australia (five per cent). Northparkes employs approximately 180 people together with 140 permanent contractors operating performance Northparkes benefited from higher copper and gold grades, record mill throughput and improved recoveries. The mine experienced a number of production challenges as it neared the end of its first block cave. Construction of the second block cave commenced early in the year. Principal operating statistics at Northparkes Ore milled ( 000 tonnes) 5,231 5,089 5,425 Head grade: Copper (%) Gold (grammes/tonne) Production of contained metals Copper ( 000 tonnes) Gold ( 000 ounces) Peak (Rio Tinto: 100 per cent) Peak Gold s mine and treatment plant in New South Wales, Australia employ 145 people. Its bullion is refined and sold through bullion banks in Australia. Minor tonnages of copper and lead/zinc concentrates are also produced. Peak s management has been consolidated with Northparkes after Peak s transfer from the Diamonds & Gold group operating performance Lower production in 2001 was a result of lower grades and the transition to new mining areas at the New Occidental reserve. The mine will utilise existing site infrastructure with ore transported to the head frame via a three kilometre, underground drive. New Occidental will extend the life of the operation to Anglesey Aluminium (Rio Tinto: 51 per cent) Anglesey Aluminium has extended its power contract for its smelter at Holyhead, UK to Its energy efficiency projects support a voluntary greenhouse gas abatement agreement with the UK Department of Environment, Transport and the Regions. Anglesey Aluminium employs approximately 535 people operating performance Aluminium production, at a total of 139,300 tonnes, was slightly lower than for A potline busbar failure in mid-year resulted in ten cells being taken off line and required a subsequent rebuild. Business improvement ideas contributed modestly to 2001 savings, with further initiatives identified for implementation in Zinkgruvan (Rio Tinto: 100 per cent) Rio Tinto s ownership of the Zinkgruvan underground zinc, lead and silver mine resulted from the acquisition of North. Zinkgruvan is located in south central Sweden and employs approximately 335 people. The mine has been in continuous production for 140 years. It produces a high quality zinc concentrate, as well as a lead and silver concentrate, which are sold to European smelters operating performance Lower grades for zinc, lead and silver and a declining zinc price led to lower earnings despite record mill throughput. A number of cost reduction and productivity improvement initiatives are being considered to mitigate the effects of the low zinc price. COPPER GROUP PROJECTS Alumbrera (Rio Tinto: 25 per cent) Construction of a third mill line and pebble crusher, at a total cost of US$39 million, commenced in August When completed shortly, the installed capacity of the mine will increase by 30 per cent to 101,000 tonnes of ore per day. Escondida (Rio Tinto: 30 per cent) Work on the US$1.1 billion Phase 4 expansion project continued towards completion in Production will be increased by an average of 400,000 tonnes to give a total production of 1.2 million tonnes of copper in concentrate per year over the next five years. Northparkes (Rio Tinto: 80 per cent) Development work on the US$76 million second block cave lift continued during the year. It is scheduled to commence production in 2003 and totally replace production from the present lift in Peak (Rio Tinto: 100 per cent) Following completion of a feasibility study in mid-2000, US$20 million has been invested in Peak s New Occidental deposit. By the end of 2001, access and underground development work had been largely completed and additional processing equipment installed. OPERATIONAL REVIEW 2001 Rio Tinto Annual report and financial statements 41

44 Operational review continued OPERATIONAL REVIEW Diamonds & Gold group Diamonds (Rio Tinto share) 000 carats MINED 23, , , ,205 Gold (Rio Tinto share) 000 ounces MINED 996 1, ,308 1, ,374 1, ,075 1, , ,235 2, Diamonds & Gold group Copper group Diamonds & Gold group net earnings contribution US$m Note: 2001 excludes exceptional asset write-downs. Diamonds (Rio Tinto share) 000 carats RESERVES 83, , , ,081 Gold (Rio Tinto share) 000 ounces RESERVES 8,857 26,024 9,187 28,984 8,475 28, ,985 32, , ,293 31, Rio Tinto s Diamonds & Gold group includes diamond interests in Australia, Canada and Zimbabwe, gold mines in Brazil, Indonesia, Papua New Guinea, the US and Zimbabwe, a zinc, silver and gold mine in the US, iron ore and nickel mines in Brazil, and a nickel refinery in Zimbabwe. In 2001, the Copper group assumed Diamonds & Gold s former responsibilities for Anglesey Aluminium and Peak Gold whilst the Norzink smelter interest was sold. At 31 December 2001, Diamonds & Gold accounted for ten per cent of the Group s operating assets and, in 2001, contributed eight per cent of both Rio Tinto s turnover and of adjusted earnings. Jonathan Leslie, chief executive Diamonds & Gold, is based in London. FINANCIAL PERFORMANCE 2001 compared with 2000 Diamonds & Gold contributed US$133 million to adjusted earnings, down US$30 million from Lower average prices for gold, silver, nickel and zinc, and reduced diamond sales decreased earnings by US$78 million. Earnings benefited from the continued weakness of the Australian dollar and Brazilian real, and lowering of the Australian corporate tax rate compared with 1999 The Diamonds & Gold group s earnings in 2000 were US$2 million lower, at US$163 million. Average prices for gold, at US$279 per ounce, silver and zinc were virtually the same. However, that for nickel increased by over 40 per cent to US$3.90 per pound. The group s share of production was generally lower; gold and silver by almost 24 per cent, nickel by eight per cent and refined zinc by 19 per cent. Further efficiency initiatives generated additional cost savings which mitigated price and volume reductions. DIAMONDS Argyle Diamonds (Rio Tinto: 99.8 per cent) Rio Tinto owns and operates the Argyle diamond mine in Western Australia. Rio Tinto acquired Ashton Mining Limited, the other major partner in Argyle, in November 2000, lifting its interest in Argyle from 60 to 99.8 per cent. The remaining 0.2 per cent is owned by public unitholders through the Western Australian Diamond Trust (WADT). On acquiring Ashton, Rio Tinto also acquired the small Merlin diamond mine in the Northern Territory of Australia. In May 2001, Rio Tinto issued a compulsory acquisition notice to acquire the 1.98 million units in WADT that it did not already own. Consideration for the acquisition was A$2.00 per unit. A number of unitholders lodged objections to the acquisition. Rio Tinto has applied to the Supreme Court of Victoria, seeking approval for the acquisition on the grounds that its offer provides fair value to unitholders. The Court completed its hearing in November but no judgement has yet been delivered. Argyle s major resource, the AK1 open pit mine, is supported by alluvial mining. Argyle continues to polish all its high value pink gem diamonds in Australia and elsewhere and market the remainder of its production from its Antwerp office. Further development of the open pit began in late 1998 and the mine life is expected to extend to at least An order of magnitude study on underground mining options has also been completed with encouraging results. Argyle employs approximately 800 people operating performance Total production of 26.2 million carats, including 55,000 carats from the Merlin mine, was marginally lower than in This reflected reduced ore production at Argyle where ore grade improved through the year in accordance with pit development plans. There was a reduction in earnings of 15 per cent to US$58 million in 2001, which included the approximate 40 per cent additional interest following the Ashton Mining acquisition. Major factors contributing to lower earnings were the absence of sales from inventories, which had increased revenues in 2000, and reduced allocations to customers towards the end of 2001 resulting from a decline in consumer confidence and weaker demand. Improved demand will depend on recovery in the key US and Japanese markets which account for about two thirds of world jewellery sales. GOLD Rio Tinto s primary gold mining interests include Kennecott Minerals in the US, Kelian in Indonesia, Lihir in Papua New Guinea, Morro do Ouro in Brazil, and Rio Tinto Zimbabwe. Rio Tinto s share of their 2001 production totalled 1.2 million ounces, 160,000 ounces more than in Kennecott Minerals (Rio Tinto: 100 per cent) In the US, Kennecott Minerals manages Rawhide (Rio Tinto: 51 per cent) and holds the Group s interest in Cortez/Pipeline (Rio Tinto: 40 per cent), both in Nevada. Groundwater monitoring continues following the 1999 completion of reclamation of the Flambeau, Wisconsin, copper mine. Reclamation of the Ridgeway mine in South Carolina, which was closed in 2000, was mainly completed in Kennecott Minerals employs approximately 450 people operating performance Kennecott Minerals gold production, including that produced at Greens Creek, was 14 per cent higher at 588,000 ounces in Its share of Cortez/Pipeline production at 475,000 ounces compared with 404,000 ounces in Additional heap leach pad capacity constructed at Cortez during 2001 will provide higher gold production from leaching. Production from Rawhide was similar to that in On completion of mining, reclamation will begin in late 2002 and will be undertaken concurrent with leaching and rinsing of the leach pads through to The majority of reclamation work at Ridgeway was completed in Future efforts will focus on environmental monitoring, maintaining vegetation and ensuring stability of the site Rio Tinto Annual report and financial statements

45 Kelian (Rio Tinto: 90 per cent) PT Kelian Equatorial Mining (Kelian) is required to offer for sale up to 51 per cent of its equity to Indonesian interests according to a specific schedule under the terms of its Contract of Work with the Indonesian Government. Kelian s offer to sell 41 per cent in 2001 was again not taken up. Mining at Kelian in East Kalimantan will cease in 2003 with production from stockpiled ore planned for a further year. Kelian employs approximately 1,000 people of whom 34 are expatriates. A two year collective agreement, with a one year extension and redundancy provisions, became effective in July operating performance The absence of 2000 s operating disruptions increased mill throughput by 13 per cent. This, together with a higher ore grade, lifted gold production by 34 per cent to 453,000 ounces in Development of Kelian s closure plan with stakeholders continued and options were endorsed by the steering committee at a meeting in November Lihir (Rio Tinto: 16.3 per cent) Lihir Gold (Lihir) is publicly quoted and at 31 December 2001, had a market capitalisation of A$1.3 billion (US$689 million). Rio Tinto s interest in Lihir decreased from 17.1 per cent to 16.3 per cent as a result of the merger of Lihir and Niugini Mining in early In addition, a syndicated finance facility replaced the previous arrangements with more flexibility and improved lines of credit. The Lihir mine is located on Lihir Island, Papua New Guinea. It directly employs approximately 970 people, of whom 91 per cent are Papua New Guineans and 39 per cent are Lihirians. Some 1,100 are also employed by contractors of whom a large proportion is Lihirian operating performance Improved ore grade and reliability of the autoclave benefited gold production and the change from contract to owner mining in 2000 resulted in significant cost savings in The autoclave heat recovery plant, installed towards the end of 2000, demonstrated improved process plant efficiency and flexibility. De-bottlenecking the process plant resulted in production of 648,000 ounces, up by seven per cent and well in excess of the targeted 600,000 ounces of gold per year. Morro do Ouro (Rio Tinto: 51 per cent) Rio Tinto Brasil manages the Group s interest in Morro do Ouro. A US$47 million project to extend the mine s life was completed in Further investment in 1999 included upgrading the tailings facility and an additional grinding mill was installed to deal with harder ore. Morro do Ouro employs approximately 570 people directly and 140 contractors, most of them from the nearby town of Paracatu operating performance Lower ore grade and major maintenance of the primary mills reduced gold production by 18 per cent to 187,000 ounces. This, together with associated higher costs, affected earnings. Rio Tinto Zimbabwe (Rio Tinto: 56 per cent) Rio Tinto Zimbabwe is a publicly quoted company with a market capitalisation of Z$2.7 billion (US$49 million) at 31 December Its interests include the Renco and Patchway gold mines as well as the Empress nickel refinery. Its Cam Dump retreatment plant was closed in Rio Tinto Zimbabwe employs approximately 1,800 people operating performance Total gold production of 67,000 ounces was in line with 2000 levels and efforts continued to reduce costs in a high inflationary environment. The business benefited from the introduction of Group procurement initiatives and the implementation of long term US dollar based contracts for high use and high cost items. Earnings were higher than for 2000, based on the higher realised gold price. OTHER MINERALS Greens Creek (Rio Tinto: 70.3 per cent) Kennecott Minerals manages the Greens Creek mine on Admiralty Island in Alaska. It produces concentrates containing silver, gold, zinc and lead. Exploration continues on land exchanged with the US Forest Service and on existing underground mineral rights operating performance Greens Creek improved mill throughput by six per cent from optimisation efforts implemented during New lead and zinc cleaner circuits commissioned early in 2001 improved metal recoveries at higher production rates. Ore grades were generally lower, continuing to vary with the mining sequence, but production of silver was 19 per cent higher at a total of 11.0 million ounces. Fortaleza (Rio Tinto: 100 per cent) The Fortaleza nickel mine and smelter in Brazil achieved full capacity in The transition from open pit to underground mining was completed by the end of Fortaleza employs approximately 555 people, including 125 contractors operating performance Mining and metallurgical performance improvements and the absence of the transition from open pit to underground mining in 2000, increased nickel production by 16 per cent to 10,170 tonnes in However, weak prices for nickel adversely affected earnings. Corumbá (Rio Tinto: 100 per cent) Rio Tinto Brasil s interest in Mineraçao Corumbaense Reunida (Corumbá) was increased from 80 to 100 per cent in Corumbá s iron ore is barged along the Paraguay River to South American customers operating performance Reduced demand for lump iron ore from Corumbá s major customer in Argentina had an adverse effect on production and earnings. Total output was down by 17 per cent to 642,000 tonnes. DIAMOND & GOLD GROUP PROJECTS Diavik Diamonds (Rio Tinto: 60 per cent) Diavik Diamond Mines (DDMI) owns Rio Tinto s interest in and manages the unincorporated Diavik Diamonds joint arrangement in the Northwest Territories of Canada. Following receipt of all permits and a review of the project in light of their requirements in 2000, work on the US$900 million mine began in January Initial production is planned for 2003 and at full production the mine is expected to produce over six million carats per year during its planned 20 year life. Construction progressed on schedule and within budget during 2001 and DDMI complied with all permits and licenses. DDMI s commitment to work with aboriginal communities was formally concluded in five Participation Agreements, providing training, employment and business opportunities. Murowa (Rio Tinto: 78 per cent) Rio Tinto and Rio Tinto Zimbabwe are continuing investigations into the requirements that will allow the Murowa diamond project to proceed. The feasibility study completed at the end of 2000 confirmed that three kimberlite pipes, near Zvishavane in southern Zimbabwe, represent a mining reserve of 23.1 million tonnes of ore at a grade of 0.7 carats per tonne. A project to mine 0.5 million tonnes of ore per annum is envisaged. OTHERS Bougainville Copper (Rio Tinto: 53.6 per cent) Bougainville Copper (BCL) is a Papua New Guinea company listed on the Australian Stock Exchange with a market capitalisation of A$56 million (US$29 million) at 31 December Operations at BCL s Panguna mine on Bougainville Island were suspended in 1989 following periods of disruption resulting from civil unrest. At 31 December 1991, a full provision of US$195 million was made in Rio Tinto s financial statements for its investment in BCL. Peace has been restored on most of Bougainville Island. However, the mine site is still under the control of elements that deny access to the area. An agreement has been signed between the national Government and Bougainville leaders providing for increased autonomy for Bougainville. Towards the end of 2000, two class actions, now consolidated, were filed in the US District Court in California claiming unspecified damages against Rio Tinto arising out of the mining operation at Panguna and the civil unrest leading to and following mine closure. BCL is not a party to this action. Rio Tinto believes the claims are wholly without merit and the action is being contested vigorously. OPERATIONAL REVIEW 2001 Rio Tinto Annual report and financial statements 43

46 Operational review continued OPERATIONAL REVIEW Exploration group Rio Tinto Exploration seeks to discover or identify mineral resources that will contribute to the growth of the Rio Tinto Group. The discovery of new resources can replace existing deposits as they are mined and help meet the increasing global demand for minerals and metals. The Exploration group is opportunistic in approach and its resources are deployed on projects that show the best chance of delivering a world class deposit to the Group. Mineral exploration is a high risk activity. The chances of any one project failing are high. Rio Tinto believes in having a critical mass of projects, selected through a rigorous process of prioritisation. The Exploration group is organised into four geographically based teams and a fifth team that looks for industrial minerals on a global basis. Additionally, a small focused project generation team covers the world for new opportunities. At the end of 2001, Rio Tinto was exploring in 22 countries for a range of commodities including copper, diamonds, nickel, industrial minerals, gold and iron ore. Exploration employs 186 geologists and geophysicists around the world and has a total staff of 425 people. David Klingner, head of Exploration, is based in London operating performance No world class discoveries were made during 2001 but the current project portfolio is considered to be the strongest that Rio Tinto Exploration has had for a number of years. In the US, drilling at the Resolution deep porphyry copper project obtained several long intersects of high grade disseminated mineralisation. Six deep holes were completed during 2001 and exploration will continue in 2002 with three drill rigs in operation. In Peru, exploration at the Marcona iron oxide associated copper project has identified significant high grade oxide and sulphide mineralisation close to the coast and existing infrastructure. In Iran and Turkey, encouraging drill results were obtained from early stage porphyry copper and gold projects. District offices were opened in both countries in 2001 to support further exploration. In Papua, Indonesia, exploration at Freeport Block A focused on the East Ertsberg area, where drilling has identified extensions to the porphyry copper mineralisation. In Canada, exploration on Nunavut diamond properties resulted in the discovery of the diamondiferous Anuri and Anuri East kimberlite pipes. Exploration in 2002 will focus on leads for larger nearby pipes. Regional diamond exploration commenced on 13,000 square kilometres of new reconnaissance permits in India. Early stage exploration resulted in the discovery of one diamondiferous kimberlite pipe. Exploration advanced on early stage diamond projects in Guinea, Zimbabwe, South Africa, Botswana, Brazil and Australia. Significant exploration results were obtained from nickel and zinc projects in the US, China, Australia and Indonesia. Exploration also progressed on industrial mineral and iron ore projects in Australia, Guinea and other countries. Near mine exploration continued at Escondida, Bingham Canyon, Boron and other Rio Tinto Group operations. In Argentina, drilling at the Tincalayu borate mine identified additional mineralisation. Exploration will continue on regional targets in In Turkey, drilling continued on trona targets near the Kazan deposit. Engineering and technical studies on Kazan are currently underway. In Guinea, delineation drilling continued to advance the Simandou high grade haematite project. Divestments were made of the Wafi goldcopper property in Papua New Guinea and of the Yakabindie nickel deposit and Lake Cowal gold deposit in Australia. Safety performance showed a solid improvement at all exploration operations in 2001, with just seven lost time injuries reported compared with 15 in There was also a decline in the severity of lost time injuries. No significant environmental or community incidents were reported during FINANCIAL PERFORMANCE 2001 compared with 2000 Cash expenditure on exploration and evaluation in 2001 was US$132 million and the pre-tax charge to earnings was US$130 million, both amounts being lower than the corresponding figures for The decrease in 2001 mainly reflected the restructuring of the exploration activity to focus on fewer but larger programmes compared with 1999 Cash exploration expenditure in 2000 was US$149 million and the pre-tax charge to earnings was US$136 million, both amounts being the same as in Rio Tinto Annual report and financial statements

47 Technology group The Technology group provides technical support to Rio Tinto s product groups and their businesses, supports corporate policy development in areas such as health, safety and environment, and advises executive management. In fulfilling these aims a key role of the group is to focus on and to promote best practice across Rio Tinto to maximise efficiency and add value. With the continuing evolution of e-business, Rio Tinto reviewed the application of its core business improvement initiatives early in As a result, the Rio Tinto Procurement and Information Systems and Technology units, with ancillary software staff, were transferred from the Technology group into a new Business Process Improvement unit. This change was designed to allow the Technology group to strengthen its focus on providing core technical support to major projects and the product groups and their operating businesses. The group s current total of some 260 staff specialise in technical consulting and development; health, safety and environment; technical evaluation; project management; and asset utilisation. The Office of Rio Tinto s Chief Technologist manages the Group s involvement in external and collaborative research. John O Reilly, head of Technology, is based in London operating performance Technical Services Technical Services provided high level support to acquisitions, other corporate initiatives, and the operating businesses, including important contributions at non-managed operations. Work with recently acquired businesses focused on the adoption of common technical standards. Projects covered most aspects of Rio Tinto s core businesses, from complex orebody modelling, through open pit and underground mine planning and operations, to improved mill performance and sophisticated computerised CFD modelling of the HIsmelt process. Technical Services has a strong environmental group that also undertakes HSE audits and reviews of business units. Work progressed on a range of development projects to add value in the short term by delivering innovative solutions to a range of operational issues. Collaborative effort and identification of best practice remain a focal aspect of this work. Water husbandry and pollution are growing worldwide concerns that are reflected in a high level of awareness in Rio Tinto. In Technical Services a large proportion of in-house development projects are targeted at water related issues. In addition, Rio Tinto continues to be the largest contributor to the collaborative industry program, the International Network for Acid Prevention (INAP). closely linked to internal development programmes that are the primary means of ensuring implementation within Rio Tinto. To facilitate technology transfer and information flow around the Group, a new internal research and development database and website has been developed to deliver information on specific projects and provide contact points for further information. Technical Evaluation and Project Management Technical Evaluation provided independent review of all major investments by the Group. A sharp rise in the activity of the unit in 2001 reflected the increased investment commitment of Rio Tinto covering both organic growth and greenfield projects. In addition the unit is involved in the review of the technical performance of past investments such that key learnings and previous experiences can be shared. The Project Management unit continued to support major project teams across Rio Tinto, both for projects in execution and those still in the feasibility stage. Both units had significant involvement in the approval processes for the HIsmelt and Comalco alumina refinery. In a more general context, a comprehensive website of guidelines and best practice and a more formalised approach to risk assessment are being implemented. Asset Utilisation The Asset Utilisation project was set up in 2000 to work with Group businesses to improve maintenance strategies for both existing and new assets. Pilot programmes across a number of sites during 2001 have delivered encouraging improvements and demonstrated that practical gains can be achieved. The unit is currently in the process of expanding its activities across a further 12 operating sites. Health, Safety and Environment (HSE) The HSE unit continued to provide corporate policy guidance and to support the ongoing improvement of standards and performance across the Group. Further information on these and social aspects is provided below. OPERATIONAL REVIEW Office of the Chief Technologist The Office of the Chief Technologist is responsible for the identification and the transfer of technology based opportunities for the Group. The external research portfolio contains a broad range of mineral processing initiatives, such as improved mill control and solids-liquid separation technologies. There are also environmental studies covering areas such as in-situ remediation. All external projects are 2001 Rio Tinto Annual report and financial statements 45

48 Operational review continued OPERATIONAL REVIEW Society and environment Group employees (average for year) 33,786 26,938 6, ,399 6,107 28, ,141 6,118 30, Joint ventures and associates Subsidiaries and joint arrangements Principal employee locations 2001 Australia/ New Zealand 10,000 North America 10,000 Africa 7,000 Other 9,000 Rio Tinto believes that a long term and responsible approach in its business leads to sustained competitive advantage and superior returns to shareholders. Rio Tinto s commitment to high standards of corporate social responsibility (CSR) is reflected in its support for the UN Secretary General s Global Compact, the OECD Guidelines for Multinational Enterprises, the Global Sullivan Principles and international business efforts. Rio Tinto s own business policies and practices are set out in The way we work. This cornerstone of Rio Tinto s CSR policies is designed to ensure that Rio Tinto s high standards are met. Reviewed regularly, these policies aim to provide the required control, transparency and accountability, in line with best practice. Rio Tinto has adopted the Association of British Insurers 2001 disclosure guidelines on social responsibility in preparing this report. Details of the Group s overall and individual businesses performance continue to be published on Rio Tinto s website: Board responsibilities As discussed in Corporate governance on page 55, the directors meet regularly, have a formal schedule of matters specifically reserved for their decision, have access to information, advice and the services of both company secretaries and to independent professional advice at the Companies expense. Induction of new directors includes coverage of appropriate matters. As described on page 51, executives annual cash bonus plan incorporates stretching targets for personal, financial and safety performance. The boards Committee on social and environmental accountability reviews the effectiveness of policies and procedures. Its five non executive director members meet three times annually and the chairman, chief executive and heads of Technology, Health, Safety and Environment and External Affairs attend. Reports for the committee summarise significant matters identified through Rio Tinto s assurance activities. These include four-yearly reviews of each business to assess ability to meet evolving requirements; biennial safety audits against Rio Tinto standards; annual risk engineering audits for insurers; risk reviews for specific concerns, such as cyanide management and smelter operations; and completion of annual questionnaires by all business unit leaders covering financial, social, health and safety and environment matters. In addition, assurance activities undertaken by Group businesses at a minimum include health, safety and environment audits, including regulatory compliance; social audits; and biennial tailings facility inspections by independent experts. Policies, procedures and verification Rio Tinto s policies and procedures are described in The way we work. Known risks are outlined on page 8 and their management in Group businesses is described in the relevant Operational review. Despite the paramount importance Rio Tinto places on health and safety, sadly there were six deaths, including three contractors employees, at managed operations during There were 19 per cent fewer lost time incidents, building on the significant improvement of earlier years. In 2001, there were 106 new cases (2000: 125) of occupational health conditions per 10,000 employees. Fines for infringement of occupational health and safety regulations involved 15 operations and totalled US$50,000 (2000: 12 operations and US$63,000). Rio Tinto seeks to minimise environmental risks through effective management practices, including the ISO international environmental standard. By the end of 2001, 57 per cent of Group businesses had implemented this ISO or equivalent standard. Again, no environmental incidents were classified as critical in Fines for infringement of environmental regulations involved 11 operations and totalled US$450,000 (2000: six operations and US$129,000). Group businesses publish their own local social and environmental reports. In addition to consultation with their employees, Group businesses engage with local communities in keeping with iocal cultures, customs and legislation. Through systematic approaches and taking account of all heritage legislation, Rio Tinto strives to understand and interact constructively with local communities. A number of landmark agreements have been achieved including, for example, with Australian Aboriginal communities at Weipa, Queensland in Rio Tinto uses the London Benchmarking Group approach to distinguish between contributions that are charitable gifts, community involvement, commercial initiatives and management costs. Based on this approach, the contributions for 2001, which now relate to managed businesses only, totalled US$44 million (2000: US$39 million). Wages and salaries paid in 2001 totalled US$1.2 billion, the same as in 2000 after exchange rate changes. Retirement payments and benefits to dependants are provided in accordance with local conditions and good practice. The total pension and other benefits paid in 2001 was US$208 million (2000: US$191 million). The Group neither condones nor uses forced or child labour. Employment practices are free from any bias or harassment. Rio Tinto also accepts the need to maintain and develop careers for disabled people. Generally good employee relations were again experienced in Few labour disputes arose during the year as outlined in the relevant Operational review, as are several new collective agreements reached. In addition to internal assurance processes, Rio Tinto continues to seek external assurance. Arthur D Little undertook the data accuracy assurance on Rio Tinto s 2001 Social and environment review. Rio Tinto is also engaged on a process of external assurance and intends to develop this further. Arthur D Little is also developing a data quality standard for the Group. Rio Tinto will continue to review and align its verification and assurance processes with best practice. During 2001, Rio Tinto was Sustainability Leader for its sector in the Dow Jones STOXX Sustainability Index and tenth in the Business in the Environment Survey of FTSE100 companies Rio Tinto Annual report and financial statements

49 Senior management SENIOR MANAGEMENT AND EMPLOYEES Tom Albanese joined Rio Tinto in 1993, on Rio Tinto s acquisition of Nerco. He holds a BS in mineral economics and an MS in mining engineering. He held a series of management positions before being appointed chief executive of the Industrial Minerals group in Mr Albanese is 44. Gregory Boyce was appointed chief executive of Energy in April A mining engineer and graduate of the Advanced Management Programme at Harvard, he joined the Group in 1977 and has since held a series of management positions, including latterly president & CEO of Kennecott Energy. He is a member of the International Energy Agency s Coal Industry Advisory Board. Mr Boyce is 46. Brian Horwood was appointed managing director, Rio Tinto Australia, in December 2001 following 32 years with the Group. He has held a number of senior management positions in Australia, Papua New Guinea and the United Kingdom, including managing director of Dampier Salt and, most recently, Pacific Coal. He holds a Bachelor of Commerce and is a Fellow of the Australian Society of Certified Practising Accountants. Mr Horwood is 60. David Klingner became head of Exploration in He joined as a geologist in 1966 and has had a wide variety of roles both in exploration and elsewhere in the Group during his 36 years service, including managing director of Kaltim Prima Coal. Later he was a Group executive with Rio Tinto Limited, responsible for coal and gold businesses located in Australia, Indonesia and Papua New Guinea. Dr Klingner is 57. Anette Lawless joined Rio Tinto in 1998 and became company secretary of Rio Tinto plc on 1 January A chartered secretary and a Fellow of the ICSA, she also holds an MA from the Copenhagen Business School. Mrs Lawless is 45. John O Reilly joined Rio Tinto in 1987, following 20 years operations experience in Africa and the Middle East. A metallurgical engineer by profession, he has held a series of management positions, including director, Rio Tinto Technical Services, chief executive officer, Lihir Gold and head of Gold & Other Minerals, before being appointed head of Technology in Mr O Reilly is 56. Christopher Renwick has been with Rio Tinto for more than 30 years and is currently chief executive, Iron Ore. He is a lawyer and has held numerous management positions within the Group, including managing director of Comalco Mineral Products and a Group executive with Rio Tinto Limited. He was appointed to his current position in Mr Renwick is 59. Andrew Vickerman became head of External Affairs in Prior to that he was responsible for all the financial and administrative aspects of Lihir and was a director of Lihir Gold. He has a BA, MA and PhD from Cambridge University. He joined Rio Tinto in Mr Vickerman is 47. Sam Walsh was appointed chief executive of Aluminium in March He holds a commerce degree and joined Rio Tinto in 1991, following 20 years working in the automotive industry. He has held a number of management positions within the Group, including managing director of Comalco Foundry Products, CRA Industrial Products, Hamersley Sales & Marketing, Hamersley Operations and Vice President of Rio Tinto Iron Ore. Mr Walsh is 52. Barry Cusack retired as managing director of Rio Tinto Australia in December 2001, when he was succeeded by Brian Horwood. Ian Falconer, company secretary of Rio Tinto Limited, sadly died in January Neville Tiffen has been appointed company secretary of Rio Tinto Limited on an interim basis until a permanent successor can be appointed. Employees Information on the Group s 36,000 employees, including their employment costs, is on page 46 and set out in note 25 on page Rio Tinto Annual report and financial statements 47

50 Executive directors DIRECTORS Sir Robert Wilson KCMG has been executive chairman of Rio Tinto plc since 1997 and of Rio Tinto Limited since He is chairman of the Nominations committee. Sir Robert joined Rio Tinto in 1970 and became a director of Rio Tinto plc in He was chief executive from 1991 until his appointment as chairman. Sir Robert is also a non executive director of BP plc and of Diageo plc. Sir Robert is 58. (note b) R Leigh Clifford became chief executive in April 2000, having been a director of Rio Tinto plc since 1994 and Rio Tinto Limited since A mining engineer, he has held various roles in the coal and metalliferous operations of the Group since joining in 1970, including managing director of Rio Tinto Limited and chief executive of the Energy group. He is also a director of Freeport-McMoRan Copper & Gold Inc. Mr Clifford is 54. Robert Adams was appointed a director of Rio Tinto plc in 1991 with responsibility for planning and development and a director of Rio Tinto Limited in He joined the Group in 1970 after reading natural sciences and economics and subsequently gaining an MSc from the London Business School. He is also a non executive director of Foreign & Colonial Investment Trust plc. Mr Adams is 56. Christopher R H Bull was appointed finance director of Rio Tinto plc in 1991 and of Rio Tinto Limited in He is a Chartered Accountant and also holds an economics degree. Mr Bull, who will retire at the conclusion of Rio Tinto Limited s annual general meeting on 18 April 2002, joined Rio Tinto from BTR plc, where he was finance director. He is a governor of the University of Greenwich. Mr Bull is 59. Non executive directors Richard V Giordano KBE is the senior non executive director and a deputy chairman. He is also chairman of the Audit committee. He has been a director of Rio Tinto plc since 1992 and of Rio Tinto Limited since A lawyer by training, he spent 12 years at BOC Group, first as chief executive, then chairman. In 1993, Mr Giordano became a director of British Gas, assuming the role of chairman in He is currently chairman of BG Group plc, as well as a director of Georgia Pacific Corporation in the US. Mr Giordano is 67. (notes a, b, c and d) Leon A Davis is a deputy chairman. He became a director of Rio Tinto Limited in 1994 and of Rio Tinto plc in He is a metallurgist and during more than 40 years with the Group held a number of managerial posts around the world, ultimately as chief executive in Following his retirement from that post in 2000, he became the Group s Australia based non executive deputy chairman. He is chairman of Westpac Banking Corporation, a director of Codan Pty Limited, Huysmans Pty Limited and Trouin Pty Limited, and is also on the board of The Walter and Eliza Hall Institute of Medical Research. Mr Davis is 62. David L Mayhew was appointed a director of Rio Tinto in He is chairman of Cazenove Group plc, which he joined in Cazenove is a stockbroker to Rio Tinto plc. Mr Mayhew is 61. (notes a and b) John P Morschel was appointed to the boards of Rio Tinto in Educated in Australia and the US, he spent most of his career with Lend Lease Corporation Limited in Australia, culminating as managing director, followed by two years as an executive director of Westpac Banking Corporation. He is chairman of Leighton Holdings Limited and CSR Limited, and a director of Tenix Pty Limited, Gifford Communications Pty Limited and Singapore Telecommunications Limited. He is also a trustee of the Art Gallery of New South Wales. Mr Morschel is 58. (notes c and d) Rio Tinto Annual report and financial statements

51 DIRECTORS Guy R Elliott was appointed a director of Rio Tinto in January He joined the Group in 1980 and has held a variety of marketing, planning and development positions, most recently as head of Business Evaluation. From 1996 to 1999 he was president of Rio Tinto Brasil. Mr Elliott, who will succeed Mr Bull as finance director, has an MA from Oxford University and an MBA from INSEAD. Mr Elliott is 46. Oscar L Groeneveld became a director of Rio Tinto in A mining engineer with qualifications in engineering, science and management, he joined the Group in 1975 and has since held a series of management positions, including head of Technology, before being appointed chief executive of the Copper group in He is a director of Freeport- McMoRan Copper & Gold Inc. Mr Groeneveld is 48. Jonathan C A Leslie was appointed a director of Rio Tinto plc in 1994 and of Rio Tinto Limited in A barrister, he joined the Group in In the years leading up to his appointment as mining director in 1994, he held a variety of posts, including managing director of Rössing Uranium. Prior to becoming chief executive of the Diamonds & Gold group in 1999, he was chief executive of the Copper group. He is a director of Lihir Gold. Mr Leslie is 51. Notes a) Audit committee b) Nominations committee c) Remuneration committee d) Committee on social and environmental accountability The Hon Raymond G H Seitz is chairman of the Committee on social and environmental accountability. He became a director of Rio Tinto in Following a career spanning 28 years in the US Foreign Service, including the post as Ambassador to the UK from 1991 to 1994, he is now vice chairman of Lehman Brothers Europe, chairman of Authoriszor Inc and also a director of British Airways plc, Cable & Wireless plc, Marconi plc, Pacific Century Cyberworks and the Chubb Corporation. Mr Seitz is 61. (note d) Paul D Skinner was appointed a director of Rio Tinto in December He is a Managing Director of The Shell Transport and Trading Company, plc and Group Managing Director of The Royal Dutch/Shell Group of Companies for whom he has worked since He is chief executive officer of Shell s global oil products business and is also a member of the board of INSEAD. Mr Skinner is 57. (notes a and d) Sir Richard Sykes was appointed to the boards of Rio Tinto in He is chairman of the Remuneration committee. After reading microbiology, he obtained doctorates in microbial chemistry and in science. He joined Glaxo in 1972, moving to the Squibb Institute for Medical Research in 1977, before returning to Glaxo in 1986 and becoming chairman of Glaxo Wellcome plc in Following the merger of Glaxo Wellcome and SmithKline Beecham, he became chairman of GlaxoSmithKline plc and also took up the post of Rector of the Imperial College of Science, Technology and Medicine. He is a Fellow of the Royal Society and a trustee of the Natural History Museum in London. Sir Richard is 59. (note c) Lord Tugendhat became a director of Rio Tinto in A former vice president of the Commission of the European Communities, and chairman of the Civil Aviation Authority, he was chairman of Abbey National plc from 1991 until February 2002 when he was appointed chairman of Lehman Brothers Europe. He is also a non executive director of Eurotunnel plc. Lord Tugendhat is 65. (notes a and d) Gary M Pemberton served as a non executive director and member of the Audit committee until his retirement at the end of August Rio Tinto Annual report and financial statements 49

52 Remuneration report REMUNERATION REPORT The Remuneration committee consists of Sir Richard Sykes (chairman), Mr R V Giordano and Mr J P Morschel, who are all independent non executive directors. It is responsible for determining and reviewing executive directors remuneration. It also makes recommendations for senior management remuneration packages. Remuneration policy The Group competes for the limited resource of internationally mobile top quality managers. Both the structure and level of remuneration is designed to be competitive in this market. In particular, total remuneration is increasingly related to performance through the use of annual bonuses and long term incentives. To ensure Rio Tinto remains competitive, the committee reviews the Group s executive remuneration policy to create the flexibility needed to reflect both local practices and international competition in its operations. Shareholders will be invited to vote on the policy as set out in this report at the forthcoming annual general meetings. The policy on base salaries for executive directors and senior executives is consistent with market practice of companies with a similar geographical spread and complexity of businesses. The annual cash bonus plan provides a target bonus of 60 per cent of salary and incorporates stretching targets relating to personal, financial and safety performance. Two share based plans were approved by shareholders in 1998; the Share Option Plan (SOP) and the Mining Companies Comparative Plan (MCCP). The MCCP is a long term incentive plan under which shares are awarded annually but vest only after four years, subject to a performance test comparing Rio Tinto s total shareholder return with those of 15 other major international mining companies. These plans were designed to align directors and senior executives interests to those of shareholders. Part of the committee s role is to monitor developments within the remuneration field on an ongoing basis. Last year, the committee decided that it was appropriate to adopt a more flexible approach to option grants taking into account individual and company performance and the competitive market place. This year, the committee has come to the conclusion that no changes to current policy are necessary. Directors and senior executives, therefore, continue to be eligible to receive annual conditional awards under the MCCP of a value of up to 70 per cent of salary. Under the SOP, directors and product group chief executives are potentially eligible for grants of options with a purchase price of up to five times annual salary. The committee believes that with the challenging performance targets incorporated into both share based plans, the combination of these plans, salary and annual bonus will reward exceptional performance and should enable Rio Tinto to retain key talent. Directors remuneration In the year under review, executive directors remuneration comprised salary and a cash bonus based on annual performance measures, with a target bonus of 60 per cent of salary. It also included performance related long term incentive share awards under the MCCP, with conditional awards of up to 70 per cent of salary, and participation in share option plans at a level of up to five times salary. Other remuneration items include health benefits, membership of the appropriate Company pension/superannuation fund and a car allowance. Housing and children s education assistance are provided for directors living outside their home country. Full details of the directors annual remuneration before tax and excluding pension contributions are set out in Table 1 on page 52. Details of long term incentive plans and option plans are set out on pages 53 and 54. Service contracts and compensation payments In March 1998, the boards adopted the objective of one year s notice for directors appointed after that date, but as it is essential that the Group remains in a position to offer competitive terms, the policy may be amended where the situation demands it. Existing contracts in place prior to that date continue to be terminable on two years notice, except for Sir Robert Wilson s contract, to which he agreed a reduction, without compensation, to one year s notice. There are no explicit provisions in directors service contracts for early termination compensation commitments. The Group s policy on termination is to act fairly in all circumstances and the duty to mitigate would be taken into account in the event of early termination. Compensation would exclude unmerited reward for poor performance. Non executive directors do not have service contracts. Of the directors proposed for election or reelection at the forthcoming annual general meeting, Mr R L Clifford and Mr O L Groeneveld both have service contracts with a subsidiary company of Rio Tinto Limited which are terminable by one year s notice. Mr G R Elliott has a service contract with a subsidiary company of Rio Tinto plc, which is also terminable by one year s notice. Mr P D Skinner, Mr Giordano and Mr Morschel do not have service contracts. Pensions UK executive directors are, like all UK staff, eligible to participate in the non contributory Rio Tinto Pension Fund, a funded, Inland Revenue approved, final salary occupational pension scheme. The Fund provides a pension from normal retirement age at 60 of two thirds of final pensionable salary, subject to completion of 20 years service. Proportionally lower benefits are payable for shorter service. From age 50 onwards, members may draw their pension immediately if they leave service. The retirement pension is reduced by approximately four per cent a year for each year of early payment. Spouse and dependants pensions are not reduced. On death before retirement, a lump sum of four times pensionable salary is provided together with a spouse s pension at normal retirement age. A spouse s pension of two thirds of the member s pre-commutation pension is also payable on death after retirement. Allowances of 15 per cent of the member s prospective pension at normal retirement age are payable to each dependent child on a member s death both before and after retirement. On ill health, a pension of 70 per cent of pensionable earnings inclusive of state and other benefits is payable until normal retirement age, after which a pension based on service to normal retirement age and pensionable salary at the time of leaving service is payable. Under the rules of the Rio Tinto Pension Fund, all pensions are guaranteed to increase annually in line with increases in the UK Retail Price Index subject to a maximum of ten per cent per annum. Increases above this level are discretionary, but in practice pensions have increased in line with inflation. When pensionable salary is limited by the UK Inland Revenue earnings cap, benefits are provided from an unfunded supplementary arrangement. Cash contributions were not paid in 2001 as the Rio Tinto Pension Fund remains fully funded and in surplus. Australian executive directors are eligible for membership of the Rio Tinto Staff Superannuation Fund, a funded superannuation fund regulated by Australian legislation. It provides both defined benefit and defined contribution benefit. The Australian executive directors are not required to pay contributions. They are defined benefit members, accruing lump sums payable on retirement after age 57 of 20 per cent of final basic salary for each year of service. Retirement benefits are limited to a lump sum multiple of seven times final basic salary at age 62. For retirement after 62, the benefit increases to 7.6 times average salary at age 65. Death in service and disablement benefits are provided as lump sums and are equal to the prospective age 65 retirement benefit. Proportionate benefits are also payable on termination of employment for ill health or resignation. Cash contributions were not paid in 2001 as the Rio Tinto Superannuation Fund remains fully funded and in surplus. Annual awards under the Short Term Incentive Plan are pensionable up to a maximum value of 20 per cent of base salary. The percentage of total remuneration which is dependent on performance is substantial and has risen over recent years. In view of this, the committee considers it appropriate that a proportion of such pay should be pensionable. These awards were not previously pensionable for directors and now align their conditions with established arrangements for other senior executives. Details of directors pension entitlements are set out in Table 2 on page 52. Non executive directors fees The boards as a whole determine non executive directors fees. They are set to reflect the responsibilities and time spent by the directors on the affairs of Rio Tinto plc. However, the basic fee has not been increased since the DLC merger in 1995 and was consequently becoming out of line with market levels. Therefore, with effect from 1 January 2002, the boards increased the basic annual fee for UK Rio Tinto Annual report and financial statements

53 based directors by 10,000 to 50,000 and for Australian based directors by A$25,000 to A$125,000. No non executive director was eligible to vote on this increase. Non executive directors do not participate in the Group s incentive plans, pension/superannuation arrangements or any other elements of remuneration provided to executive directors. Directors share interests The beneficial interests of directors in the share capital of Rio Tinto plc and Rio Tinto Limited are set out in Table 3 on page 53. Executive directors are expected to build up a shareholding equal to two times salary over time. External appointments Rio Tinto recognises that executive directors are likely to be invited to become non executive directors of other companies and that such appointments can broaden their experience and knowledge, to the benefit of the Companies. Where such directorships are unlikely to give rise to conflicts of interests, the boards will normally give consent to the appointment, with the director permitted to retain the fees earned. Incentive plans Rio Tinto s incentive plans aim to align directors and executives interests to those of the shareholders through linking rewards to Group performance. These plans are described below, together with appropriate descriptions of their performance criteria. This report also shows a ranking of Rio Tinto s performance against comparator companies and at the end is an illustration of the Group s performance compared to the HSBC Global Mining Index. Short Term Incentive Plan This plan extends to executive directors and senior executives. Payments are based on short term goals relevant to each participant, including the achievement of earnings and safety targets. The committee reviews the criteria annually. Awards in respect of 2001, payable in 2002, are included as annual bonus in Table 1 on page 52. Mining Companies Comparative Plan (MCCP) Under this plan, executive directors are granted a conditional right to receive shares subject to the satisfaction of performance conditions approved by the committee. Awards are not pensionable. Senior executives also participate in the plan at appropriate levels of award. The current performance condition compares Rio Tinto s total shareholder return (TSR) over a four year period with the TSR of a comparator group of 15 other international mining companies over the same period. The composition of this comparator group is reviewed regularly by the committee to ensure continued relevance in a consolidating industry. The following table shows the percentage of each award which will actually be received by directors depending on the comparator group ranking: Ranking in comparator group % Ranking of Rio Tinto versus comparator companies Period Quartile st st st st nd nd nd nd nd nd st st st st st Current comparator companies: Alcan, Alcoa, Anglo American, Barrick Gold, BHP Billiton, Teck Cominco, Freeport, INCO, MIM, Newmont, Noranda, Phelps Dodge, Grupo Mexico, Placer Dome and WMC. Awards will be released to participants in the form of Rio Tinto plc or Rio Tinto Limited shares or an equivalent amount in cash, as appropriate. Such shares may be acquired by purchase in the market, by subscription or, in the case of Rio Tinto Limited, by procuring that Tinto Holdings Australia Pty Limited transfers existing shares to participants. The committee will withhold all or part of the award if it considers that the performance of the participant or the Group is inadequate. Share Option Plan (SOP) An annual grant of options is made to executive directors and eligible senior executives. The committee decides the level of awards for each year, taking into consideration local market practice. Options are not granted at a discount and the exercise of options is subject to the satisfaction of a graduated performance condition set by the committee. Currently, two thirds of options granted will vest when the Group s earnings per share growth for a three year performance period is at least nine percentage points higher than US inflation over the same period, as measured by the US Consumer Price Index. The balance of the grant will vest when growth of at least 12 percentage points above US inflation has been achieved. Share options granted to directors are included in Table 4 on page 54. Other share plans UK executive directors are eligible to participate in both the Rio Tinto Profit Sharing Scheme 1987, which enables employees of participating companies to receive an annual award of Rio Tinto shares equal to a maximum of ten per cent of salary, subject to a cap of 8,000, and in The Rio Tinto plc Share Savings Plan, a savings related plan which is open to all employees and under which employees may buy shares on potentially favourable terms. Following the introduction of new legislation, there will be no further awards under the Profit Sharing Scheme after April Rio Tinto has established a new, UK Inland Revenue approved share incentive plan in the form of the Rio Tinto Share Ownership Plan, under which eligible employees may save up to 125 per month, which the plan administrator will use to purchase shares in Rio Tinto plc. Rio Tinto matches these purchases on a one for one basis. From 2003, it is intended to introduce the so called free share element of the legislation, allowing eligible employees to receive an annual award of Rio Tinto shares equal to a maximum of ten per cent of salary, subject to a cap of 3,000. Australian executive directors are eligible to participate in the Rio Tinto Limited Share Savings Plan introduced in 2001, which is similar to the Rio Tinto plc Share Savings Plan. Expiring incentive plans The MCCP and the SOP replaced the Mining Plan and the FTSE Plan, both share based plans. No awards have been made under these plans since the introduction of the MCCP and the SOP and no further shares will vest to directors in respect of the Mining Plan. No awards under these old plans form part of pensionable earnings for directors. The expiring FTSE Plan compares total shareholder return on Rio Tinto plc shares with that of the top 47 companies listed on the London Stock Exchange over a four year period, with an additional two year vesting period if the performance criteria are not met after year four. The benchmark numbers of shares allocated to directors under previous conditional awards and still outstanding are contained in Table 3 on page 53. The last conditional award under the Plan was made in 1997 and, if not vested, will expire on 31 December REMUNERATION REPORT 2001 Rio Tinto Annual report and financial statements 51

54 Remuneration report continued REMUNERATION REPORT Table 1 Directors remuneration Annual remuneration of the directors of the parent Companies before tax and excluding pension contributions Salary/fees Annual Other Total Total 000 except where stated in A$000 1 bonus 2 emoluments 3 Non executive directors L A Davis ,037 R V Giordano KBE D L Mayhew J P Morschel A$130 A$130 A$153 G M Pemberton AO 5 A$82 A$82 A$100 The Hon R G H Seitz P D Skinner Sir Richard Sykes Lord Tugendhat Executive directors Sir Robert Wilson chairman ,319 1,043 R L Clifford chief executive , R Adams C R H Bull finance director O L Groeneveld J C A Leslie Notes 1. Sterling amounts quoted above may be converted to Australian dollars by using an exchange rate of A$2.785 to 1, being the average exchange rate during The annual bonus is payable under the Short Term Incentive Plan introduced in 1998 following a wide ranging review of incentive arrangements by the Remuneration committee. The Plan is part of the reward package approved by shareholders, incorporating both short and long term goals. 3. Other emoluments include benefits in kind and share awards to UK executive directors under the Rio Tinto Profit Sharing Scheme 1987 of a value of 7,989 each. 4. Mr D L Mayhew s fees are paid to Cazenove. Mr P D Skinner s fees are paid to Shell International Limited. 5. Mr G M Pemberton retired as a director of Rio Tinto with effect from 31 August Emoluments of 50,629 from subsidiary and associated companies were waived by two executive directors (2000: three directors waived 47,271). Executive directors have agreed to waive any further fees receivable from subsidiary and associated companies. 7. Mr G H Sage retired as a director from the boards of Rio Tinto plc and Rio Tinto Limited on 31 December During 2001, Mr Sage received further payments and benefits of 100,689. Mr Sage s total remuneration in 2000, before tax and excluding pensions contributions, was 456,000. On retirement he received a payment of 561,200 before tax together with an augmentation to his pension from the Rio Tinto Pension Fund equivalent in actuarial value to 431, Mr G R Elliott became a director on 1 January Table 2 Directors pension entitlements (as at 31 December 2001) Age Years of Additional benefit earned Accrued entitlement service (excluding inflation) during at year end completed the year ended 31 Dec 2001 Pension Pension UK directors 000 pa 000 pa R Adams C R H Bull J C A Leslie Sir Robert Wilson A$000 A$000 Australian directors Lump sum Lump sum R L Clifford ,756 O L Groeneveld ,530 Notes 1. As required by Australian legislation, Rio Tinto Limited paid superannuation guarantee contributions of A$7,200 (2000: A$7,417) on behalf of Mr Pemberton. 2. A$65,818 and A$36,767 were credited to the respective accounts belonging to Mr Clifford and Mr Groeneveld in the Rio Tinto Staff Superannuation Fund in relation to the superannuable element of their 2001 bonuses. 3. The figures for Australian directors are before tax and exclude interest Rio Tinto Annual report and financial statements

55 Table 3 Directors beneficial interests in shares 1 and awards under long term incentive plans MCCP Monetary value of vested Mining Maximum conditional awards 2 award Plan 33 Share holding (number of shares) Jan 31 Dec 8 Feb 1 Jan 31 Dec Awarded Lapsed 5 Vested Sir Robert Wilson 8 111, , , ,250 49,796 36,038 50, , R L Clifford 2,100 2,100 2, ,464 36,064 36, ,523 37,474 16,802 27, , R Adams 8 52,820 54,805 54, ,495 27,330 20,370 28, , C R H Bull 8 62,202 42,783 42, ,325 27,136 20,370 27, , L A Davis 6,100 6,100 6,100 51,201 51, ,875 57,875 57, ,825 53,345 57, G R Elliott 8,10 N/A N/A 25,480 N/A N/A N/A N/A N/A N/A R V Giordano 1,065 1,065 1,065 O L Groeneveld 7,422 16,010 16, ,726 6,726 6,726 48,087 20,934 69, J C A Leslie 8 41,183 42,552 42, ,570 21,192 17,627 21,767 97, D L Mayhew 2,500 2,500 J P Morschel The Hon R G H Seitz P Skinner Sir Richard Sykes 2,138 2,212 2,212 Lord Tugendhat 1,111 1,135 1,135 REMUNERATION REPORT Notes 1. Rio Tinto plc ordinary shares of 10p each; Rio Tinto Limited ordinary shares stated in italics. The total beneficial interest of the directors in the Group amounts to less than one per cent. 2. Conditional awards are made under the Mining Companies Comparative Plan and were previously made under the FTSE Plan. These are explained on page 51. In respect of the FTSE Plan, Rio Tinto plc has achieved third quartile performance relative to comparator companies for the performance period ending 31 December Consequently awards do not vest in respect of this period. Under the terms of the MCCP, Rio Tinto was ranked second within the comparator group for the period ended 31 December Accordingly the full number of shares conditionally awarded in 1998 will vest. 3. The Mining Plan is now defunct and, following the 2000 vesting, no further shares vest under this Plan. 4. Or date of appointment if later. 5. Shares conditionally awarded under the FTSE Plan in & 7. Shares in the vested columns were conditionally awarded under the MCCP in The shares will vest on 1 March 2002 but have been presented in this table as if they vested before the year end. The market values per share, i.e. in the case of Rio Tinto plc, the mid market closing price quoted on the London Stock Exchange, and, in the case of Rio Tinto Limited, the closing sale price, were and A$ respectively on 8 February, 2002, the latest practicable date before the printing of this document. The monetary value stated in respect of the MCCP is a restatement of the information contained in the vested column. This information is arrived at through multiplying the number of shares vested with the market prices as described above. 8. These directors also have an interest in a trust fund containing 197,905 Rio Tinto plc shares at 31 December 2001 (1 January 2001: 329,609 Rio Tinto plc shares) as potential beneficiaries, together with other Rio Tinto plc Group employees, of The Rio Tinto Share Ownership Trust. At 8 February 2002 this trust fund contained 197,905 Rio Tinto plc shares. 9. Mr Groeneveld received a conditional notional award over 9,106 Rio Tinto Limited shares in The equivalent value of these shares will be paid in cash on or after 1 March Mr Elliott became a director on 1 January Disclosures prior to that date are therefore not applicable. 11. For Mr Sage, a total of 22,364 Rio Tinto plc shares from the MCCP will vest on 1 March The equivalent monetary value of these shares as at 8 February 2002 was 312, Rio Tinto Annual report and financial statements 53

56 Remuneration report continued REMUNERATION REPORT Table 4 Directors options to acquire Rio Tinto plc and Rio Tinto Limited shares 1 & 2 Holding Granted Exercised Holding Gain on Option Market Weighted Holding at at exercise 4 price 4 price 4 average at 1 Jan 31 Dec option 8 Feb price 2002 Sir Robert Wilson A 124, ,390 2, p 1,205p 820p 124,390 B 245, , ,176 1,094p 550,176 R L Clifford A 58,093 58,093 A$ ,093 B 141, , ,050 A$ ,050 R Adams A 71,248 1,370 69,878 5, p 1,126p 820p 69,878 B 137, , ,892 1,043p 237,892 C R H Bull A 67,682 67, p 67,682 B 134,588 99, ,145 1,042p 234,145 L A Davis A 110, ,963 A$ ,963 B 93,978 93,978 A$ ,978 G R Elliott A N/A N/A N/A N/A N/A 8,292 B N/A N/A N/A N/A N/A 36,188 O L Groeneveld A B 94,164 80, ,084 A$ ,084 J C A Leslie A 54,784 1,370 53,414 5, p 1,126p 820p 53,414 B 105,657 78, ,443 1,041p 184,443 A is where the options are exercisable or became exercisable during the year; and B is where the options are not yet exercisable Notes 1. Comprises options granted under the Share Option Plan and under the Rio Tinto plc Share Savings Plans and the Rio Tinto Limited Share Savings Plan. 2. Rio Tinto plc ordinary shares of 10p each; Rio Tinto Limited ordinary shares stated in italics. 3. The share options outstanding at 31 December 2001 are exercisable at various dates up to Subject to the performance criteria explained on page 51, options granted under the Share Option Plan are exercisable no earlier than three years from the date of grant and no later than the tenth anniversary of the grant. 4. In respect of options exercised during the period. 5. The mid market price of Rio Tinto plc ordinary shares at 31 December 2001 was 1,316p (2000: 1,178p). During 2001, the highest mid market price was 1,475p and the lowest mid market price was 930p. On 31 December 2001, the option prices of all the options over Rio Tinto plc shares set out in the above table were below the mid market price on that day. 6. The closing price of Rio Tinto Limited ordinary shares at 31 December 2001 was A$ (2000: A$29.437). During 2001, the highest closing price was A$38.62 and the lowest closing price was A$ On 31 December 2001 the option prices of all the options over Rio Tinto Limited shares set out in the above table were below the closing price on that day. 7. Options over Rio Tinto plc ordinary shares were granted under the Share Option Plan at a price of 1,265.6p per share and under the Share Savings Plan at 1,061p and 976p per share. Options over Rio Tinto Limited ordinary shares were granted under the Share Option Plan at a price of A$33.011p per share and under the Share Savings Plan at a price of A$27.86 per share. 8. No directors options lapsed during the year. Directors participated in one grant under the Rio Tinto Share Savings Plan. Directors entitled to take part in the Rio Tinto plc section of the Plan were granted options over 1,977 shares at 976p per share, 595 of which are exercisable during the six months beginning 1 January 2005 and 1,382 of which are exercisable during the six months beginning 1 January Directors entitled to take part in the Rio Tinto Limited Section of the Plan were granted options over 959 shares at A$27.86 per share, which will be exercisable during the six months beginning 1 January All other share options were granted under the Share Option Plan on 6 March 2001 at the prices stated above. Rio Tinto s register of directors interests, which is open to inspection, contains full details of directors shareholdings and options to subscribe for Rio Tinto shares Rio Tinto Annual report and financial statements

57 Corporate governance Rio Tinto is committed to high standards of corporate governance, for which the directors are accountable to shareholders. Rio Tinto plc and Rio Tinto Limited have adopted a common approach to corporate governance. Both Companies have, for the whole of the period under review, applied the principles contained in Part 1 of the Combined Code on best practice in corporate governance appended to the Listing Rules published by the UK Financial Services Authority. The detailed provisions of Section 1 of the Code have been complied with as described below. Both Companies also support the initiative of the Australian Stock Exchange (ASX) on disclosure of corporate governance practice. In addition, Rio Tinto has voluntarily adopted the recommendations of the US Blue Ribbon Committee in respect of disclosures to shareholders. For further details of the Blue Ribbon disclosures, see page 56. A statement relating to directors responsibilities for preparation of the financial statements and going concern is on page 58. The Audit committee s statement under the Blue Ribbon provisions can be found on page 56. The boards The Companies have common boards of directors, which currently consist of seven executive and eight non executive directors. Of the eight non executive directors, six are independent. Two of them have other connections with the Companies. Mr Davis is a former chief executive of the Group and Mr Mayhew is chairman of one of Rio Tinto plc s stockbrokers. Collectively, the non executive directors provide broadly based knowledge and experience to the boards deliberations and are vital for corporate accountability. The directors meet regularly and have a formal schedule of matters specifically reserved for their decision. A procedure has been established for directors to obtain independent professional advice at the Companies expense in furtherance of their duties as directors. All directors have full and timely access to the information required to discharge their responsibilities fully and effectively. They also have access to the advice and services of both company secretaries. All directors are elected by shareholders at the annual general meetings following their appointment and, thereafter, are subject to re-election at least once every three years. Non executive directors are normally expected to serve at least two three-year terms and, except where special circumstances justify it, would not normally serve more than three such terms. Both Companies have policies in place governing directors and relevant employees dealing in Rio Tinto securities. Both Companies have adopted the Model Code as set out in the UK Listing Rules which prohibits dealing in Rio Tinto shares on considerations of a short term nature. In addition, directors and relevant employees are prohibited from dealing during a close period, which is defined as two months before a profit announcement or, if shorter, the period from the end of the reporting period to the time of the profit announcement. Dealing by directors or relevant employees in Rio Tinto shares is also prohibited if they are in possession of price sensitive information. Board committees The directors have established four committees, all of which are fundamental to the implementation of good corporate governance in the Group. Regular reports of the committees activities are given to the boards and minutes are circulated to all directors. Committee members, shown on pages 48 and 49, are all non executive directors, with the exception of the Nominations committee, whose membership includes the chairman of Rio Tinto. The Audit committee s main responsibilities include the review of accounting principles, policies and practices adopted in the preparation of public financial information, the review with management of procedures relating to financial and capital expenditure controls, including internal audit plans and reports, the review with external auditors of the scope and results of their audit, and the nomination of auditors for appointment. Its responsibilities also include the review of corporate governance practices of Group sponsored pension funds. The external auditors, the finance director, the Group controller and Group internal auditor attend meetings. In line with Blue Ribbon recommendations, a copy of the Audit committee charter was published in the 2000 Annual report and financial statements. The Remuneration committee is responsible for determining the broad policy for executive remuneration and for the individual remuneration and benefits of executive directors. Full disclosure of all elements of directors remuneration is set out in the Remuneration report on pages 50 to 54. The Nominations committee s main responsibility is for nominating candidates to fill board vacancies and for making recommendations on board composition and balance. The Committee on social and environmental accountability is responsible for reviewing the effectiveness of management policies and procedures in delivering those standards set out in The way we work, Rio Tinto s statement of business practice, which do not fall within the remit of other board committees, in particular, those relating to health, safety and the environment, and social issues. The overall objective of the Committee is to promote the development throughout the Group of business practices consistent with the high standards expected of a responsibly managed company, and to develop the necessary clear accountability on these practices. Statement of business practice The way we work provides Group employees with a summary of the principal procedures in place to help ensure that high standards are met and the policies by which these standards are established. Policies are adopted by the directors after wide consultation, both externally and within the Group. Once adopted, they are communicated to operating companies worldwide, together with guidance and support on implementation. Operations are then required to devote the necessary effort at management level to implement and report on these policies. The following policies are currently in place: health, safety and the environment; communities; human rights; access to land; employees; business integrity; bribery and corruption; and political involvement. These policies apply to all subsidiary companies. In line with current best practice, the Group is also in the process of introducing a whistle blowing programme entitled Speak-OUT and it is intended that by the end of 2002, the programme will include the entire Group. In the case of those joint ventures and associated companies where the Group does not have operating responsibility and in the case of contractors, Rio Tinto s policies are communicated to them and they are encouraged to adopt similar policies of their own. Practical advice is offered wherever appropriate. In October 2001, the Association of British Insurers launched its new guidelines relating to socially responsible investment. Rio Tinto s report on social and environmental matters follows these guidelines and can be found on page 46 of this report and on pages 24 and 25 of the 2001 Annual review. Details of the Group s overall and individual businesses social and environmental performance continue to be published on Rio Tinto s website: Boards statement on internal control Rio Tinto s overriding corporate objective is to maximise long term shareholder value through responsibly investing in mining and related assets. The directors recognise that creating shareholder value is the reward for taking and accepting risk. The directors are responsible for the Group s system of internal control and for reviewing its effectiveness in providing shareholders with a return on their investments that is consistent with a responsible assessment and mitigation of risks. This includes reviewing financial, operational and compliance controls, and risk management procedures. Because of the limitations that are inherent in any system of internal control, this system is designed to manage rather than eliminate risk. Accordingly, it can only provide reasonable and not absolute assurance against material misstatement or loss. The directors have established a process for identifying, evaluating and managing the significant risks faced by the Group. This process has been in place for the year under review and up to and including the date of approval of the 2001 Annual report and financial statements. The process is reviewed annually by the directors and accords with the guidance set out in Internal Control: Guidance for Directors on the Combined Code. Information on the Group s significant risks, together with the relevant control and monitoring procedures, is reviewed for completeness and accuracy by the Group s management committees. This information is presented to the directors to enable them to assess the effectiveness of the system of internal control. In addition, the boards and their committees monitor the Group s significant risks on an ongoing basis. Assurance functions, including internal, health and safety and environmental auditors, CORPORATE GOVERNANCE 2001 Rio Tinto Annual report and financial statements 55

58 CORPORATE GOVERNANCE Corporate governance continued perform reviews of control activities and provide regular written and oral reports to both directors and management committees. The directors receive and review minutes of the meetings of each board committee, in addition to oral reports from the respective chairmen, at the first board meeting following the relevant committee meeting. Certain risks, for example natural disasters, cannot be mitigated to an acceptable degree using internal controls. In these instances, major risks are transferred to third parties in the international insurance markets, to the extent considered appropriate. The leaders of business units complete an internal control questionnaire annually that seeks to confirm that internal controls are operating effectively at an operational level. The results of this process are reviewed by the chief executive of each product group and are then presented to the directors as a further part of their review of the Group s internal controls. This process is continually reviewed and strengthened as appropriate. The Group has material investments in a number of joint ventures and associated companies. Where these investments are not managed by Rio Tinto, the Group can influence, but not control, management practices. Accordingly, the review of internal controls for these operations is less comprehensive than that for the Group s managed operations. Communications Communications with shareholders are given high priority. In addition to statutory documents, e.g. the Annual report and financial statements, Annual review and half year report, Rio Tinto produces a number of additional documents which are available on request. Further details are set out in the shareholder information accompanying the notice of the annual general meeting. Rio Tinto also maintains a website from which its reports and other publications can be downloaded and through which shareholders can gain online access to their shareholding details. It is linked to the websites maintained by Group operations, thus offering easy access to a wealth of information about the Group. Results presentations and other significant events are also available as they happen and as an archive on the website. Full use is made of the annual general meetings to inform shareholders of current developments through presentations on appropriate topics and to provide an opportunity for shareholders to raise questions. The Companies also respond to numerous individual queries in the course of the year on a wide range of issues. Significant matters affecting both Companies are dealt with under the joint voting procedure, detailed on page 59. Votes, which are cast on a poll, are announced after the close of the later of the two annual general meetings. Audit Committee: Blue Ribbon Compliance Statement The Audit committee meets the membership requirements of the Combined Code in the UK and the Blue Ribbon Report in the US. The Group also meets the disclosure requirements in respect of audit committees required by the Australian Stock Exchange. The Audit committee is governed by a written charter approved by the boards, which the Audit committee reviews and re-assesses each year for adequacy. A copy of this charter was published in the 2000 Annual report and financial statements. The Audit committee comprises the four members set out below. Mr G M Pemberton was a member until his retirement at the end of August. Mr Skinner became a member on 5 December The members, with the exception of Mr Mayhew, are independent and are free of any relationship that would interfere with impartial judgement in carrying out their responsibilities. Mr Mayhew is not independent by virtue of his professional association with the Company in his capacity as chairman of Cazenove Group plc, which is a stockbroker and financial adviser to Rio Tinto plc. However, the boards have determined in their business judgement that the relationship does not interfere with Mr Mayhew s exercise of independent judgement and believe that Mr Mayhew s appointment is in the best interests of the Group because of the substantial financial knowledge and expertise he brings to the committee. Report of the Audit committee We have reviewed and discussed with management the Group s audited financial statements for the year ended 31 December We have discussed with the external auditors the matters described in the American Institute of Certified Public Accountants Auditing Standard No. 90, titled Audit Committee Communications, including their judgements regarding the quality of the Group s accounting principles and underlying estimates. We have discussed with the external auditors their independence, and we have received and reviewed the written disclosures from the external auditors, as required by the US Independence Standards Board s Standard No. 1 entitled Independence Discussions with Audit Committees. Based on the reviews and discussions referred to above, we have recommended to the Boards of directors that the financial statements referred to above be included in this annual report. R V Giordano (Chairman) D L Mayhew P D Skinner Lord Tugendhat Rio Tinto Annual report and financial statements

59 Directors report for the year ended 31 December 2001 Dual listed companies Rio Tinto plc and Rio Tinto Limited were unified under a dual listed companies structure in 1995, and the directors report has been prepared as a joint report of both Companies. For a full description of the structure, see page 59. Activities and review of operations A detailed review of the Group s activities during 2001, post balance sheet events and likely future developments are given in the chairman s letter on pages 2 and 3, the chief executive s report on pages 4 to 6 and the Operational review on pages 32 to 46. Corporate governance A report on corporate governance and compliance with The Combined Code appended to The Listing Rules of the Financial Services Authority, as well as the guidelines of the Australian Stock Exchange, is set out on pages 55 and 56. Directors Details of the directors are set out on pages 48 and 49. Mr G M Pemberton retired on 31 August Mr P D Skinner was appointed a non executive director with effect from 1 December Mr G R Elliott, who has a service contract with a subsidiary of Rio Tinto plc which is terminable on one years notice by either party, was appointed a director on 1 January Mr Skinner and Mr Elliott retire and offer themselves for election. Mr C R H Bull will retire from the boards with effect from the conclusion of the Rio Tinto Limited annual general meeting on 18 April 2002, when Mr Elliott will succeed him as finance director. Under the articles of association of Rio Tinto plc and the Rio Tinto Limited constitution, directors are required to retire from the boards and offer themselves for re-election at least every three years. The following directors retire by rotation and being eligible, offer themselves for re-election: Mr R L Clifford and Mr O L Groeneveld, who each has a service contract with a subsidiary of Rio Tinto Limited which is terminable on one years notice by either party, and Mr R V Giordano and Mr J P Morschel, neither of whom have service contracts. The interests of directors and their families in shares and other securities of Group companies are shown on pages 53 and 54. Dividends Total dividends for 2001 are 59.0 US cents per share (2000: 57.5 US cents). Interim dividends of 20.0 US cents per share (2000: 19.0 US cents) were declared in August Final dividends of 39.0 US cents per share (2000: 38.5 US cents) were declared in January Both Companies operate a dividend reinvestment plan, details of which are set out in the Information for shareholders which accompanies both Companies Notice of 2002 annual general meeting. Rio Tinto plc The interim dividend of 14.03p per share was paid on 14 September A final dividend of 27.65p per share is to be paid on 8 April The dividends for 2001 total 41.68p per share (2000: 38.87p). Rio Tinto Limited Total dividends are Australian cents per share for the year ended 31 December 2001 (2000: Australian cents), comprising an interim dividend of Australian cents paid on 14 September 2001 and a final dividend of Australian cents (2000: Australian cents) to be paid on 8 April Both interim and final dividends are fully franked at the tax rate of 30 per cent. Share capital There were no changes in the authorised share capital of Rio Tinto plc during the year. All outstanding share warrants to bearer have been converted into registered ordinary shares under the terms of a Scheme of Arrangement sanctioned by the Court on 30 April Details of the changes in the issued share capital of both Companies, the number of shares reserved for issue and options outstanding at the year end are given in note 21 to the 2001 Financial statements. At the annual general meeting of Rio Tinto plc held in April 2001 the authorities for Rio Tinto plc to buy its own shares and for Rio Tinto Limited to buy shares in Rio Tinto plc were renewed and extended until October These authorities enable Rio Tinto plc to buy back up to ten per cent of its publicly held shares in any twelve month period. Under the Australian Corporations Act 2001, Rio Tinto Limited is permitted to buy back up to ten per cent of its shares (through certain permitted means) in any 12 month period without seeking shareholder approval. In addition, in 1999 Rio Tinto Limited obtained shareholder approval to buy back up to all the Rio Tinto Limited shares held by Tinto Holdings Australia Pty Limited (a wholly owned subsidiary of Rio Tinto plc). During 2001, neither Company purchased shares under the relevant authorities given to them. Details of disclosable interests in the share capital of both Companies are given on page 130. Employment policies Group companies, together with the Group s share of joint ventures and associates employed approximately 36,000 (2000: 34,000) people worldwide, with around 1,000 in the United Kingdom, and 10,000 in Australia and New Zealand. Rio Tinto s employment policy, which reflects its overall philosophy of decentralisation, is set out in the statement of business practice, The way we work. Rio Tinto is committed to equality of opportunity and encourages each operating company to develop its own policies and practices to suit individual circumstances. Management development and succession planning are regularly reviewed. Group companies employ disabled people and accept the need to maintain and develop careers for them. If an employee becomes disabled whilst in employment and, as a result, is unable to perform his or her duties, every effort is made to offer suitable alternative employment and to assist with retraining. Rio Tinto respects the right of employees worldwide to choose for themselves whether or not they wish to be represented collectively. Group companies recognise their obligations to comply with health and safety legislation and, through training and communication, encourage employee awareness of the need to create and secure a safe and healthy working environment. For further information about Group staff and health and safety initiatives, please see page 46. Retirement payments and benefits to dependants are provided by Rio Tinto and its major subsidiaries in accordance with local conditions and good practice in the countries concerned. Policy regarding payment of trade creditors It is the policy of both Companies to abide by terms of payment agreed with suppliers. In many cases, the terms of payment are as stated in the suppliers own literature. In other cases, the terms of payment are determined by specific written or oral agreement. Neither Company follows any published code or standard on payment practice. At 31 December 2001, there were 24 days purchases outstanding in respect of Rio Tinto plc costs and 31 days purchases outstanding in respect of Rio Tinto Limited costs, based on the total invoiced by suppliers during the year ended 31 December Donations Worldwide expenditure on community programmes amounted to US$44 million (2000: US$39 million) by Rio Tinto managed businesses. Donations in the UK during 2001 amounted to a total of 2.4 million of which 0.6 million was for charitable purposes as defined by the Companies Act 1985 and 1.8 million for other community purposes. As in previous years no donations were made in the EU during 2001 for political purposes as defined by the Companies Act 1985 as amended by the Political Parties, Elections and Referendums Act Total community spending in Australia amounted to A$37.7 million. No donations were made for political purposes. Value of land Group companies interests in land consist mainly of leases and other rights which permit the working of such land and the erection of buildings and equipment thereon for the purpose of extracting and treating minerals. Such land is mainly carried in the financial statements at cost. It is not practicable to estimate the market value since this depends on product prices over the next 20 years or longer, which will vary with market conditions. Exploration, research and development Companies within the Group carry out exploration, research and development necessary to support their activities. Grants are also made to universities and other institutions which undertake research on subjects relevant to the activities of Group companies. A description of some aspects of the work currently being undertaken and expenditure involved is provided in the Operational review. Expenditure during the year, excluding that of DIRECTORS REPORT 2001 Rio Tinto Annual report and financial statements 57

60 DIRECTORS REPORT Directors report continued joint ventures and associated companies, was US$132 million for exploration and evaluation and US$39 million for research and development. Auditors PricewaterhouseCoopers are the auditors of Rio Tinto plc and Rio Tinto Limited and have indicated their willingness to continue in office. A resolution to re-appoint them as auditors of Rio Tinto plc will be proposed at the annual general meeting and they will continue in office as auditors of Rio Tinto Limited. Annual general meetings The Notices of the 2002 annual general meetings are set out in separate letters to shareholders of each Company. These include resolutions at the Rio Tinto plc annual general meeting for the renewal of the authority for Rio Tinto plc and Rio Tinto Limited to purchase Rio Tinto plc shares; an increase in the authorised share capital for Rio Tinto plc and the creation of a new class of share in Rio Tinto Limited; the adoption of new articles of association by Rio Tinto plc and amendments to Rio Tinto Limited s constitution; the approval of an increase in directors fees; and the approval of the Rio Tinto Share Savings Plan, as items of special business. Resolutions at the Rio Tinto Limited annual general meeting will also seek an increase in the authorised share capital of Rio Tinto plc and the creation of a new class of share in Rio Tinto Limited; approval of amendments to Rio Tinto Limited s constitution and adoption of Rio Tinto plc s new articles of association; and the approval of an increase in directors fees, as items of special business. Income and Corporation Taxes Act 1988 The close company provisions of the UK Income and Corporation Taxes Act 1988 do not apply to Rio Tinto plc. Statement of directors responsibilities in respect of the financial statements The directors are required by UK and Australian company law to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Group as at the end of the financial period and of the profit or loss for that period. The directors consider that appropriate accounting policies have been used and, except as indicated in note 1 to the Financial statements, applied consistently. Reasonable and prudent judgements have been made and applicable accounting standards have been followed. The directors are responsible for maintaining proper accounting records, in accordance with the UK Companies Act 1985 and the Australian Corporations Act 2001 as amended by the Australian Securities and Investment Commission order dated 9 April 2001, and have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Companies, and to prevent and detect fraud and other irregularities. Going concern The Financial statements have been prepared on the going concern basis and, as required by the Combined Code, the directors report that they have satisfied themselves that the Group is a going concern since it has adequate resources to continue in operational existence for the foreseeable future. By order of the board By order of the board A V Lawless N S Tiffen Secretary Secretary Rio Tinto plc Rio Tinto Limited 22 February February Rio Tinto Annual report and financial statements

61 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS The DLC merger On 20 December 1995, the shareholders of Rio Tinto plc and Rio Tinto Limited approved the terms of the DLC merger. Pursuant to such approval, Rio Tinto plc and Rio Tinto Limited entered into certain contractual arrangements which are designed to place the shareholders of both Companies in substantially the same position as if they held shares in a single enterprise which owned all of the assets of both Companies. As a condition of its approval of the DLC merger, the Australian Government required Rio Tinto plc to reduce its shareholding in Rio Tinto Limited to 39 per cent by the end of The current holding is approximately 38 per cent. A description of the special economic and voting rights created in connection with the DLC merger that now apply to the shares of Rio Tinto plc and Rio Tinto Limited is set out below. Economic rights Following the approval of the DLC merger, Rio Tinto plc and Rio Tinto Limited entered into a DLC merger Sharing Agreement (the Sharing Agreement) pursuant to which each Company agreed (i) to ensure that the businesses of Rio Tinto plc and Rio Tinto Limited are managed on a unified basis, (ii) to ensure that the boards of directors of each Company comprise the same individuals and (iii) to give effect to certain arrangements designed to provide shareholders of each Company with a common economic interest in the Rio Tinto Group. In order to achieve this latter objective, each Company agreed that, except for the dividends payable in respect of the 1995 financial year and other limited circumstances, the amount of any dividend or capital distribution per Rio Tinto plc share shall be matched by an equal dividend or capital distribution per Rio Tinto Limited share (and vice versa). The dividends are determined in US dollars and translated into Australian dollars and sterling at the prevailing exchange rates for Rio Tinto Limited and Rio Tinto plc shareholders respectively. Dividends are equalised on a net basis, before the deduction of tax and excluding any associated tax credit. If one Company has insufficient reserves to make the equalisation dividend or distribution, the other Company, subject to certain exceptions, will make an equalisation payment to provide the necessary reserves. The ratio of dividend, voting and capital distribution rights of each Rio Tinto Limited share to each Rio Tinto plc share is referred to as the Equalisation Ratio and may be changed from the 1:1 ratio described above in the event of certain modifications to the share capital of one or both of the Companies, such as rights issues, bonus issues, share splits and share consolidations. Either Company may depart from the Equalisation Ratio in making dividend payments if payment of a larger dividend would contravene applicable law. Where, on any occasion, there is such a departure from the Equalisation Ratio, reserves shall be established in the relevant Company so as to be available for payment on the relevant shares at a later date. The shareholders of Rio Tinto plc and Rio Tinto Limited have no direct rights to enforce the dividend equalisation provisions of the Sharing Agreement. The Sharing Agreement also requires Rio Tinto plc and Rio Tinto Limited to announce and pay dividends and make other distributions as close in time to each other as possible. If either of the Companies goes into liquidation, the Sharing Agreement provides for a valuation to be made of the surplus assets of each Company, after the payment of all creditors and distributions to any prior ranking classes of shares. If the surplus assets available for distribution by one Company on each of the shares held by its public shareholders exceed the surplus assets available for distribution by the other Company on each of the shares held by its public shareholders multiplied by the Equalisation Ratio, an equalising payment between the two Companies shall be made, to the extent permitted by applicable law such that the amount available for distribution on each Share held by public shareholders of each company conforms to the Equalisation Ratio. The purpose of this provision is to ensure that the public shareholders of Rio Tinto plc and Rio Tinto Limited have equivalent rights to the assets of the combined Group. The Sharing Agreement does not grant any enforceable rights to the shareholders of either Company upon liquidation of a Company. Voting rights As a result of the DLC merger, a new shareholder voting structure was created for Rio Tinto plc and Rio Tinto Limited. Under the Sharing Agreement, shareholder decisions taken by the Companies are split into two basic categories: Joint Decisions, which pertain to matters affecting the shareholders of both Companies in similar ways (including the appointment or removal of directors and auditors, the adoption of annual financial statements, the creation of new classes of share capital and similar matters), and Class Rights Actions, which are matters on which the interests of the shareholders of Rio Tinto plc and Rio Tinto Limited may differ, including the redemption or issuance of a Company s share capital, the modification of certain provisions of a Company s constitution or memorandum and articles of association, any decision of a Company to enter into liquidation, and similar matters. Each Joint Decision is submitted to separate meetings of the shareholders of each Company for approval by the public shareholders of the two Companies voting together as a joint electorate. In order to facilitate the joint voting by shareholders of Rio Tinto plc and Rio Tinto Limited on Joint Decisions, each Company issued a special voting share in itself (the RTP Special Voting Share and the RTL Special Voting Share, respectively) to be beneficially owned by a special purpose company (in the case of the RTP Special Voting Share, by RTL Shareholder SVC, and in the case of the RTL Special Voting Share, by RTP Shareholder SVC). In certain circumstances, public shareholders of the Companies are excluded from voting at the respective Company s general meetings (because they have acquired shares in one Company in excess of a given threshold without making an offer for all the shares in the other Company). If this should occur, the votes cast by RTP Shareholder SVC and RTL Shareholder SVC will be calculated in such a manner as disregards the votes of any such excluded shareholders. Rio Tinto plc At a Rio Tinto plc shareholders meeting at which a Joint Decision will be considered, each Rio Tinto plc share will have one vote, and RTL Shareholder SVC, as holder of the RTP Special Voting Share, will have one vote per Rio Tinto Limited share cast by public shareholders of Rio Tinto Limited (ie, not including the Rio Tinto Limited shares held by Rio Tinto plc through its wholly owned subsidiary Tinto Holdings Australia). These voting rights will change if the Equalisation Ratio is adjusted. Under the Rio Tinto Limited Shareholder Voting Agreement, RTL Shareholder SVC is obliged to cast these votes for and against the relevant resolution strictly (and only) in accordance with the votes cast for and against the equivalent resolution on the poll at the parallel Rio Tinto Limited shareholders meeting by the public shareholders of Rio Tinto Limited. The shareholders of Rio Tinto Limited do not actually hold any voting shares in Rio Tinto plc by virtue of their holding in Rio Tinto Limited. Instead, the wishes of the public shareholders of Rio Tinto Limited will be expressed at the relevant Rio Tinto plc meeting by RTL Shareholder SVC casting its votes on the RTP Special Voting Share precisely to reflect voting at the parallel Rio Tinto Limited shareholders meeting. The voting arrangements relating to the RTP Special Voting Share are not enforceable by the shareholders of Rio Tinto Limited. Rio Tinto Limited At a Rio Tinto Limited shareholders meeting at which a Joint Decision will be considered, each Rio Tinto Limited share (including the Rio Tinto Limited shares held by Rio Tinto plc) will have one vote and RTP Shareholder SVC, as holder of the RTL Special Voting Share, will have one vote for each Rio Tinto plc share cast by the public shareholders of Rio Tinto plc on the poll on the equivalent resolution at the parallel Rio Tinto plc general meeting (both as adjusted in respect of any changes in the Equalisation Ratio) less the number of votes attached to the Rio Tinto Limited shares held by Rio Tinto plc. Under the Rio Tinto plc Shareholder Voting Agreement, Rio Tinto plc is obliged to procure the casting of the votes attached to the Rio Tinto Limited shares held by it and RTP Shareholder SVC will be obliged (if necessary) to cast votes attached to the RTL Special Voting Share, for and against the relevant resolution strictly (and only) in accordance with the votes cast for and against the equivalent resolution on the poll at the parallel Rio Tinto plc shareholders meeting by the public shareholders of Rio Tinto plc shares. The public shareholders of Rio Tinto plc do not actually hold any voting shares in Rio Tinto Limited by virtue of their holding in Rio Tinto plc. Instead, the wishes of the public shareholders of Rio Tinto plc will be expressed at the Rio Tinto Limited meeting by Tinto Holdings Australia, a subsidiary of Rio Tinto plc, casting the votes MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 2001 Rio Tinto Annual report and financial statements 59

62 FINANCIAL INFORMATION SHARE PRICES AND MARKET LISTINGS with respect to the Rio Tinto Limited shares held by Rio Tinto plc and RTP Shareholder SVC casting its votes on the RTL Special Voting Share, precisely to reflect voting at the parallel Rio Tinto plc shareholders meeting. The voting arrangements relating to the RTL Special Voting Share and the Rio Tinto Limited shares held by Rio Tinto plc are not enforceable by the shareholders of Rio Tinto plc. Each Class Rights Action must be approved by the appropriate majority of the shareholders of the Company proposing to take the action and by ordinary or, in certain cases, special resolution of the public shareholders of the other Company. Limitations on ownership of shares and merger obligations Pursuant to the DLC merger, the memorandum and articles of association of Rio Tinto plc and the constitution of Rio Tinto Limited were amended to ensure that one person cannot exercise control of one Company without having made offers to the public shareholders of both Companies. The articles of association of Rio Tinto plc and the constitution of Rio Tinto Limited impose restrictions on any person who can directly or indirectly control the casting of 20 per cent or more of the votes on a Joint Decision. If, however, that person does not hold interests in voting shares of both Rio Tinto plc and Rio Tinto Limited, the restrictions only apply if that person is also able, directly or indirectly, to cast 30 per cent or more of the votes generally exercisable at general meetings of the relevant Company (not including the rights attaching to the Special Voting Share). Therefore, a person whose interest exceeds the thresholds and who has shares in Rio Tinto plc will suffer the restrictions in Rio Tinto plc s articles of association unless that person (or a member of the same group of companies) makes an offer for Rio Tinto Limited shares as described below. Conversely, a person whose entitlement exceeds the thresholds and who has shares in Rio Tinto Limited will suffer the restrictions in Rio Tinto Limited s constitution unless that person (or an associate or concert party of that person) makes an offer for Rio Tinto plc shares as described below. These provisions are designed to ensure that offers for both Rio Tinto plc shares and Rio Tinto Limited shares would be required to avoid the restrictions set forth above, even if the interests or entitlements which breach the control threshold are initially held in only one of the Companies concerned. Subject to certain limited exceptions, if one of the thresholds specified above is exceeded and the relevant Company has notified the relevant holder of such excess, the relevant holder (i) may not attend or vote at general meetings of the relevant Company, (ii) may not receive dividends or other distributions from the relevant Company or (iii) may be divested of its shares by the directors of the relevant Company unless (a) the interests of the relevant holder are reduced to below the specified thresholds, (b) the relevant holder makes an offer for all of the shares of the other Company not already owned by such holder or (c) the relevant holder has acquired at least 50 per cent of the voting rights of all shares held by the public shareholders of each Company as a result of a public offer for all outstanding Rio Tinto plc shares and Rio Tinto Limited shares. Under the Sharing Agreement, the Companies agreed to co-operate to enforce the restrictions contained in their articles of association and constitution respectively and have also agreed that no member of the Rio Tinto Group shall accept a third party offer for Rio Tinto Limited shares unless such acceptance is approved by a Joint Decision of the public shareholders of both Companies. The laws and regulations of the UK and Australia also contain restrictions and obligations applicable to holders of more than 20 per cent of the voting rights with respect to the Rio Tinto Limited shares, in the case of Australian regulations, and to holders of 30 per cent or more of the voting rights with respect to Rio Tinto plc shares, in the case of UK regulations, that include obligations to make a public offer for all of the issued shares of the relevant Company under certain circumstances. Guarantees On 21 December 1995, each Company entered into a Deed Poll Guarantee in favour of creditors of the other Company. Pursuant to the Deed Poll Guarantees, each Company guaranteed the contractual obligations of the other Company (and the obligations of other persons which are guaranteed by the other Company), subject to certain limited exceptions. Beneficiaries under the Deed Poll Guarantees may make demand upon the guarantor thereunder without first having recourse to the company or persons whose obligations are being guaranteed. The obligations of the guarantor under each Deed Poll Guarantee expire upon termination of the Sharing Agreement and under other limited circumstances, but only in respect of obligations arising after such termination and, in the case of other limited circumstances, the publication and expiry of due notice. The shareholders of the Companies cannot enforce the provisions of the Deed Poll Guarantees. Rio Tinto share ownership For details of the Companies ownership, see pages 130 and 131. Related party transactions For details of the Group s material related party transactions, see note 35 on page 111 of the financial statements. FINANCIAL INFORMATION Legal proceedings Neither Rio Tinto plc nor Rio Tinto Limited nor any of their subsidiaries is a defendant in any proceedings which the directors believe will have a material effect on either Company s financial position and results of operations. See Risk factors on page 8 for a description of certain regulatory matters concerning land and resource tenure in Australia. Dividend distributions For details of the Companies policy of dividend distributions see Financial review Dividends on page 31. Post balance sheet events Post balance sheet events and likely future developments are given in the chairman s letter on pages 2 and 3, the chief executive s report on pages 4 to 6 and the Operational review on pages 32 to 46. SHARE PRICES AND MARKET LISTINGS Rio Tinto plc The principal market for Rio Tinto plc shares is the London Stock Exchange (the Exchange ). As a constituent element of the Financial Times Stock Exchange 100 index (the FTSE 100 Index), Rio Tinto plc shares trade through the Stock Exchange Electronic Trading Service (SETS) system. Central to the SETS system is the electronic order book on which an Exchange member firm can post buy and sell orders, either on its own behalf or for its clients. Buy and sell orders are executed against each other automatically in strict price, then size, priority. The order book operates from 8.00 am to 4.30 pm daily. From 7.50 am to 8.00 am orders may be added to, or deleted from the book, but execution does not occur. At 8.00 am the market opens by means of an uncrossing algorithm which calculates the greatest volume of trades on the book which can be executed, then matches the orders, leaving unexecuted orders on the book at the start of trading. All orders placed on the order book are firm, and are for standard three day settlement. While the order book is vital to all market participants, orders are anonymous, with the counterparties being revealed to each other only after execution of the trade. Use of the order book is not mandatory but all trades, regardless of size, executed over the SETS system are published immediately. The only exception to this is where a Worked Principal Agreement (WPA) is entered into for trades greater than 8 x Normal Market Size (NMS). (Rio Tinto has an NMS of 75,000 shares). Publication of trades entered under a WPA is delayed until the earlier of 80 per cent of the risk position assumed by the member firm taking on the trade being unwound or the end of the business day. Rio Tinto plc has a sponsored American Depositary Receipt (ADR) facility with The Bank of New York under a Deposit Agreement, dated as of 13 July 1988, as amended as of 11 June 1990, and as further amended and restated as of 15 February The ADRs evidence Rio Tinto plc American Depositary Shares (ADS), each ADS representing four ordinary shares. The shares are registered with the US Securities and Exchange Commission and are listed on the New York Stock Exchange. Rio Tinto plc shares are also listed on Euronext and on Deutsche Börse. The following table shows share prices for the period indicated, the reported high and low middle market quotations (which represent an average of bid and asked prices) for Rio Tinto plc s shares on the Exchange based on the London Stock Exchange Daily Official List, and the highest and lowest sale prices of the Rio Tinto plc ADSs as reported on the New York Stock Exchange composite tape Rio Tinto Annual report and financial statements

63 Pence per US$ per Rio Tinto plc share Rio Tinto plc ADS High Low High Low , , , , Aug , Sept , Oct , Nov , Dec , Jan , First quarter 1, Second quarter 1, Third quarter 1, Fourth quarter 1, First quarter 1, Second quarter 1, Third quarter 1, Fourth quarter 1, At 8 February 2002, there were 72,860 holders of record of Rio Tinto plc s shares. Of these holders, 219 had registered addressed in the US and held a total of 148,000 Rio Tinto plc shares, representing per cent of the total number of Rio Tinto plc shares issued and outstanding as at such date. In addition 52.6 million Rio Tinto plc shares were registered in the name of a custodian account in London. These shares were represented by 13.1 million Rio Tinto plc ADSs held of record by 420 ADS holders. In addition, certain accounts of record with registered addresses other than in the US hold shares, in whole or in part, beneficially for US persons. Rio Tinto Limited The Rio Tinto Limited shares are listed on the Australian Stock Exchange (ASX) and the Stock Exchange of New Zealand. The ASX is the principal trading market for Rio Tinto Limited shares. The ASX is a national stock exchange operating in the capital city of each Australian State with an automated trading system. Although not listed, Rio Tinto Limited shares are also traded on the London Stock Exchange. Rio Tinto Limited also has an ADR facility with The Bank of New York under a Deposit Agreement, dated as of 6 June 1989, as amended as of 1 August 1989, and as amended and restated as of 2 June The ADRs evidence Rio Tinto Limited s ADSs, each representing four shares and are traded in the over the counter market. As at 8 February 2002, a total of 407,000 fully paid Rio Tinto Limited shares were held of record by 191 persons with registered addresses in the US, which represented approximately per cent of the total number of Rio Tinto Limited fully paid shares issued and outstanding as of such date. In addition, an aggregate of 877,000 Rio Tinto Limited ADSs were outstanding (representing 3.5 million Rio Tinto Limited shares) and were held of record by 29 persons with registered addresses in the US, which represented approximately one per cent of the total number of Rio Tinto Limited shares issued and outstanding. In addition, nominee accounts of record with registered addresses other than in the US may hold Rio Tinto Limited shares, in whole or in part, beneficially for US persons. The following tables set out for the periods indicated, in Australian dollars, the high and low closing sale prices of fully paid Rio Tinto Limited shares based upon information provided by the ASX and the highest and lowest trading prices of the Rio Tinto Limited ADSs, as advised by The Bank of New York. There is no established trading market for Rio Tinto Limited shares or the Rio Tinto Limited ADSs in the US. A$ per US$ per Rio Tinto Ltd share Rio Tinto Ltd ADS High Low High Low Aug Sept Oct Nov Dec Jan First quarter Second quarter Third quarter Fourth quarter First quarter Second quarter Third quarter Fourth quarter Past performance of shares is not necessarily a guide to future performance. The value of investments and any income from them is not guaranteed and can fall as well as rise depending on market movements. You may not get back the original amount invested. EXCHANGE CONTROLS Rio Tinto plc At present, there are no UK foreign exchange control or other restrictions on the export or import of capital or on the payment of dividends to non resident holders of Rio Tinto plc shares or the conduct of Rio Tinto plc s operations. There are no restrictions under Rio Tinto plc s memorandum and articles of association or under English law that limit the right of non resident or foreign owners to hold or vote Rio Tinto plc s shares. Rio Tinto Limited Under existing Australian legislation, the Reserve Bank of Australia does not restrict the import and export of funds, and no permission is required by Rio Tinto Limited for the movement of funds into and out of Australia, except as follows: The authority of the Reserve Bank is required for certain remittances to, by order of or on behalf of: (a) the Government of Iraq and its agencies or nationals; (b) the Government or a public authority of Libya or certain Libyan undertakings; (c) the Embassy of the Federal Republic of Yugoslavia, the Consulate-General of the Federal Republic of Yugoslavia, Narodna Banka Jugoslavije (including Banque Nationale de Yugoslavie) and certain other persons listed in the relevant instrument as known supporters of the former Milosevic regime of the Federal Repulbic of Yugoslavia; (d) the Taliban (including the Islamic Emirate of Afghanistan) or any undertaking owned or controlled by the Taliban; (e) certain other persons and entitles listed in the relevant instrument identified by the United Nations and the US as being linked to terrorism; or (f) UNITA (the United Union for the Total Independence of Angola), its senior officials and their immediate families. and a report must be made to the Australian Transaction and Reports Analysis Centre before transfers by banks, financial institutions and certain other entities of Australian or foreign currency are made into or out of Australia. Rio Tinto Limited must also withhold taxes in remitting dividends, to the extent that they are unfranked, and interest payments out of Australia. See Taxation below. Accordingly, at the present time and subject to the above, remittance of any dividend or interest payments overseas by Rio Tinto Limited to holders of Rio Tinto Limited shares resident in the US or by Rio Tinto Limited or the relevant custodial agent to ADR holders resident in the US are not restricted by exchange controls or other limitations. There are no limitations, either under the laws of Australia or under the constitution of Rio Tinto Limited, on the right of non-residents to acquire, hold or vote Rio Tinto Limited shares which do not also apply to Australian residents, other than the Foreign Acquisitions and Takeovers Act 1975 ( the Takeovers Act ). The Takeovers Act may affect the right of non Australian residents, including US residents, to acquire or hold Rio Tinto Limited shares but does not affect the right to vote, or any other right associated with, any Rio Tinto Limited shares held in compliance with its provisions. Under the Takeovers Act a foreign person must notify the Treasurer of the Commonwealth of Australia of a proposal to acquire a substantial shareholding in an Australian corporation, which involves a person, together with associates, holding 15 per cent or more of the issued shares or voting power of the corporation. In addition, acquisition or issue of shares (including an option to acquire shares) in a corporation that carries on an Australian business (such as Rio Tinto Limited) which would result in foreign persons controlling the corporation, or a change in the foreign persons controlling it, is also subject to prior notification to, and review and approval by, the Treasurer, who may refuse approval if satisfied that the result would be contrary to the Australian national interest. A foreign person will control a corporation if it, together with associates, holds 15 per cent or more of the issued shares or voting power, and the Treasurer is satisfied that it is in a position to determine the policy of the corporation, and a number of foreign persons will control a corporation if they, together with their EXCHANGE CONTROLS AND TAXATION 2001 Rio Tinto Annual report and financial statements 61

64 EXCHANGE CONTROLS AND TAXATION associates, hold 40 per cent or more of the issues shares or voting power, and the Treasurer is satisfied that they are in a position to determine the policy of the corporation. In the context of the Takeovers Act, a foreign person is: (a) an individual not ordinarily resident in Australia; (b) any corporation or trust in which there is a substantial foreign interest. Unless the Treasurer in the particular circumstances deems otherwise, a substantial foreign interest in a corporation is an interest of 15 per cent or more in the ownership of voting power by a single foreign interest either alone or together with associates, or an interest of 40 per cent or more in aggregate in the ownership or voting power by more than one foreign interest and the associates of any of them. If a single foreign interest (either alone or together with associates) holds a beneficial interest in 15 per cent or more of the capital or income of a trust, or if two or more foreign interests (and any associates) together hold 40 per cent or more, there will be a substantial foreign interest in the trust. A beneficiary under a discretionary trust is deemed, for this purpose, to hold a beneficial interest in the maximum percentage that could be distributed to the beneficiary. In addition to the Takeovers Act, there are statutory limitations in Australia on foreign ownership of certain businesses, such as banks and airlines, not relevant to Rio Tinto Limited. There are no other statutory or regulatory provisions of Australian law or ASX requirements that restrict foreign ownership or control of Rio Tinto Limited. TAXATION The following is a summary of the principal UK tax, Australian tax and US federal income tax consequences of the ownership and disposition of Rio Tinto plc and Rio Tinto Limited ADSs by a US holder (as hereinafter defined) and is not a comprehensive description of all the tax considerations that may be relevant to such a holder. The summary applies only to persons who hold ADRs as capital assets and does not address special classes of holders such as banks, insurance companies, dealers in securities, US corporations that own ten per cent or more of the voting stock of Rio Tinto Limited and US corporations that, alone or together with associated corporations, control ten per cent of more of the voting stock of Rio Tinto plc. This summary is based upon (i) tax laws and practice of the UK, Australia and the US, including the income tax convention between the UK and the US (the UK Income Tax Treaty), the estate and gift tax treaty convention between the UK and the US (the UK Estate Tax Treaty) and the income tax convention between Australia and the US (the Australian Treaty), all as in effect on the date this document is filed and (ii) representations of the Depositaries and the assumption that each obligation in the deposit agreements and any related agreements will be performed in accordance with its terms. Other than where specifically mentioned, this summary does not reflect any changes which will result from the ratification of the new UK Income Tax Treaty, published in Future legislative, judicial or administrative changes could modify the conclusions expressed below. For the purposes of this summary, a US holder is a beneficial owner of Rio Tinto plc ADSs, Rio Tinto plc shares, Rio Tinto Limited ADSs or Rio Tinto Limited shares who is (i) a citizen or resident of the US, (ii) a domestic corporation or (iii) otherwise subject to US federal income tax on a net income basis in respect of such ADSs or shares. UK Taxation of shareholdings in Rio Tinto plc For the purposes of the UK Income Tax Treaty, the UK Estate Tax Treaty and the US Internal Revenue Code of 1986, as amended ( the Code ), US holders will be treated as owners of the Rio Tinto plc shares underlying the Rio Tinto plc ADSs. Dividends Dividends carry a tax credit equal to one-ninth of the dividend (the Tax Credit). A US holder that qualifies for the benefits provided by the UK Income Tax Treaty is entitled to receive a payment (the Treaty Payment) equal to the Tax Credit less a withholding tax (UK Withholding Tax). UK Withholding Tax is 15 per cent of the aggregate of the dividend and the Tax Credit. Since UK Withholding Tax is greater than the Tax Credit, no Treaty Payment is due. Taxation of capital gains Subject to the exception noted below, US holders that are not resident and not ordinarily resident in the UK for UK tax purposes will not be liable for UK tax on capital gains realised on the disposition of Rio Tinto plc ADSs unless the holder carries on a trade, profession or vocation in the UK through a branch or agency and the shares are used in or for the purposes of the trade, profession or vocation or are used, or held for the purposes of the branch or agency or were acquired for the use by or for the purpose of the branch or agency. Individuals who have been resident in the UK for tax purposes on or after 17 March 1998 prior to becoming a US holder and who acquired Rio Tinto plc shares whilst so resident may be liable to UK tax on capital gains realised on the disposition of such Rio Tinto plc shares whilst resident for tax purposes in the US, if UK tax residence is resumed before five complete UK tax years have elapsed. US holders are entitled under the terms of the UK Income Tax Treaty, to claim any US tax paid on such disposition as a credit against any corresponding UK tax payable. Inheritance tax Under the UK Estate Tax Treaty, Rio Tinto plc ADSs and Rio Tinto plc shares held by an individual shareholder who for the purpose of this treaty is domiciled in the US and is not domiciled in the UK will not, provided any tax chargeable in the US is paid, be subject to UK inheritance tax on the disposal of shares by way of gift or upon the individual s death, unless the shares or ADSs are part of the business property of a permanent UK establishment of the individual or, in the case of a shareholder who performs independent personal services, pertain to a fixed base situated in the UK. In the exceptional case where the shares or ADSs are subject both to UK inheritance tax and to US federal gift or estate tax, the UK Estate Tax Treaty generally provides for double taxation to be relieved by means of a tax credit. Stamp duty reserve tax and stamp duty Under the 1986 Finance Act, a stamp duty reserve tax (SDRT) is payable on all transfers to the Depositary, or its nominee, of Rio Tinto plc shares for inclusion in Rio Tinto plc ADSs. Such SDRT is calculated, at a rate of 1.5 per cent, on the purchase price or market value of the Rio Tinto plc shares so transferred. Transfer of Rio Tinto plc ADSs will not be subject to UK stamp duty provided that the transfer instrument is not executed in, and at all times remains outside of, the UK. Australian taxation of shareholdings in Rio Tinto Limited For the purposes of the Australian Treaty, the Code and the Australian Income Tax Assessment Acts of 1936 and 1997 (the Tax Act), US holders will be treated as owners of the Rio Tinto Limited shares underlying the Rio Tinto Limited ADS. Dividends Under the provisions in the Australian Treaty, the Australian withholding tax on dividends paid by Rio Tinto Limited to which a resident of the US (for the purposes of the Australian Treaty) is beneficially entitled is limited to 15 per cent of the gross dividend. Special rules apply where the recipient s shareholding is effectively connected with a permanent establishment in Australia or attributable to a fixed base in Australia from which independent personal services are carried out. Australia has a dividend imputation system of company tax that applies to dividends paid by Australian resident corporations, including dividends paid on Rio Tinto Limited shares to non residents. Under this system, companies are required to identify dividends paid as either franked or unfranked dividends. Franked dividends are in effect those paid out of profits which have borne Australian corporate tax, while unfranked dividends are paid out of untaxed profits. Fully franked dividends paid to non residents are exempt from withholding tax. Unfranked (or partly franked) dividends paid to non residents are subject to withholding tax on the unfranked amount. Shareholders are provided with notices specifying the amount (if any) of dividend withholding tax deducted from dividend payments. If the owners of the Rio Tinto Limited ADSs are residents of the US and beneficially entitled to the dividends paid on the underlying Rio Tinto Limited Shares, then withholding tax will be imposed at the rate of 15 per cent on Rio Tinto Limited dividends paid to the custodian unless the dividends are franked, in which case the withholding tax will be reduced to the extent the dividend is franked. All dividends paid out of profits in recent years, including 2001, have been fully franked Rio Tinto Annual report and financial statements

65 Disposition Under the Tax Act any profit or gain derived on the sale of Rio Tinto Limited ADSs or the underlying Rio Tinto Limited shares by the US holders of Rio Tinto Limited ADSs will be subject to Australian income tax or capital gains tax if the profit is derived by a US citizen or corporation which is: (a) resident in Australia for taxation purposes. (A US corporation will be treated as a resident of Australia by reason of carrying on business in Australia and having either its central management and control in Australia or its voting power controlled by shareholders who are residents of Australia); (b) not resident in Australia if the profit is of an income nature and sourced in Australia. The source of any profit will depend on the circumstances of the purchase and sale transaction; (c) not resident in Australia if the non resident or an associate (together or alone) or associates (together) beneficially own or owned Rio Tinto Limited shares at any time during the period of five years preceding the disposal, representing ten per cent or more of the issued share capital of Rio Tinto Limited (excluding share capital carrying no right to participate beyond a specific amount in distribution of profits or capital); or (d) not resident in Australia if the Rio Tinto Limited ADSs or Rio Tinto Limited shares have at any time been used by the non resident in carrying on a trade or business wholly or partly at or through a permanent establishment in Australia. Notwithstanding that the profit or gain upon the disposal of Rio Tinto Limited shares might be assessable in Australia under the Tax Act in the circumstances mentioned above, if the vendor is a resident of the US, relief from Australian tax may be available under the Australian Treaty, but this will depend on the particular circumstances of the vendor. Australian gift, estate and inheritance taxation Australia does not impose gift, estate or inheritance taxes in relation to gifts of shares or upon the death of a shareholder. Australian stamp duty Transfers of Rio Tinto Limited shares or an issue or transfer of an ADS will not require the payment of stamp duty in Australia. Subject to certain limitations, any applicable Australian withholding tax will be treated as a foreign income tax eligible for a deduction or credit in determining the holder s US federal income tax liability. In the case of US holders that are eligible for benefits under the UK income tax treaty, the UK withholding tax (ie, an amount equal to the tax credit) will be treated as a foreign income tax that is eligible for credit (subject to certain limitations), in determining the holder s US federal income tax liability. To qualify for this credit, a US holder must make an election on Form 8833 (Treaty-Based Return Position Disclosure), which must be filed with the holder s tax return, in addition to any other filings that may be required. Under the new UK income tax treaty published in 2001, but not yet ratified, US holders would not be entitled to a tax credit and accordingly there should be no imposition of UK withholding tax and no associated US foreign tax credit. The new UK income tax treaty would generally be effective, in respect of taxes withheld at source, for amounts paid or credited on or after the first day of the second month after it is ratified. Other provisions of the new UK income tax treaty would generally become effective on 1 January after it is ratified. A US holder would, however, be entitled to elect to defer the provisions of the new UK income tax treaty in their entirety for a period of 12 months from when they become effective. The dividend income will, for foreign tax credit purposes, constitute foreign source passive or, in the case of certain holders, financial services income. Dispositions For US federal income tax purposes, a US holder that sells or exchanges a Rio Tinto plc ADS, a Rio Tinto plc share, a Rio Tinto Limited ADS or a Rio Tinto Limited share generally will recognise capital gain or loss in an amount equal to the difference between the amount realised upon the sale or exchange and the holder s adjusted basis in the ADS or shares. The gain or loss will be a long term capital gain or loss if the ADS or share was held for more than one year, and otherwise will be a short term gain or loss. Capital gain of a non corporate US holder is generally taxed at a maximum rate of 20 per cent where the property is held for more than one year. The gain or loss will generally be inome or loss from sources within the US for foreign tax credit limitation purposes. CHANGES IN SECURITIES There are no material modifications to the rights of security holders. TREASURY MANAGEMENT AND FINANCIAL INSTRUMENTS UNITED STATES FEDERAL INCOME TAXATION Distributions For US federal income tax purposes, distributions in respect of Rio Tinto plc ADSs, Rio Tinto plc shares, Rio Tinto Limited ADSs or Rio Tinto Limited shares generally will be treated as dividend income. The amount of dividend income will include (i) in the case of dividends paid by Rio Tinto plc, an amount equal to the related tax credit that would have been received but for the UK withholding tax, and (ii) in the case of unfranked dividends paid by Rio Tinto Limited, the Australian tax withheld therefrom. The dividend income will not be eligible for the dividends received deduction allowed to US corporations. TREASURY MANAGEMENT AND FINANCIAL INSTRUMENTS The Rio Tinto Group s policies for currency, interest rate and commodity price exposures, and the use of derivative financial instruments are discussed in the Financial review on pages 30 and 31. In addition, the Group s quantitative and qualitative disclosures about market risk are set out in note 27 to the Financial statements on page 98. STATEMENT OF NO DEFAULT There are no defaults, dividend arrearages or delinquencies Rio Tinto Annual report and financial statements 63

66 Financial statements Rio Tinto Annual report and financial statements

67 Contents Page Primary financial statements Profit and loss account 66 Cash flow statement 67 Balance sheet 68 Reconciliation with Australian GAAP 69 Statement of total recognised gains and losses 70 Reconciliation of movements in shareholders funds 70 Outline of dual listed companies structure and basis of financial statements 71 Notes to the 2001 financial statements Note 1 Principal accounting policies FINANCIAL STATEMENTS Profit and loss account Note 2 Net operating costs 74 Note 3 Exceptional asset write-downs 74 Note 4 Net interest payable and similar charges 75 Note 5 Amortisation of discount related to provisions 75 Note 6 Taxation charge for the year 76 Note 7 Dividends 77 Note 8 Earnings per ordinary share 77 Assets Note 9 Goodwill 77 Note 10 Exploration and evaluation 78 Note 11 Property, plant and equipment 78 Note 12 Fixed asset investments 80 Note 13 Inventories 81 Note 14 Accounts receivable and prepayments 82 Note 15 Current asset investments, cash and liquid resources 82 Liabilities Note 16 Short term borrowings 82 Note 17 Accounts payable and accruals 83 Note 18 Provisions for liabilities and charges 83 Note 19 Deferred taxation 85 Note 20 Medium and long term borrowings 86 (For details of net debt see also notes 26 and 27) Note 21 Share capital 87 Note 22 Share premium and reserves 88 Additional disclosures Note 23 Product analysis 90 Note 24 Geographical analysis 92 Note 25 Average number of employees 95 Note 26 Net debt 96 Note 27 Financial instruments 98 Note 28 Contingent liabilities and commitments 106 Note 29 Principal subsidiaries 107 Note 30 Principal joint venture interests 108 Note 31 Principal associates 108 Note 32 Principal joint arrangements 108 Note 33 Purchases and sales of subsidiaries, joint ventures and associates 109 Note 34 Directors remuneration 110 Note 35 Related party transactions 111 Note 36 Exchange rates in US$ 111 Note 37 Bougainville Copper Limited (BCL) 111 Note 38 Post retirement benefits 112 Note 39 Parent company balance sheets 114 Note 40 Other parent company disclosures 115 Financial information by business unit 116 Report of the Independent Auditors Rio Tinto Annual report and financial statements 65

68 Profit and loss account Years ended 31 December PROFIT AND LOSS ACCOUNT A$m A$m m m Note US$m US$m 20,187 17,212 7,249 6,582 Gross turnover (including share of joint ventures and associates) 10,438 9,972 (3,118) (2,570) (1,119) (983) Share of joint ventures turnover (1,612) (1,489) (1,304) (1,049) (468) (401) Share of associates turnover (674) (608) 15,765 13,593 5,662 5,198 Consolidated turnover 8,152 7,875 Net operating costs (including exceptional asset (12,745) (9,816) (4,576) (3,753) write-downs of US$715 million in 2001) 2 (6,590) (5,687) 3,020 3,777 1,086 1,445 Group operating profit 1,562 2,188 1, Share of operating profit of joint ventures Share of operating profit of associates Profit on disposal of interest in joint venture ,615 5,026 1,660 1,923 Profit on ordinary activities before interest 2,387 2,912 (671) (587) (241) (224) Net interest payable 4 (347) (340) (110) (109) (40) (42) Amortisation of discount related to provisions 5 (57) (63) 3,834 4,330 1,379 1,657 Profit on ordinary activities before taxation 1,983 2,509 Taxation (including tax relief on exceptional asset (1,389) (1,414) (499) (541) write-downs of US$132 million in 2001) 6 (718) (819) 2,445 2, ,116 Profit on ordinary activities after taxation 1,265 1,690 (360) (316) (129) (121) Attributable to outside shareholders (equity) (186) (183) 2,085 2, Profit for the financial year (net earnings) 1,079 1,507 (1,570) (1,364) (564) (521) Dividends to shareholders 7 (812) (790) 515 1, Retained profit for the financial year c 189.4c 54.6p 72.5p Earnings per ordinary share c 109.8c 233.6c 189.4c 84.1p 72.5p Adjusted earnings per ordinary share c 109.8c Dividends per share to Rio Tinto shareholders p 38.87p Rio Tinto plc 59.0c 57.5c c c Rio Tinto Limited 59.0c 57.5c (a) (b) (c) Diluted earnings per share figures are 0.2 US cents (2000: 0.1 US cents) lower than the earnings per share figures above. The results for both years relate wholly to continuing operations. Joint ventures acquired in 2001 contributed US$129 million to gross turnover and US$30 million to operating profit. The combined effect of acquisitions in 2000 and 2001 contributed US$1,278 million to turnover (2000: US$447 million), US$273 million to profit before interest and tax (2000: US$58 million) and, after recognising financing costs, tax and outside shareholders interests, US$120 million to net earnings (2000: US$12 million). The profit for the financial year is stated after exceptional asset write-downs; these are added back in the table below to arrive at adjusted earnings A$m A$m m m Note US$m US$m 2,085 2, Profit for the financial year (net earnings) 1,079 1,507 Effect of exceptional asset write-downs on items in the above profit and loss account: 1, Group operating profit 715 (255) (92) Taxation (132) 1, Net exceptional charge ,213 2,600 1, Adjusted earnings 1,662 1, Rio Tinto Annual report and financial statements

69 Cash flow statement Years ended 31 December A$m A$m m m Note US$m US$m 5,350 5,133 1,922 1,962 Cash flow from operating activities (see below) 2,767 2,973 1, Dividends from joint ventures and associates ,603 5,939 2,372 2,270 Total cash flow from operations 3,415 3, Interest received (648) (521) (233) (199) Interest paid (335) (302) (153) (264) (55) (101) Dividends paid to outside shareholders (79) (153) CASH FLOW STATEMENT (677) (661) (243) (252) Returns on investment and servicing of finance (350) (383) (1,189) (797) (427) (305) Taxation (615) (462) (2,613) (1,412) (938) (540) Purchase of property, plant and equipment (1,351) (818) Funding of Group share of joint ventures & (153) (38) (55) (15) associates capital expenditure 12 (79) (22) Other funding of joint ventures & associates repaid (255) (257) (92) (98) Exploration and evaluation expenditure 10 (132) (149) Sale of property, plant and equipment (104) 2 (38) Purchases less sales of other investments (54) 1 (3,052) (1,564) (1,097) (599) Capital expenditure and financial investment (1,578) (906) (1,853) (5,751) (665) (2,199) Purchase of subsidiaries, joint ventures & associates 33 (958) (3,332) Sale of subsidiaries, joint ventures & associates (1,275) (5,508) (457) (2,106) Acquisitions less disposals (659) (3,191) (1,553) (1,362) (558) (521) Equity dividends paid to Rio Tinto shareholders (803) (789) Cash outflow before management of liquid (1,143) (3,953) (410) (1,513) resources and financing (590) (2,291) (35) 173 (13) 66 Net cash (outflow)/inflow from management of liquid resources 26 (18) Ordinary shares issued 7 3 (57) (22) Shares repurchased (33) 1,240 3, ,437Loans received less repaid ,177 1,219 3, ,483 Management of liquid resources and financing 630 2, (74) 27 (30) Increase/(decrease) in cash (44) Cash flow from operating activities 3,020 3,777 1,086 1,445 Group operating profit 1,562 2,188 1, Exceptional asset write-downs 715 4,403 3,777 1,583 1,445 2,277 2,188 1,797 1, Depreciation and amortisation Exploration and evaluation charged against profit Provisions (286) (205) (103) (79) Utilisation of provisions 18 (148) (119) (439) 54 (158) 20 Change in inventories (227) 31 (244) (418) (88) (160) Change in accounts receivable and prepayments (126) (242) (93) 283 (33) 108 Change in accounts payable and accruals (48) 164 (232) (216) (83) (83) Other items (120) (126) 5,350 5,133 1,922 1,962 Cash flow from operating activities 2,767 2, Rio Tinto Annual report and financial statements 67

70 Balance sheet At 31 December BALANCE SHEET A$m A$m m m Note US$m US$m Intangible fixed assets 1,998 1, Goodwill 9 1,022 1, Exploration and evaluation ,106 2, ,077 1,169 Tangible fixed assets 22,674 21,886 7,993 8,134 Property, plant and equipment 11 11,598 12,159 Investments 5,490 4,189 1,935 1,557 Share of gross assets of joint ventures 12 2,808 2,327 (2,199) (1,895) (775) (704) Share of gross liabilities of joint ventures 12 (1,125) (1,053) 3,291 2,294 1, ,683 1,274 1, Investments in associates/other investments ,458 3,226 1,571 1,200 Total investments 2,280 1,792 29,238 27,216 10,306 10,116 Total fixed assets 14,955 15,120 Current assets 2,897 2,581 1, Inventories 13 1,482 1,434 Accounts receivable and prepayments 3,546 2,801 1,250 1,041 Falling due within one year 14 1,814 1,556 1,320 1, Falling due after more than one year ,866 3,856 1,715 1,433 2,489 2, Investments ,327 1, Cash ,112 7,782 3,212 2,892 Total current assets 4,661 4,323 Current liabilities (7,497) (7,670) (2,643) (2,851) Short term borrowings 16 (3,835) (4,261) (4,057) (3,953) (1,430) (1,469) Accounts payable and accruals 17 (2,075) (2,196) (11,554) (11,623) (4,073) (4,320) Total current liabilities (5,910) (6,457) (2,442) (3,841) (861) (1,428) Net current liabilities (1,249) (2,134) 26,796 23,375 9,445 8,688 Total assets less current liabilities 13,706 12,986 Liabilities due after one year (5,017) (2,765) (1,768) (1,028) Medium and long term borrowings 20 (2,566) (1,536) (6,133) (5,836) (2,162) (2,169) Provisions for liabilities and charges 18 (3,137) (3,242) (1,617) (1,555) (570) (578) Outside shareholders interests (equity) (827) (864) 14,029 13,219 4,945 4,913 7,176 7,344 Capital and reserves Share capital Rio Tinto plc ,431 1, Rio Tinto Limited (excl. Rio Tinto plc interest) ,128 2,857 1,103 1,062 Share premium account 22 1,600 1, Other reserves ,594 8,120 3,029 3,018 Profit and loss account 22 4,396 4,511 14,029 13,219 4,945 4,913 Equity shareholders funds 7,176 7,344 The financial statements on pages 66 to 117 were approved by the directors on 22 February 2002 and signed on their behalf by R P Wilson C R H Bull Rio Tinto Annual report and financial statements

71 Reconciliation with Australian GAAP 31 December A$m A$m m m US$m US$m 3,213 2,600 1, Adjusted earnings reported under UK GAAP 1,662 1,507 (1,128) (405) Exceptional asset write-downs (583) 2,085 2, Net earnings under UK GAAP 1,079 1,507 Increase/(decrease) net of tax in respect of: (327) (250) (117) (96) Goodwill amortisation (169) (145) Taxation 3 2 (8) (43) (3) (17) Higher cost of sales resulting from acquisition accounting (4) (25) (4) 17 (4) 7 Other (3) 9 1,752 2, Net earnings under Australian GAAP 906 1,348 RECONCILIATION WITH AUSTRALIAN GAAP 127.4c 169.5c 45.7p 64.8p Earnings per ordinary share under Australian GAAP 65.9c 98.2c Exceptional asset write-downs Net earnings under UK and Australian GAAP are stated after exceptional asset write-downs of US$583 million. For UK GAAP this charge is excluded from adjusted earnings. For Australian reporting this is disclosed as an individually significant item. 14,029 13,219 4,945 4,913 Shareholders funds under UK GAAP 7,176 7,344 Increase/(decrease) net of tax in respect of: 2,399 2, Goodwill 1,227 1,400 (90) (88) (32) (33) Taxation (46) (49) (43) (34) (15) (13) Other (22) (19) 16,295 15,617 5,744 5,804 Shareholders funds under Australian GAAP 8,335 8,676 Diluted earnings per share under Australian GAAP are 0.1 US cents (2000: 0.1 US 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 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 which 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 acquisitions 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 Financial Reporting Standard 10 ( 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 Under UK GAAP, provision is made for deferred tax under the liability method to the extent that, in the opinion of the directors, it is probable that a tax liability will become payable within the foreseeable future. Under Australian GAAP, deferred tax is provided for in full. Higher cost of sales resulting from acquisition accounting Under UK GAAP, the inventories of acquired companies are valued at the lower of replacement cost and net realisable value. Under Australian GAAP, such inventories are recognised at the time of acquisition on the basis of expected net sales proceeds. Earnings for the year are lower under Australian GAAP as a result of the higher cost of sales relating to inventories that were held at the date of acquisition Rio Tinto Annual report and financial statements 69

72 Statement of total recognised gains and losses Years ended 31 December STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES A$m A$m m m US$m US$m Profit for the financial year 1,247 1, Subsidiaries 646 1, Joint ventures Associates ,085 2, ,079 1,507 Adjustment on currency translation (159) (29) Subsidiaries (423) (518) (5) Joint ventures (22) (40) 8 (1) Associates (4) (3) 268 1,074 (165) (29) (449) (561) Total recognised gains for the financial year 1,481 2, Subsidiaries Joint ventures Associates ,353 3, Reconciliation of movements in shareholders funds Years ended 31 December A$m A$m m m US$m US$m 2,085 2, Profit for the financial year 1,079 1,507 (1,570) (1,364) (564) (521) Dividends (812) (790) 515 1, ,074 (165) (29) Adjustment on currency translation (449) (561) Share capital issued less repurchased Goodwill relating to disposals written back , (168) ,219 10,750 4,913 4,407 Opening shareholders funds 7,344 7,096 14,029 13,219 4,945 4,913 Closing shareholders funds 7,176 7, Rio Tinto Annual report and financial statements

73 Outline of dual listed companies structure and basis of financial statements The Rio Tinto Group These are the financial statements of the Rio Tinto Group (the Group ), formed through the merger of economic interests ( merger ) of Rio Tinto plc and Rio Tinto Limited, and presented by both Rio Tinto plc and Rio Tinto Limited as their consolidated accounts in accordance with both United Kingdom and Australian legislation and regulations. Merger terms On 21 December 1995, Rio Tinto plc and Rio Tinto Limited, which are listed respectively on Stock Exchanges in the United Kingdom and Australia, entered into a dual listed companies ( DLC ) merger. This was effected by contractual arrangements between the companies and amendments to Rio Tinto plc s Memorandum and Articles of Association and Rio Tinto Limited s constitution. As a result, Rio Tinto plc and Rio Tinto Limited and their respective groups operate together as a single economic enterprise, with neither assuming a dominant role. In particular, the arrangements: confer upon the shareholders of Rio Tinto plc and Rio Tinto Limited a common economic interest in both groups; provide for common boards of directors and a unified management structure; provide for equalised dividends and capital distributions; provide for the shareholders of Rio Tinto plc and Rio Tinto Limited to take key decisions, including the election of directors, through an electoral procedure in which the public shareholders of the two companies effectively vote on a joint basis. The merger involved no change in the legal ownership of any assets of Rio Tinto plc or Rio Tinto Limited, nor any change in the ownership of any existing shares or securities of Rio Tinto plc or Rio Tinto Limited, nor the issue of any shares, securities or payment by way of consideration, save for the issue by each company of one special voting share to a trustee company which provides the joint electoral procedure for public shareholders. OUTLINE OF DUAL LISTED COMPANIES STRUCTURE Accounting standards The financial statements have been drawn up in accordance with United Kingdom accounting standards. The merger of economic interests is accounted for as a merger under FRS 6. Australian Corporations Act The financial statements are drawn up in accordance with an order, under section 340 of the Australian Corporations Act 2001, issued by the Australian Securities and Investments Commission on 9 April The main provisions of the order are that the financial statements are: to be made out in accordance with United Kingdom requirements applicable to consolidated accounts; to be expressed both in United Kingdom and Australian currencies; and to include a reconciliation from UK GAAP to Australian GAAP (see page 69). United Kingdom Companies Act In order to present a true and fair view of the Rio Tinto Group, in accordance with FRS 6, the principles of merger accounting have been adopted. This represents a departure from the provision of the Companies Act 1985 which sets out the conditions for merger accounting based on the assumption that a merger is effected through the issue of equity shares. The main consequence of adopting merger rather than acquisition accounting is that the balance sheet of the merged group includes the assets and liabilities of Rio Tinto Limited at their carrying values prior to the merger, subject to adjustments to achieve uniformity of accounting policies, rather than at their fair values at the date of the merger. In the particular circumstances of the merger, the effect of applying acquisition accounting cannot reasonably be quantified. In order that the financial statements should present a true and fair view, it is necessary to differ from the presentational requirements of the United Kingdom Companies Act 1985 by including amounts attributable to both Rio Tinto plc and Rio Tinto Limited public shareholders in the capital and reserves shown in the balance sheet and in the profit for the financial year. The Companies Act 1985 would require presentation of the capital and reserves and profit for the year attributable to Rio Tinto Limited public shareholders (set out in note 22) as a minority interest in the financial statements of the Rio Tinto Group. This presentation would not give a true and fair view of the effect of the Sharing Agreement under which the position of all public shareholders is as nearly as possible the same as if they held shares in a single company Rio Tinto Annual report and financial statements 71

74 Notes to the 2001 financial statements NOTES TO THE 2001 FINANCIAL STATEMENTS 1 PRINCIPAL ACCOUNTING POLICIES a Basis of preparation FRS 18 Accounting Policies has been adopted this year with no effect on the Group s results for 2001 and The Group s accounting policies comply with applicable United Kingdom accounting standards and, except for the change described in b below, are consistent with last year. b Reclassification of exploration and evaluation Capitalised exploration and evaluation expenditure is now shown as an intangible fixed asset, where previously it was reported within tangible fixed assets. The directors believe that this classification better reflects the nature of the asset, which represents the potential for future development of particular mineral rights. c Basis of consolidation The financial statements consist of the consolidation of the accounts of Rio Tinto plc and Rio Tinto Limited and their respective subsidiary undertakings ( subsidiaries ). They are prepared on the historical cost basis, with no revaluations of fixed assets. The Group s shares of post-acquisition earnings and reserves of associated undertakings ( associates ) and joint ventures are included in the Group financial statements using the equity and gross equity accounting methods respectively. The Group consolidates its own share of the assets, liabilities, income and expenditure of joint arrangements that are not entities. d Turnover Turnover comprises sales to third parties at invoiced amounts, with most sales being priced ex works, free on board (f.o.b.) or cost, insurance and freight (c.i.f.). A large proportion of Group production is sold under medium to long term contracts and is included in sales when deliveries are made. Gross turnover shown in the profit and loss account includes the Group s share of the turnover of joint ventures and associates. By-product revenues are included in turnover. e Currency translation Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction or, where foreign currency forward contracts have been arranged, at contractual rates. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates, or at a contractual rate if applicable. On consolidation, profit and loss account items are translated into US dollars at average rates of exchange. Balance sheet items are translated into US dollars at year end exchange rates. Certain non-united States resident companies, whose functional currency is the US dollar, account in that currency. The Group finances its operations primarily in US dollars and a significant proportion of the Group s US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Exchange gains and losses relating to US dollar debt impact on the profit and loss accounts of such subsidiaries. However, such exchange gains and losses are excluded from the Group s profit and loss account on consolidation with a corresponding adjustment to reserves. This means that financing in US dollars impacts in a consistent manner on the Group s consolidated accounts irrespective of the functional currency of the particular subsidiary where the debt is located. Exchange differences on the translation of the net operating assets of companies with functional currencies other than the US dollar, less offsetting exchange differences on net debt in currencies other than the US dollar financing those net assets, are dealt with through reserves. All other exchange differences are charged or credited to the profit and loss account in the year in which they arise. Group profit and loss account and cash flow items are translated from US dollars into Australian dollars and sterling using average exchange rates. Balance sheet items are translated at year end exchange rates. f Goodwill and intangible assets Goodwill represents the difference between the cost of acquisition and the fair value of the identifiable net assets acquired. Goodwill and intangible assets arising on acquisitions after 31 December 1997 are capitalised in accordance with FRS 10. These assets are amortised over their useful economic lives, which may exceed 20 years. Amortisation is charged on a straight line or units of production basis as appropriate. In 1997 and previous years, goodwill was eliminated against reserves in the year of acquisition as a matter of accounting policy. Such goodwill was not reinstated on implementation of FRS 10; but on sale of a business, any related goodwill eliminated against reserves is charged in the profit and loss account. g Exploration and evaluation During the initial stage of a project, full provision is made in respect of the costs thereof by charge against profits for the year. Expenditure on a project after it has reached a stage at which there is a high degree of confidence in its viability is carried forward and transferred to mining properties if the project proceeds. If a project does not prove viable, all irrecoverable costs associated with the project are written off. If an undeveloped project is sold, any gain or loss is included in operating profit, such transactions being a normal part of the Group s activities. Where expenditure is carried forward in respect of a project which may not proceed to commercial development for some time, provision is made against the possibility of non-development by charge against profits over a period of up to seven years. When it is decided to proceed with development, any provisions made in previous years are reversed to the extent that the relevant costs are recoverable. h Tangible fixed assets The cost of a tangible fixed asset comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Costs associated with a start-up period are capitalised where the asset is available for use but incapable of operating at normal levels without a commissioning period. Net interest before tax payable on borrowings related to construction or development projects is capitalised until the point when substantially all the activities that are necessary to make the asset ready for use are complete. i Mining properties and leases Once a mining project has been established as commercially viable, expenditure other than that on buildings, plant and equipment is capitalised under mining properties and leases together with any amount transferred from exploration and evaluation. Such expenditure is amortised against profits, applying the same principles as for other tangible fixed assets. j Depreciation and carrying values of fixed assets Depreciation of tangible fixed assets is calculated on a straight line or units of production basis, as appropriate. Assets are fully depreciated over their economic lives, or over the remaining life of the mine if shorter. Depreciation rates for the principal assets of the Group vary from two and a half per cent to ten per cent per annum. Tangible and intangible fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. In addition, goodwill is reviewed for impairment at the end of the first complete financial year after the relevant acquisition and, where the Rio Tinto Annual report and financial statements

75 goodwill is being amortised over a period exceeding 20 years, annually thereafter. When a review for impairment is conducted, the recoverable amount is assessed by reference to the net present value of expected future cash flows of the relevant income generating unit, or disposal value if higher. The discount rate applied is based upon the Group s weighted average cost of capital with appropriate adjustment for the risks associated with the relevant unit. k Provisions for close down and restoration and for environmental clean up costs Both for close down and restoration and for environmental clean up costs, provision is made in the accounting period when the related environmental disturbance occurs, based on the net present value of estimated future costs. The amortisation or unwinding of the discount applied in establishing the net present value of provisions is charged to the profit and loss account in each accounting period. The amortisation of the discount is shown as a financing cost rather than as an operating cost. For close down and restoration costs, which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas, movements in provisions other than the amortisation of the discount, such as those resulting from changes in the cost estimates, lives of operations or discount rates, are capitalised and depreciated over future production. NOTES TO THE 2001 FINANCIAL STATEMENTS l Inventories Inventories are valued at the lower of cost and net realisable value. Cost for raw materials and stores is purchase price and for partly processed and saleable products is generally the cost of production, including the appropriate proportion of depreciation and overheads. Inventories are valued on a first in, first out ( FIFO ) basis. m Deferred tax Deferred tax is provided using the liability method in respect of all timing differences to the extent that, in the opinion of the directors, they are expected to reverse in the foreseeable future. Potential deferred tax assets are written off in the profit and loss account unless recovery can be predicted with a high degree of confidence. n Post retirement benefits The expected costs of post retirement benefits under defined benefit arrangements are charged to the profit and loss account so as to spread the costs over the service lives of employees entitled to those benefits. Variations from the regular cost are spread on a straight line basis over the expected average remaining service lives of relevant current employees. Costs are assessed in accordance with the advice of qualified actuaries. o Financial instruments The Group s policy with regard to Treasury management and financial instruments is set out in the Financial review. When the Group enters into derivative contracts these transactions are designed to reduce exposures related to assets and liabilities, firm commitments or anticipated transactions, and are therefore accounted for as hedges. Amounts receivable and payable in respect of interest rate swaps are recognised as an adjustment to net interest over the life of the contract. Gains or losses on foreign currency forward contracts and currency swaps relating to financial assets and liabilities are matched against the losses or gains on the hedged items, either in the profit and loss account or through reserves as appropriate. Gains and losses on financial instruments relating to firm commitments or anticipated transactions are deferred and recognised when the hedged transaction occurs. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the related transaction Rio Tinto Annual report and financial statements 73

76 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 2 NET OPERATING COSTS A$m A$m m m Note US$m US$m 5,248 4,291 1,884 1,639 Raw materials and consumables 2,713 2,486 1,797 1, Depreciation and amortisation (b) ,243 1, Employment costs 25 1,160 1, Royalties and other mining taxes (280) 129 (101) 50 (Increase)/decrease in inventories (145) 75 1,725 1, Other external costs Provisions Exploration and evaluation Research and development (112) (48) (40) (18) Net exchange gains on monetary items (58) (28) (219) (176) (78) (67) Capitalised costs included above (113) (102) (249) (274) (90) (105) Other operating income (129) (159) 11,362 9,816 4,079 3,753 Net operating costs before exceptional asset write-downs 5,875 5,687 1, Exceptional asset write-downs (b) ,745 9,816 4,576 3,753 6,590 5,687 Auditors remuneration included above: Group auditors Other auditors Amounts payable to the Group auditors for non audit work: Tax Internal audit Half year review and other public filings Work connected with acquisitions and disposals Other (a) (b) Amounts payable for auditors remuneration and for non audit work undertaken by PricewaterhouseCoopers, the Group auditors, include all such amounts payable by the parent companies and their subsidiaries. Amounts payable to PricewaterhouseCoopers for non audit work for the Group s UK companies were US$1.5 million (2000: US$0.4 million) and for the Group s Australian companies were US$1.9 million (2000: US$2.5 million). Including exceptional asset write-downs, the total charge for depreciation and amortisation was US$1,630 million (2000: US$849 million) and other external costs were US$906 million (2000: US$848 million). 3 EXCEPTIONAL ASSET WRITE-DOWNS The exceptional charge, analysed at the foot of the profit and loss account, comprises provisions for impairment of asset carrying values. These are added back in arriving at adjusted earnings and adjusted earnings per share. The impairment provisions were arrived at by discounting the expected cash flows, expressed in US dollars. Discount rates were derived from the Group s weighted average cost of capital, with appropriate risk adjustments. When adjusted to include inflation and grossed up at the Group s average tax rate for 2001, before exceptional items, the discount rate applied to the relevant business units was equivalent to 10 per cent, except for gold production for which a rate equivalent to 7 per cent was used. Of the total exceptional asset write-downs of US$715 million before tax (US$583 million after tax), US$644 million before tax (US$531 million after tax) related to Kennecott Utah Copper which produces both copper and gold. The remainder related to gold producing assets Rio Tinto Annual report and financial statements

77 4 NET INTEREST PAYABLE AND SIMILAR CHARGES A$m A$m m m Note US$m US$m Interest payable on (110) (107) (40) (41) Bank borrowings (57) (62) (571) (427) (205) (162) Other loans (295) (247) (681) (534) (245) (203) (352) (309) Amounts capitalised relating to projects during construction NOTES TO THE 2001 FINANCIAL STATEMENTS (640) (515) (230) (196) (331) (298) Interest receivable and similar income from fixed asset investments Joint ventures Associates Investments Other interest receivable (495) (380) (178) (144) Group net interest payable (256) (220) (62) (93) (22) (36) Share of joint ventures net interest payable (a) (32) (54) (114) (114) (41) (44) Share of associates net interest payable (a) (59) (66) (671) (587) (241) (224) Net interest payable (347) (340) (110) (109) (40) (42) Amortisation of discount related to provisions 5 (57) (63) (781) (696) (281) (266) Net interest payable and similar charges (404) (403) (a) The Group s share of net interest payable by joint ventures and associates relates to its share of the net debt of joint ventures and associates, which is disclosed in note 26(b). 5 AMORTISATION OF DISCOUNT RELATED TO PROVISIONS A$m A$m m m US$m US$m (106) (104) (39) (40) Subsidiaries (55) (60) (4) (5) (1) (2) Share of joint ventures (2) (3) (110) (109) (40) (42) Amortisation of discount related to provisions (57) (63) See accounting policy 1k Rio Tinto Annual report and financial statements 75

78 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 6 TAXATION CHARGE FOR THE YEAR A$m A$m m m US$m US$m UK taxation Corporation tax at 30% Current Deferred (122) (62) (44) (24) Deduct: relief for overseas taxes (63) (36) Australian taxation Corporation tax at 30% ( %) Current Deferred Other countries Current Deferred Joint ventures charge for year (a) Associates charge for year (a) Subsidiaries deferred tax related to exceptional (255) (92) asset write-downs (d) (132) 1,389 1, (a) (b) (c) (d) Some tax recognised by subsidiary holding companies is presented in these accounts as part of the tax charge on the profits of the joint ventures and associates to which it relates. A benefit of US$41 million was recognised in 2001 (2000: US$39 million) for operating losses carried forward. Adjustments relating to prior years reduced the total tax charge by US$32 million. The deferred tax relief on exceptional asset write-downs primarily relates to Other countries. Prima facie tax reconciliation 3,834 4,330 1,379 1,657 Profit on ordinary activities before taxation 1,983 2,509 (1,389) (1,414) (499) (541) Actual taxation charge for the year (718) (819) 1,151 1, Prima facie tax payable at UK and Australian rate of 30% Higher rate of taxation on Australian earnings in Impact of exceptional asset write-downs 82 (79) (12) (29) (5) Adverse variation (41) (7) The above variation is explained as follows: (184) (123) (66) (47) Other tax rates applicable outside the UK and Australia (95) (71) Resource depletion and other depreciation allowances (101) (60) (36) (23) Permanently disallowed amortisation/depreciation (52) (35) Research, development and other investment allowances Other (79) (12) (29) (5) Total adverse variation (41) (7) (a) The Group s effective tax rate for 2001 is 31.5 per cent (2000: 32.6 per cent) before exceptional items and 36.2 per cent (2000: 32.6 per cent) after exceptional items Rio Tinto Annual report and financial statements

79 7 DIVIDENDS A$m A$m m m US$m US$m Rio Tinto plc Ordinary Interim dividend Rio Tinto plc Ordinary Final dividend Rio Tinto Limited Ordinary Interim dividend (b) Rio Tinto Limited Ordinary Final dividend (b) ,570 1, NOTES TO THE 2001 FINANCIAL STATEMENTS Number Number per per per per of shares of shares share share share share (millions) (millions) 14.03p 12.66p Rio Tinto plc Interim 1, , p 26.21p Rio Tinto plc Final 1, , c 32.68c Rio Tinto Limited Interim fully franked at 30% (2000: 34%) (b) c 69.76c Rio Tinto Limited Final fully franked at 30% (2000: 34%) (b) c c 41.68p 38.87p (a) The 2001 dividends have been based on the following US cents per share amounts: interim 20.0 cents, final 39.0 cents. (b) The number of shares on which the Rio Tinto Limited dividends are based excludes those shares held by Rio Tinto plc, in order that the dividends shown represent those paid to public shareholders. (c) The proposed Rio Tinto Limited dividends will be franked out of existing franking credits or out of franking credits arising from the payment of income tax during (d) The approximate amount of the Rio Tinto Limited retained profits and reserves that could be distributed as dividends and franked out of existing franking credits, which arose from payments of income tax in respect of periods up to 31 December 2001 (net of tax refunds and after deducting franking credits on the proposed final dividend) is: US$nil (2000: US$nil). 8 EARNINGS PER ORDINARY SHARE A$m A$m m m Note US$m US$m 2,085 2, Profit for the financial year 1,079 1,507 1, Exceptional asset write-downs ,213 2,600 1, Adjusted earnings 1,662 1, c 189.4c 54.6p 72.5p Earnings per share 78.5c 109.8c 233.6c 189.4c 84.1p 72.5p Adjusted earnings per share 120.9c 109.8c (a) Adjusted earnings and adjusted earnings per share exclude exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the underlying performance of the Group. (b) The daily average number of ordinary shares in issue of 1,375 million (2000: 1,373 million) excludes the Rio Tinto Limited shares held by Rio Tinto plc. (c) Diluted earnings per share figures are 0.2 US cents (2000: 0.1 US cents) lower than the earnings per share figures above. The daily average number of ordinary shares used for the calculation is 1,377 million (2000: 1,374 million) and excludes the Rio Tinto Limited shares held by Rio Tinto plc. 9 GOODWILL A$m A$m m m US$m US$m Cost 1, At 1 January 1, (23) (2) Adjustment on currency translation (65) (35) 671 1, Additions (note 33) (106) (38) Subsidiaries sold (55) (242) (87) Other movements (125) 2,342 1, At 31 December 1,198 1,096 Accumulated amortisation (171) (80) (64) (33) At 1 January (95) (53) (16) (19) (2) (3) Adjustment on currency translation (157) (72) (56) (28) Amortisation for the year (81) (42) (344) (171) (122) (64) At 31 December (176) (95) 1,998 1, Net balance sheet amount 1,022 1,001 (a) (b) Goodwill is being amortised over the economic lives of the relevant business units which involves periods ranging from 3 to 40 years with a weighted average of around 21 years. As a result of further information obtained in respect of the businesses acquired in 2000, an amount of US$125 million has been recategorised from goodwill to tangible fixed assets during the year (see note 33) Rio Tinto Annual report and financial statements 77

80 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 10 EXPLORATION AND EVALUATION A$m A$m m m US$m US$m At cost less amounts written off 1,413 1, At 1 January (13) (10) Adjustment on currency translation (42) (72) Subsidiaries acquired Expenditure in year (89) (86) (32) (33) Charged against profit for the year (46) (50) (292) (136) (105) (52) Disposals, transfers and other movements (151) (79) 1,325 1, At 31 December Provision (1,111) (988) (413) (405) At 1 January (617) (652) (29) (111) 11 (3) Adjustment on currency translation (162) (148) (58) (57) Charged against profit for the year (84) (86) Disposals, transfers and other movements (1,217) (1,111) (429) (413) At 31 December (623) (617) Net balance sheet amount (a) The total of US$130 million (2000: US$136 million) charged against profit in respect of exploration and evaluation includes US$46 million (2000: US$50 million) written off cost and an increase in the provision of US$84 million (2000: US$86 million). (b) Disposals, transfers and other movements include US$69 million transferred to property, plant and equipment. 11 PROPERTY, PLANT AND EQUIPMENT Mining Land Plant Capital properties and and works in Total Total US$m and leases buildings equipment progress US$m US$m Cost At 1 January 2,978 2,843 14, ,558 16,456 Adjustment on currency translation (211) (99) (749) (141) (1,200) (1,408) Capitalisation of additional closure costs (note 18) Other additions , Disposals (2) (18) (154) (3) (177) (135) Subsidiaries acquired (note 33) ,717 Subsidiaries sold (5) (22) (81) (108) (2) Transfers and other movements (54) (16) At 31 December 3,086 2,851 13,537 1,389 20,863 20,558 Accumulated depreciation At 1 January (648) (899) (6,852) (8,399) (6,868) Adjustment on currency translation Depreciation for the year (129) (68) (651) (848) (807) Exceptional asset write-downs (701) (701) Disposals Subsidiaries acquired (note 33) (26) (26) (1,485) Subsidiaries sold Transfers and other movements (10) (15) 4 (21) At 31 December (707) (929) (7,629) (9,265) (8,399) Net balance sheet amount at 31 December ,379 1,922 5,908 1,389 11,598 Net balance sheet amount at 31 December ,330 1,944 7, ,159 (a) (b) (c) (d) The net balance sheet amount at 31 December 2001 includes US$195 million (2000: US$316 million) of pledged assets, in addition to assets held under the finance leases disclosed in note 20. The net balance sheet amount for land and buildings includes freehold US$1,830 million; long leasehold US$68 million; and short leasehold US$24 million. As a result of further information obtained in respect of the businesses acquired in 2000, an amount of US$129 million has been recategorised as tangible fixed assets during the year (see note 33). This amount is included in Transfers and other movements. Transfers and other movements also include US$69 million for projects transferred from exploration and evaluation; and a reduction of US$29 million relating to a company now classified as a joint venture Rio Tinto Annual report and financial statements

81 11 PROPERTY, PLANT AND EQUIPMENT CONTINUED Mining Land Plant Capital properties and and works in Total Total m and leases buildings equipment progress m m Cost At 1 January 1,993 1,902 9, ,754 10,221 Adjustment on currency translation (89) (11) (234) (89) (423) (104) Capitalisation of additional closure costs (note 18) Other additions Disposals (1) (13) (107) (2) (123) (90) Subsidiaries acquired (note 33) ,113 Subsidiaries sold (3) (15) (56) (74) (1) Transfers and other movements (38) (10) NOTES TO THE 2001 FINANCIAL STATEMENTS At 31 December 2,127 1,965 9, ,378 13,754 Accumulated depreciation At 1 January (434) (601) (4,585) (5,620) (4,266) Adjustment on currency translation Depreciation for the year (90) (47) (452) (589) (532) Exceptional asset write-downs (487) (487) Disposals Subsidiaries acquired (note 33) (18) (18) (980) Subsidiaries sold Transfers and other movements (7) (10) 3 (14) At 31 December (487) (640) (5,258) (6,385) (5,620) Net balance sheet amount at 31 December ,640 1,325 4, ,993 Net balance sheet amount at 31 December ,559 1,301 4, ,134 Mining Land Plant Capital properties and and works in Total Total A$m and leases buildings equipment progress A$m A$m Cost At 1 January 5,360 5,117 25,319 1,208 37,004 24,931 Adjustment on currency translation (154) 875 2,564 Capitalisation of additional closure costs (note 18) Other additions ,526 2,638 1,546 Disposals (4) (35) (298) (6) (343) (234) Subsidiaries acquired (note 33) ,142 Subsidiaries sold (10) (43) (157) (210) (3) Transfers and other movements (104) (28) At 31 December 6,033 5,574 26,465 2,715 40,787 37,004 Accumulated depreciation At 1 January (1,166) (1,618) (12,334) (15,118) (10,405) Adjustment on currency translation 50 (64) (241) (255) (937) Depreciation for the year (249) (132) (1,259) (1,640) (1,393) Exceptional asset write-downs (1,356) (1,356) Disposals Subsidiaries acquired (note 33) (50) (50) (2,563) Subsidiaries sold Transfers and other movements (19) (29) 8 (40) At 31 December (1,382) (1,816) (14,915) (18,113) (15,118) Net balance sheet amount at 31 December ,651 3,758 11,550 2,715 22,674 Net balance sheet amount at 31 December ,194 3,499 12,985 1,208 21, Rio Tinto Annual report and financial statements 79

82 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 12 FIXED ASSET INVESTMENTS Investments Loans to Investments Loans to in joint joint in associates/ associates Total Total ventures ventures other US$m US$m US$m At 1 January 1, ,792 1,830 Adjustment on currency translation (28) (2) (12) (42) (61) Group s share of earnings net of distributions (70) (70) (8) Additions (excluding acquisitions) Acquisitions (note 33) Disposals and repayments of advances (42) (17) (59) (145) Transfers and other movements 175 (35) At 31 December 1, ,280 1,792 Investments Loans to Investments Loans to in joint joint in associates/ associates Total Total ventures ventures other m m m At 1 January ,200 1,137 Adjustment on currency translation (1) 2 (1) Group s share of earnings net of distributions (49) (49) (6) Additions (excluding acquisitions) Acquisitions (note 33) Disposals and repayments of advances (29) (12) (41) (95) Transfers and other movements 122 (24) At 31 December 1, ,571 1,200 Investments Loans to Investments Loans to in joint joint in associates/ associates Total Total ventures ventures other A$m A$m A$m At 1 January 2, ,226 2,773 Adjustment on currency translation Group s share of earnings net of distributions (135) (135) (14) Additions (excluding acquisitions) Acquisitions (note 33) Disposals and repayments of advances (81) (33) (114) (251) Transfers and other movements 338 (68) At 31 December 2, , ,458 3,226 (a) (b) (c) (d) The Group s investments in joint ventures and associates include, where appropriate, entry premiums on acquisition plus interest capitalised by the Group during the development period of the relevant mines. At 31 December 2001, this capitalised interest less accumulated amortisation amounted to US$14 million (2000: US$15 million). Transfers and other movements include US$29 million transferred from property, plant and equipment and the reclassification of certain tax liabilities arising from profits of joint ventures (see note 19). The cash flow statement analyses additions to loans to joint ventures and associates between the following: Funding of Group share of joint ventures and associates capital expenditure, which reports cash supplied by the Group for the formation of new operating assets whose benefits will be attributable to the Group, and Other funding of joint ventures and associates repaid which may include any financial investment in joint ventures and associates that does not have the above characteristics and all loan repayments. Other investments include listed investments with a book value of US$64 million (2000: US$9 million) and a market value of US$63 million (2000: US$9 million). During the year the Group acquired 20.3 per cent of the Labrador Iron Ore Royalty Income Fund. This investment is not equity accounted because the Group has no involvement in its management Rio Tinto Annual report and financial statements

83 12 FIXED ASSET INVESTMENTS CONTINUED (e) Further details of investments in joint ventures and associates are set out below and in notes 26 b), 30 and A$m A$m m m US$m US$m Joint ventures Rio Tinto s share of assets 4,684 3,433 1,651 1,276 Fixed assets 2,396 1, Current assets NOTES TO THE 2001 FINANCIAL STATEMENTS 5,490 4,189 1,935 1,557 2,808 2,327 Rio Tinto s share of third party liabilities (563) (432) (198) (161) Liabilities due within one year (288) (240) (1,636) (1,463) (577) (543) Liabilities due after more than one year (including provisions) (837) (813) (2,199) (1,895) (775) (704) (1,125) (1,053) 3,291 2,294 1, Rio Tinto s share of net assets 1,683 1,274 The Group s share of joint venture liabilities set out above excludes US$191 million (2000: US$162 million) due to the Group. These excluded liabilities correspond with the loans to joint ventures that are presented earlier in this note as an asset of the Group. Including these loans, the Group s share of the total liabilities of joint ventures was US$1,316 million (2000: US$1,215 million). Of the US$837 million of liabilities due after more than one year, US$616 million relates to long term debt, which matures as follows: US$185 million between 1-2 years; US$367 million between 2-5 years; US$64 million after 5 years A$m A$m m m US$m US$m Associates Rio Tinto s share of assets 2,649 2, Fixed assets 1,355 1, Current assets ,253 3,077 1,147 1,143 1,664 1,709 Rio Tinto s share of third party liabilities (516) (446) (182) (166) Liabilities due within one year (264) (248) (1,560) (1,576) (551) (585) Liabilities due after more than one year (including provisions) (798) (875) (2,076) (2,022) (733) (751) (1,062) (1,123) (194) (190) (67) (70) Non-equity capital and outside shareholders interests (99) (105) Rio Tinto s share of net assets The Group s share of associate liabilities set out above excludes US$72 million (2000: US$65 million) due to the Group. These excluded liabilities correspond with the loans to associates that are presented earlier in this note as an asset of the Group. Including these loans, the Group s share of the total liabilities of associates was US$1,134 million (2000: US$1,188 million). Of the US$798 million of liabilities due after more than one year, US$549 million relates to long term debt, which matures as follows: US$69 million between 1-2 years; US$392 million between 2-5 years; US$88 million after 5 years A$m A$m m m US$m US$m Investments in and loans to associates/other Investments in and loans to associates Other investments , INVENTORIES A$m A$m m m US$m US$m Raw materials and purchased components Consumable stores Work in progress ,238 1, Finished goods and goods for resale ,897 2,581 1, ,482 1,434 Comprising: 2,827 2, Inventories expected to be sold or used within 12 months 1,446 1, Inventories not expected to be sold nor used within 12 months ,897 2,581 1, ,482 1, Rio Tinto Annual report and financial statements 81

84 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 14 ACCOUNTS RECEIVABLE AND PREPAYMENTS A$m A$m m m US$m US$m 2,392 2, Trade debtors 1,224 1,121 (22) (11) (8) (4) Provision for doubtful debts (11) (6) Bills receivable Amounts owed by joint ventures Amounts owed by associates Other debtors (including assets held for resale) Tax recoverable ,277 1, Pension prepayments Other prepayments ,866 3,856 1,715 1,433 2,489 2,142 Amounts falling due after more than one year of US$675 million (2000: US$586 million) relate to pension prepayments US$598 million (2000: US$561 million), other debtors US$45 million (2000: US$25 million), amounts owed by associates US$17 million (2000: US$ nil) and tax recoverable US$15 million (2000: US$ nil). Movements in pension prepayments are included in Other items in the cash flow. 15 CURRENT ASSET INVESTMENTS, CASH AND LIQUID RESOURCES A$m A$m m m Note US$m US$m Liquid resources Time deposits Certificates of deposit Other Total liquid resources (577) (535) (203) (199) Deduct: deposits with an original maturity of over 24 hours (295) (297) Investments per balance sheet (unlisted) Cash Cash as defined in FRS 1 Revised ( FRS 1 cash ) Deposits with an original maturity of over 24 hours Bank borrowings repayable on demand included in FRS 1 cash ,327 1, Cash per balance sheet Cash includes US$137 million (2000: US$87 million) relating to export finance arrangements the use of which is restricted to the repayment of the equivalent amount included in borrowings. 16 SHORT TERM BORROWINGS A$m A$m m m US$m US$m Secured 18 6 Bank borrowings repayable on demand Bank loans repayable within 12 months Other loans repayable within 12 months Unsecured Bank borrowings repayable on demand Bank loans repayable within 12 months ,028 1, Other loans repayable within 12 months ,649 5,963 1,989 2,216 Commercial paper 2,889 3,313 7,128 7,573 2,512 2,816 3,646 4,207 7,497 7,670 2,643 2,851 Total short term borrowings per balance sheet 3,835 4,261 In accordance with FRS4, all commercial paper is classified as short term borrowings though US$1.9 billion is backed by medium term facilities. Under US and Australian GAAP, this amount would be grouped with non current borrowings at 31 December The maturity of US$135 million of the commercial paper included above as due in one year can be extended beyond one year at the Group s option Rio Tinto Annual report and financial statements

85 17 ACCOUNTS PAYABLE AND ACCRUALS A$m A$m m m US$m US$m 1,158 1, Trade creditors Amounts owed to joint ventures Amounts owed to associates Other creditors Tax on profits Employee entitlements Royalties and mining taxes Accruals and deferred income Dividends payable to outside shareholders of subsidiaries 4 1, Dividends payable to Rio Tinto shareholders NOTES TO THE 2001 FINANCIAL STATEMENTS 4,057 3,953 1,430 1,469 2,075 2, PROVISIONS FOR LIABILITIES AND CHARGES Post Other Close down & Other retirement employee restoration/ Total Total US$m health care entitlements environmental US$m US$m At 1 January , ,328 2,016 Adjustment on currency translation (16) (15) (52) (17) (100) (127) Capitalisation of additional closure costs (note 11) Charged to profit for the year Amortisation of discount related to provisions Utilised in year: provisions set up on acquisition of businesses (5) (26) (31) (9) other provisions (7) (40) (28) (42) (117) (110) Subsidiaries acquired (note 33) Subsidiaries sold (2) (1) (3) (6) Transfers and other movements (6) (6) , ,279 2,328 Provision for deferred taxation (see note 19) Provisions for liabilities and charges per balance sheet 3,137 3,242 Post Other Close down & Other retirement employee restoration/ Total Total m health care entitlements environmental m m At 1 January ,558 1,253 Adjustment on currency translation (3) (6) (8) (6) (23) 15 Capitalisation of additional closure costs (note 11) Charged to profit for the year Amortisation of discount related to provisions Utilised in year: provisions set up on acquisition of businesses (3) (18) (21) (6) other provisions (5) (28) (19) (30) (82) (73) Subsidiaries acquired (note 33) Subsidiaries sold (1) (1) (2) (4) Transfers and other movements (4) 9 9 (4) ,571 1,558 Provision for deferred taxation (see note 19) Provisions for liabilities and charges per balance sheet 2,162 2, Rio Tinto Annual report and financial statements 83

86 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 18 PROVISIONS FOR LIABILITIES AND CHARGES CONTINUED Post Other Close down Other retirement employee & restoration/ Total Total A$m health care entitlements environmental A$m A$m At 1 January , ,191 3,054 Adjustment on currency translation Capitalisation of additional closure costs (note 11) Charged to profit for the year Amortisation of discount related to provisions Utilised in year: provisions set up on acquisition of businesses (10) (50) (60) (16) other provisions (14) (77) (54) (81) (226) (189) Subsidiaries acquired (note 33) Subsidiaries sold (4) (2) (6) (12) Transfers and other movements (12) (12) , ,455 4,191 Provision for deferred taxation (see note 19) 1,678 1,645 Provisions for liabilities and charges per balance sheet 6,133 5,836 (a) (b) (c) (d) (e) (f) The main assumptions used to determine the provision for post retirement healthcare are disclosed in note 38. The current provision is expected to be utilised over the next 15 to 20 years. The provision for other employee entitlements includes pension entitlements of US$39 million and a provision for long service leave, based on the relevant entitlements in certain Group operations. Some US$77 million is expected to be utilised within the next year. The Group s policy on close down and restoration costs is shown in note 1k. Close down and restoration costs are a normal consequence of mining, and the majority of close down and restoration expenditure is incurred at the end of a mine s life. Remaining lives of mines range from 1 to over 50 years with an average, weighted by closure provision, of around 25 years. Although the ultimate cost to be incurred is uncertain, subsidiary companies have estimated their respective costs based on feasibility and engineering studies using current restoration standards and techniques. Provisions of US$1,434 million for close down and restoration costs and other environmental obligations include estimates of the effect of future inflation and have been discounted to their present value at six per cent per annum, being an estimate of the risk free pre-tax cost of borrowing. Excluding the effects of future inflation, and before discounting, this is equivalent to some US$2.6 billion. Some US$141 million of environmental clean up expenditure is expected to take place within the next five years when the procedures for clean up have been decided on and agreed with the relevant authorities. The remainder includes amounts for the operation and maintenance of remediation facilities in later years. The provision for environmental expenditure includes the issue descibed in (e) below. In 1995, Kennecott Utah Copper agreed with the US Environmental Protection Agency ( EPA ) and the State of Utah to complete certain source control projects and perform specific environmental studies regarding contamination of ground water in the vicinity of the Bingham Canyon mine. A remedial investigation and feasibility study on the South Zone ground water contamination completed in March 1998 identified a range of alternative measures to address this issue. Additional studies were conducted to refine the workable alternatives. In December 1999, Kennecott, in conjunction with the Jordan Valley Water Conservancy District, submitted a preliminary proposal to the State of Utah NRD Trustee under the provisions of the 1995 NRD settlement with the State of Utah. Finalisation of the proposal and the implementing agreements is anticipated in Financial provisions for clean-up costs for such ground water contamination matters have been made, though the ultimate cost is uncertain. As the extent of the obligation becomes more clearly defined and upon final agreement with the EPA, there may be changes in the overall estimated ground water remediation costs which could affect future financial results. Other provisions deal with a variety of issues and include US$80 million relating to the remaining provision for the mark to market valuation of the hedge books held by companies acquired in 2000 and 2001, which will be utilised over the next 10 years (see note 27), and US$43 million relating to employee accommodation at some sites Rio Tinto Annual report and financial statements

87 19 DEFERRED TAXATION A$m A$m m m US$m US$m 1,645 1, At 1 January (50) 49 (49) (33) Adjustment on currency translation (99) (110) Subsidiaries acquired 177 (48) (17) Subsidiaries sold (25) (62) 181 (23) 70 (Released)/charged to profit for the year (32) (124) 69 (48) Other movements 100 (72) 1,678 1, NOTES TO THE 2001 FINANCIAL STATEMENTS Other movements include deferred tax recognised by subsidiary holding companies that is presented in these accounts as part of the tax charge on the profits of the joint ventures and associates to which it relates. In this respect, tax liabilities of US$87 million arising from profits of joint ventures have been reclassified as direct liabilities of subsidiary companies. Other movements also include provision for tax relief of US$11 million on exchange differences taken to reserves. UK Australian Other tax tax countries Total Total US$m tax US$m US$m Provided in the accounts Deferred tax assets ,196 1,616 1,420 Deferred tax liabilities (128) (760) (1,586) (2,474) (2,334) Balance as shown in note 18 (120) (348) (390) (858) (914) Comprising: Accelerated capital allowances (5) (471) (977) (1,453) (1,715) Other timing differences (121) Tax losses (120) (348) (477) (945) (1,171) Deduct: United States Alternative Minimum Tax credits recoverable Balance as shown in note 18 (120) (348) (390) (858) (914) UK Australian Other tax tax countries Total Total m tax m m Provided in the accounts Deferred tax assets , Deferred tax liabilities (88) (524) (1,093) (1,705) (1,561) Balance as shown in note 18 (82) (240) (269) (591) (611) Comprising: Accelerated capital allowances (3) (325) (672) (1,000) (1,147) Other timing differences (83) Tax losses (82) (240) (327) (649) (783) Deduct: United States Alternative Minimum Tax credits recoverable Balance as shown in note 18 (82) (240) (269) (591) (611) UK Australian Other tax tax countries Total Total A$m tax A$m A$m Provided in the accounts Deferred tax assets ,338 3,159 2,556 Deferred tax liabilities (250) (1,486) (3,101) (4,837) (4,201) Balance as shown in note 18 (234) (681) (763) (1,678) (1,645) Comprising: Accelerated capital allowances (10) (921) (1,910) (2,841) (3,086) Other timing differences (236) Tax losses (234) (681) (933) (1,848) (2,108) Deduct: United States Alternative Minimum Tax credits recoverable Balance as shown in note 18 (234) (681) (763) (1,678) (1,645) Tax effects of US$46 million (2000: US$49 million) are not provided for as they relate to timing differences which are not expected to reverse in the foreseeable future. These amounts not provided for relate to other countries and arise from accelerated capital allowances. In addition, United States Alternative Minimum Tax credits amounting to US$170 million (2000: US$nil ) have not been recognised as assets in these accounts. United States Alternative Minimum Tax credits have no expiry date. There is a limited time period for the recovery of US$224 million of the tax losses included above Rio Tinto Annual report and financial statements 85

88 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 20 MEDIUM AND LONG TERM BORROWINGS A$m A$m m m US$m US$m 10,010 4,656 3,721 1,910 At 1 January 5,561 3, Adjustment on currency translation (66) (77) Subsidiaries acquired (note 33) (17) (5) Subsidiaries sold (9) 27,413 14,269 9,843 5,456 Loans drawn down 14,174 8,267 (26,173) (10,511) (9,398) (4,019) Loan repayments (13,533) (6,090) 12,223 10,010 4,308 3,721 At 31 December 6,252 5,561 (7,206) (7,245) (2,540) (2,693) Deduct: short term (3,686) (4,025) 5,017 2,765 1,768 1,028 Medium and long term borrowings 2,566 1,536 Borrowings at 31 December 5,647 5,963 1,989 2,216 Commercial paper (c) 2,889 3,313 Bank loans Secured Unsecured , Other loans Secured Loans Finance leases Unsecured Rio Tinto Canada Inc 6% guaranteed bonds Rio Tinto Finance (USA) Limited Bonds 5.75% Rio Tinto Finance (USA) Limited Bonds 6.5% Rio Tinto Finance (USA) Limited Bonds 7.125% , European Medium Term Notes (b) North Finance (Bermuda) Limited 7% Other unsecured loans ,215 3,053 1,839 1,137 2,667 1,696 12,223 10,010 4,308 3,721 Total 6,252 5,561 (a) (b) (c) The majority of the fixed rate borrowings shown above are swapped to floating rates. Details of interest rate swaps and of available standby credit facilities are shown in note 27. The Group has a US$2 billion European programme for the issuance of short to medium term debt of which US$866 million was issued at the year end. A US$500 million five year bond was issued, from a possible US$1 billion which is available under the SEC shelf registration filed in 2001 depending on market conditions and terms. In accordance with FRS4, all commercial paper is classified as short term borrowings though US$1.9 billion is backed by medium term facilities. Under US and Australian GAAP, this amount would be grouped with non current borrowings at 31 December The maturity of US$135 million of the commercial paper included above as due in one year can be extended beyond one year at the Group s option Rio Tinto Annual report and financial statements

89 21 SHARE CAPITAL RIO TINTO PLC A$m A$m m m Number(m) Number(m) US$m US$m Share capital account , , At 1 January Adjustment on currency translation Ordinary shares issued (1.20) Ordinary shares bought back (29) (11) Transfers and other movements (f) (17) NOTES TO THE 2001 FINANCIAL STATEMENTS , , At 31 December Issued and fully paid share capital 1 only 1 only Special voting share of 10p (e) , , Ordinary shares of 10p each (equity) Total issued share capital Unissued share capital Ordinary shares of 10p each only 1 only Equalisation share of 10p (e) Total authorised share capital Options outstanding Options outstanding at 1 January granted (0.68) (0.26) exercised (0.20) (0.20) cancelled Options outstanding at 31 December (b) (a) 681,152 Ordinary shares were issued during the year resulting from the exercise of options under Rio Tinto plc employee share option schemes at prices between p and 965.4p. (b) At 31 December 2001 options over the following number of Ordinary shares were outstanding: 130,786 under the Rio Tinto plc Executive Share Option Scheme 1985 at prices between p and 861.0p and exercisable at various dates up to April ,785,625 under the Rio Tinto Share Option Plan 1998 at prices between 808.8p and p. The exercise of share options is subject to the satisfaction of a graduated performance condition set by the Remuneration committee at various dates up to March ,010,403 under the Rio Tinto plc Share Savings Plan at prices between 521.0p and p and exercisable at various dates up to June (c) As part of the consideration for the acquisition of Ashton Mining Limited in 2000, 440,487 Ordinary shares were issued, of which 42,372 were issued in 2000 and 398,115 in January A total of 3,161,939 Ordinary shares were issued in 2000 in connection with the acquisition of the minority in Comalco Limited in that year. (d) In February 1998, shareholders authorised the company to buy back its own shares up to a maximum of 10 per cent of its Ordinary share capital. This authority was renewed and extended at the AGM in April During the year to 31 December 2001 no shares were bought back. (e) The 'RTP Special Voting Share' was issued to facilitate the joint voting by shareholders of Rio Tinto plc and Rio Tinto Limited on Joint Decisions, following the DLC merger. Directors have the ability to issue an equalisation share if that is required under the terms of the DLC Merger Sharing Agreement. (f) From 2000 onwards Rio Tinto plc has presented its parent company balance sheet in US dollars as explained in note 40. Transfers and other movements in 2000 arose from the translation of the company's share capital into US dollars Rio Tinto Annual report and financial statements 87

90 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 21 SHARE CAPITAL RIO TINTO LIMITED A$m A$m m m Number(m) Number(m) US$m US$m Share capital account 1,429 1, At 1 January (28) (53) Adjustment on currency translation (63) (144) Share issues 1 38 (4) (1) (0.74) Share buybacks (2) 1,431 1, At 31 December Share capital held by Rio Tinto plc 1,693 1, Total share capital (c) Options outstanding Options outstanding at 1 January granted (0.08) exercised (0.02) cancelled Options outstanding at 31 December (b) (a) (b) (c) (d) (e) 78,775 shares were issued during the year resulting from the exercise of options under Rio Tinto Limited employee share option schemes at prices between A$20.14 and A$22.64 and a further 10,474 shares were allotted at a price of A$ At 31 December 2001 options over the following number of shares were outstanding: 1,694,730 shares under the Rio Tinto Share Option Plan at prices between A$20.14 and A$ The exercise of these options is subject to the satisfaction of a graduated earnings per share growth performance condition set by the Remuneration committee. Options are normally exercisable, subject to the performance condition being satisfied, between the third and tenth anniversaries of their grant. 1,380,826 shares under the Rio Tinto Limited Share Savings Plan at a price of A$27.86 and exercisable at various dates between January 2005 and June Total share capital in issue at 31 December 2001 was million plus one special voting share (31 December 2000: million plus one special voting share). The RTL Special Voting Share was issued to facilitate the joint voting by shareholders of Rio Tinto plc and Rio Tinto Limited on Joint Decisions following the DLC merger. Directors have the ability to issue an equalisation share if that is required under the terms of the DLC Merger Sharing Agreement. The shareholders have authorised the company to buy back its own shares up to a maximum of 10 per cent of its publicly held share capital in any 12 month period. In addition, the company is authorised to buy back an unlimited number of its shares from Tinto Holdings Australia Pty Limited ( THA ), a wholly owned subsidiary of Rio Tinto plc. During the year to 31 December 2001 no shares were bought back. As part of the consideration for the acquisition of Ashton Mining Limited in 2000, 385,725 ordinary shares were issued, of which 376,186 were issued in 2000 and 9,539 in January A total of 2,142,634 shares were issued in 2000 in connection with the acquisition of the minority in Comalco Limited in that year. 22 SHARE PREMIUM AND RESERVES A$m A$m m m US$m US$m Share premium account 2,857 2,592 1,062 1,061 At 1 January 1,587 1, Adjustment on currency translation Premium on issues of ordinary shares (307) (117) Transfers and other movements (a) (178) 3,128 2,857 1,103 1,062 At 31 December 1,600 1,587 (a) From 2000 onwards Rio Tinto plc has presented its parent company balance sheet in US dollars as explained in note 40. Transfers and other movements in 2000 arose from the translation of the company s share premium into US dollars Rio Tinto Annual report and financial statements

91 22 SHARE PREMIUM AND RESERVES CONTINUED A$m A$m m m US$m US$m Parent and subsidiary companies profit and loss account 7,135 5,425 2,653 2,226 At 1 January 3,964 3,581 (75) 449 (170) (57) Adjustment on currency translation (356) (348) 650 1, Retained profit for the year (53) (21) Share buy backs by Rio Tinto plc and Rio Tinto Limited (31) Goodwill relating to disposals written back 33 (244) 7 (88) 3 Transfers and other movements (a) (126) 4 NOTES TO THE 2001 FINANCIAL STATEMENTS 7,466 7,135 2,631 2,653 At 31 December 3,819 3,964 Joint ventures profit and loss account At 1 January (5) Adjustment on currency translation (22) (40) (135) (33) (49) (13) Retained loss for the year (70) (19) Transfers and other movements (a) 126 1, At 31 December Associates profit and loss account At 1 January (1) Adjustment on currency translation (4) (3) 19 7 Retained profit for the year 11 (7) (3) Transfers and other movements (4) At 31 December ,594 8,120 3,029 3,018 Total profit and loss account 4,396 4,511 Other reserves At 1 January (9) Adjustment on currency translation (4) (26) Transfers and other movements (b) At 31 December Total reserves 8,012 7,640 2,824 2,840 Parent and subsidiary companies 4,098 4,245 1, Joint ventures Associated companies ,169 8,656 3,232 3,217 4,690 4,809 (a) (b) (c) (d) (e) Certain tax liabilities arising from profits of joint ventures have been reclassified as direct liabilities of subsidiary companies. The reclassification of these liabilities is included in Transfers and other movements. From 2000 onwards Rio Tinto plc has presented its parent company balance sheet in US dollars, as explained in note 40. In 2000, a transfer of US$195 million to other reserves arose from the translation of that company s share capital and share premium into US dollars. A substantial portion of Group reserves are in overseas companies. If these reserves were distributed, there would be a liability to withholding taxes and to corporate tax in the UK and Australia. This would, however, be reduced by double taxation relief. Provision is made in these accounts for such additional tax to the extent that it is probable that a liability will crystallise. At 31 December 2001, cumulative goodwill written off directly to reserves amounted to US$3,047 million (2000: US$3,089 million). Adjustments on currency translation include net of tax exchange losses on net debt of US$189 million (2000: US$114 million). Amounts attributable to Rio Tinto Limited public shareholders The consolidated shareholders funds of the DLC include US$1,622 million (2000: US$1,661 million) and profit for the financial year includes US$244 million (2000: US$341 million) attributable to the economic interests of shareholders in Rio Tinto Limited other than Rio Tinto plc Rio Tinto Annual report and financial statements 89

92 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 23 PRODUCT ANALYSIS A$m A$m m m % % US$m US$m Operating assets 6,978 7,407 2,459 2, Copper, gold and by-products 3,569 4,115 5,228 4,417 1,843 1, Iron ore 2,674 2,454 3,212 1,843 1, Coal 1,643 1,024 3,758 3,150 1,325 1, Aluminium 1,922 1,750 5,781 4,630 2,037 1, Industrial minerals (including diamonds) 2,957 2, , Other products ,774 22,719 9,084 8, Total 13,183 12,622 (580) (410) (204) (153) Unallocated items (296) (228) (11,165) (9,090) (3,935) (3,379) Less: net debt (5,711) (5,050) 14,029 13,219 4,945 4,913 Net assets 7,176 7,344 Gross turnover 2,470 2, , Copper 1,277 1,528 1,911 1, Gold (all sources) ,296 2,391 1, Iron ore 1,704 1,385 4,065 2,844 1,460 1, Coal 2,102 1,648 3,315 3,136 1,190 1, Aluminium 1,714 1,817 4,067 3,804 1,460 1, Industrial minerals (including diamonds) 2,103 2,204 1,063 1, Other products ,187 17,212 7,249 6, Total 10,438 9,972 Profit before tax Copper, gold and by-products , Iron ore , Coal , Aluminium ,430 1, Industrial minerals (including diamonds) Other products ,054 5,104 2,177 1, ,131 2,957 (251) (234) (90) (90) Exploration and evaluation (130) (136) (495) (380) (178) (144) Net interest (c) (256) (220) (91) (160) (33) (61) Other items (47) (92) 5,217 4,330 1,876 1,657 2,698 2,509 (1,383) (497) Exceptional asset write-downs (d) (715) 3,834 4,330 1,379 1,657 Total 1,983 2,509 Net earnings Copper, gold and by-products Iron ore Coal Aluminium Industrial minerals (including diamonds) Other products ,685 3,069 1,325 1, ,906 1,779 (201) (186) (72) (71) Exploration and evaluation (104) (108) (323) (238) (116) (91) Net interest (c) (167) (138) 52 (45) 19 (17) Other items 27 (26) 3,213 2,600 1, ,662 1,507 (1,128) (405) Exceptional asset write-downs (d) (583) 2,085 2, Total 1,079 1,507 (a) (b) Operating assets of subsidiaries comprise net assets before deducting net debt. For joint ventures and associates, Rio Tinto s net investment is shown. Previously operating assets of subsidiaries were stated before deduction of taxation liabilities and provisions. The definition of operating assets has now been amended better to reflect the Group s net investment. The 2000 comparative figures for operating assets have been restated. The above analyses include the Rio Tinto share of the results of joint ventures and associates including interest Rio Tinto Annual report and financial statements

93 23 PRODUCT ANALYSIS CONTINUED (c) (d) (e) The amortisation of discount related to provisions is included in the applicable product category. All other financing costs of subsidiaries are shown as net interest. The exceptional asset write-downs relate to the copper, gold and by-products segment. Operating assets attributable to coal increased by US$0.8 billion, turnover by US$0.2 billion and profit before tax by US$0.1 billion as a result of acquisitions in 2001, mainly relating to joint ventures. The Group figures on page 90 include the following amounts for joint ventures: A$m A$m m m US$m US$m NOTES TO THE 2001 FINANCIAL STATEMENTS Net investment 1,936 1, Copper, gold and by-products , Coal Other ,291 2,294 1, Total 1,683 1,274 Gross turnover Copper Gold ,764 1, Coal Other ,118 2,570 1, Total 1,612 1,489 Profit before tax Copper, gold and by-products Coal Other , Total Net earnings Copper, gold and by-products Coal Other Total The Group figures on page 90 include the following amounts for associates: A$m A$m m m US$m US$m Net investment Copper, gold and by-products Other Total Gross turnover Copper Gold Other ,304 1, Total Profit before tax Copper, gold and by-products Other Total Net earnings Copper, gold and by-products Other Total Rio Tinto Annual report and financial statements 91

94 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 24 GEOGRAPHICAL ANALYSIS By country of location A$m A$m m m % % US$m US$m Operating assets 10,361 9,251 3,651 3, North America 5,299 5,140 11,515 9,644 4,059 3, Australia and New Zealand 5,890 5,358 1,312 1, South America Africa ,114 1, Indonesia Europe and other countries ,774 22,719 9,084 8, Total 13,183 12,622 (580) (410) (204) (153) Unallocated items (296) (228) (11,165) (9,090) (3,935) (3,379) Less: net debt (5,711) (5,050) 14,029 13,219 4,945 4,913 Net assets 7,176 7,344 Turnover by country of origin 6,079 5,351 2,183 2, North America 3,143 3,100 8,483 6,731 3,046 2, Australia and New Zealand 4,386 3,900 1,013 1, South America ,657 1, Africa ,839 1, Indonesia ,116 1, Europe and other countries ,187 17,212 7,249 6, Total 10,438 9,972 Profit before tax 868 1, North America ,222 2,336 1, Australia and New Zealand 1,666 1, South America Africa Indonesia Europe and other countries ,712 4,710 2,054 1, ,954 2,729 (495) (380) (178) (144) Net interest (c) (256) (220) 5,217 4,330 1,876 1,657 2,698 2,509 (1,383) (497) Exceptional asset write-downs (d) (715) 3,834 4,330 1,379 1,657 Total 1,983 2,509 Net earnings North America ,035 1, Australia and New Zealand 1, South America Africa Indonesia Europe and other countries ,536 2,838 1,272 1, ,829 1,645 (323) (238) (116) (91) Net interest (c) (167) (138) 3,213 2,600 1, ,662 1,507 (1,128) (405) Exceptional asset write-downs (d) (583) 2,085 2, Total 1,079 1,507 (a) (b) (c) (d) (e) Operating assets of subsidiaries comprise net assets before deducting net debt. For joint ventures and associates, Rio Tinto s net investment is shown. Previously operating assets of subsidiaries were stated before deduction of taxation liabilities and provisions. The definition of operating assets has now been amended better to reflect the Group s net investment. The 2000 comparative figures for operating assets have been restated. The above analyses include the Rio Tinto share of the results of joint ventures and associates including interest. The amortisation of discount related to provisions is included in the applicable geographical area. All other financing costs of subsidiaries are shown as net interest. Of the exceptional asset write-downs US$644 million before tax and US$531 million after tax relate to Kennecott Utah Copper in North America. Operating assets attributable to Australia and New Zealand increased by US$1.1 billion, turnover by US$0.2 billion and profit before tax by US$0.1 billion as a result of acquisitions during 2001, mainly relating to joint ventures Rio Tinto Annual report and financial statements

95 24 GEOGRAPHICAL ANALYSIS CONTINUED By country of location The Group figures shown on page 92 include the following amounts for joint ventures: A$m A$m m m US$m US$m Net investment 1, Australia and New Zealand South America , Indonesia Other NOTES TO THE 2001 FINANCIAL STATEMENTS 3,291 2,294 1, Total 1,683 1,274 Turnover by country of origin 1, Australia and New Zealand South America , Indonesia Other ,118 2,570 1, Total 1,612 1,489 Profit before tax Australia and New Zealand South America Indonesia Other , Total Net earnings Australia and New Zealand South America Indonesia Other Total The Group figures shown on page 92 include the following amounts for associates: Net investment North America Indonesia Other Total Turnover by country of origin North America Indonesia Other ,304 1, Total By country of location A$m A$m m m US$m US$m Profit before tax North America Indonesia Other Total Net earnings North America Indonesia Other Total Rio Tinto Annual report and financial statements 93

96 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 24 GEOGRAPHICAL ANALYSIS CONTINUED By destination A$m A$m m m % % US$m US$m Turnover by destination 5,678 5,028 2,039 1, North America 2,936 2,913 4,599 4,065 1,651 1, Europe 2,378 2,355 4,413 3,184 1,585 1, Japan 2,282 1,845 3,756 3,400 1,349 1, Other Asia 1,942 1, Australia and New Zealand Other ,187 17,212 7,249 6, Total 10,438 9,972 The Group figures shown above include the following amounts for joint ventures: A$m A$m m m US$m US$m Turnover by destination North America Europe Japan , Other ,118 2,570 1, Total 1,612 1,489 The Group figures shown above include the following amounts for associates: A$m A$m m m US$m US$m Turnover by destination North America Europe Other ,304 1, Total Rio Tinto Annual report and financial statements

97 25 AVERAGE NUMBER OF EMPLOYEES Subsidiaries and joint arrangements (a) Joint ventures and associates (Rio Tinto share) Group total The principal locations of employment were: North America 9,143 7, ,690 8,641 Australia and New Zealand 8,876 7, ,757 8,155 Africa 6,273 6, ,741 7,437 Europe 2,864 2, ,337 3,283 South America 1,614 1, ,437 2,465 Indonesia 1,065 1,283 2,771 2,797 3,836 4,080 Other countries NOTES TO THE 2001 FINANCIAL STATEMENTS 30,023 28,292 6,118 6,107 36,141 34, A$m A$m m m US$m US$m Employment costs Employment costs, excluding joint ventures and associates: 2,324 2, Wages and salaries 1,202 1, Social security costs (87) (95) (31) (36) Net post retirement credit (d) (45) (55) 2,363 2, ,222 1,207 (120) (140) (43) (53) Less: charged within provisions (62) (81) 2,243 1, ,160 1,126 (a) (b) (c) (d) (e) Employee numbers, which represent the average for the year, include 100 per cent of employees of subsidiary companies. Employee numbers for joint arrangements, joint ventures and associates are proportional to the Group s equity interest. Average employee numbers include a part year effect for companies acquired during the year. Part time workers are included on a full time equivalent basis. Temporary workers are included in employee numbers. People employed by contractors are not included. The net post retirement credit includes the gradual recognition under SSAP 24 of the surpluses in a number of the Group s pension schemes. UITF Abstract 17 requires the intrinsic value of share options to be recognised as a cost. However, the Group s SAYE schemes are Inland Revenue approved schemes or equivalent non-uk schemes, and are, therefore, exempt from this requirement. None of the Group s other share option schemes involve granting new options at a discount to market value Rio Tinto Annual report and financial statements 95

98 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 26 NET DEBT (a) Subsidiary net debt Analysis of changes in net debt FRS 1 Borrowings Liquid cash* resources* Net debt Net debt US$m US$m US$m At 1 January 199 (5,561) 312 (5,050) (2,429) Adjustment on currency translation (4) 66 (24) Subsidiaries acquired (note 33) (125) (125) (321) Subsidiaries sold 9 9 Per cash flow statement 40 (641) 18 (583) (2,321) At 31 December 235 (6,252) 306 (5,711) (5,050) FRS 1 Borrowings Liquid cash* resources* Net debt Net debt m m m At 1 January 133 (3,721) 209 (3,379) (1,509) Adjustment on currency translation 2 (60) (11) (69) (126) Subsidiaries acquired (note 33) (87) (87) (211) Subsidiaries sold 5 5 Per cash flow statement 27 (445) 13 (405) (1,533) At 31 December 162 (4,308) 211 (3,935) (3,379) FRS 1 Borrowings Liquid cash* resources* Net debt Net debt A$m A$m A$m At 1 January 358 (10,010) 562 (9,090) (3,680) Adjustment on currency translation 25 (748) 2 (721) (851) Subsidiaries acquired (note 33) (242) (242) (554) Subsidiaries sold Per cash flow statement 76 (1,240) 35 (1,129) (4,005) At 31 December 459 (12,223) 599 (11,165) (9,090) *A reconciliation of these figures to their respective balance sheet categories is shown in note A$m A$m m m US$m US$m Reconciliation of cash flow to movement in net debt: 76 (74) 27 (30) Increase/(decrease) in cash per cash flow 40 (44) (1,240) (3,758) (445) (1,437) Cash inflow from increase in borrowings (641) (2,177) 35 (173) 13 (66) Cash outflow/(inflow) from increase/(decrease) in liquid resources 18 (100) (1,129) (4,005) (405) (1,533) Increase in net debt (583) (2,321) Net cash flow from movement in liquid resources comprises: Increase in time deposits (12) (128) (4) (49) Decrease in certificates of deposit (6) (74) 4 (117) 1 (45) Increase/(decrease) in other liquid investments 2 (68) 35 (173) 13 (66) 18 (100) Rio Tinto Annual report and financial statements

99 26 NET DEBT CONTINUED (b) Net debt of joint ventures and associates Rio Tinto Rio Tinto Rio Tinto Rio Tinto interest share of interest share of net debt net debt A$m A$m m m % US$m % US$m Joint Ventures Minera Escondida Kaltim Prima Leichhardt Colowyo Warkworth NOTES TO THE 2001 FINANCIAL STATEMENTS Associates Freeport McMoRan Copper & Gold Alumbrera Tisand Port Waratah Coal Services Somincor Other joint ventures and associates ,458 2, ,257 1,202 (a) (b) (c) (d) (e) (f) (g) In accordance with FRS 9, the Group includes its net investment in joint ventures and associates in its consolidated balance sheet. This net investment is net of the Group s share of the net debt of joint ventures and associates due to third parties, which is set out above. Some of the debt of joint ventures and associates is subject to financial and general covenants. The Group has a partnership interest in the Colowyo Coal Company and has undertaken, via a subsidiary company which entered into a management agreement, to cause the partnership to perform its obligations under certain coal supply contracts. The debt of US$177 million owed by the Colowyo Coal Company is to be serviced and repaid out of the proceeds of these contracts. The group holds 44.7 per cent of the equity of the Leichhardt joint venture, which has a 31.4 per cent interest in the Blair Athol joint venture. Leichhardt has US$59 million of shareholders funds and US$102 million of debt finance. The Group s share of the net debt of joint ventures and associates disclosed above is expected to increase by US$42 million as a result of a payment under a guarantee granted by one of the above businesses. There will be a corresponding increase in assets carried on the balance sheet and no profit impact. In addition to the Group s share of net debt set out above, Rio Tinto s equity accounted investments are stated net of US$58 million relating to the interests of non-equity preference stock holders. The debt of joint ventures and associates is without recourse to the Rio Tinto Group except that Rio Tinto has guaranteed US$25 million of its share of Somincor s debt, and has obligations to provide support totalling US$17 million in respect of certain commitments of Alumbrera Rio Tinto Annual report and financial statements 97

100 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 27 FINANCIAL INSTRUMENTS The Group s policies with regard to currency, interest rate and commodity price exposures, and the use of derivative financial instruments, are discussed in the following sections on pages 30 and 31 of the Financial review: Exchange rates, reporting currencies and currency exposure Interest rates Commodity prices Treasury management and financial instruments Except where stated, the information given below relates to the financial instruments of the parent companies and their subsidiaries and excludes joint ventures and associates. The information provided is as at the end of the financial year. Short term debtors and creditors are included only in the currency analysis. Financial instruments held by companies acquired are marked to market as part of the adjustment of assets and liabilities acquired to fair value. Where appropriate, these fair value adjustments are shown in the disclosures below. A) Currency The Group s material currency derivatives are itemised below: a) Forward contracts hedging trading transactions Buy Sell Weighted Fair value currency currency average amount amount exchange rate Buy Australian dollar; sell US dollar* A$m US$m A$/US$ US$m Less than 1 year (36) 1 to 5 years (105) More than 5 years (46) Total 1,676 1, (187) *Of the above, contracts to sell US$803 million were acquired with companies purchased in 2000 and Buy New Zealand dollar; sell US dollar NZ$m US$m NZ$/US$ US$m Less than 1 year (12) 1 to 5 years (43) More than 5 years (41) Total 1, (96) Buy Canadian dollar; sell US dollar (all of which were acquired with companies purchased in 2000) C$m US$m C$/US$ US$m Less than 1 year (14) 1 to 5 years (9) Total (23) Other currency derivatives (8) Total fair value (314) Deduct: Fair value recognised on acquisition 32 Fair value not recognised (282) Rio Tinto Annual report and financial statements

101 27 FINANCIAL INSTRUMENTS CONTINUED b) Options hedging trading transactions The Group acquired a series of bought call options with companies purchased in No further options have been taken out since that time. The majority of these bought call options are matched by sold puts creating synthetic forwards. In the event that the Australian dollar strengthens above pre-determined levels, the put options are either knocked-in or knocked-out. Buy Sell Weighted Fair value currency currency average amount amount strike rate Bought A$ call options A$m US$m A$/US$ US$m NOTES TO THE 2001 FINANCIAL STATEMENTS Less than 1 year to 5 years More than 5 years Total The following sold A$ put options ( knock-out puts ) will be cancelled should, at any time during their term, the Australian dollar strengthen above a pre-determined barrier rate. Details are shown below. Buy Sell Weighted Weighted Fair value currency currency average average amount amount strike rate barrier rate Sold knock-out A$ put options A$m US$m A$/US$ A$/US$ US$m Less than 1 year (25) 1 to 5 years (67) More than 5 years (24) Total (116) The following sold A$ put options ( knock-in puts ) will come into existence should, at any time during their term, the Australian dollar strengthen above a pre-determined barrier rate. Details are shown below. Buy Sell Weighted Weighted Fair value currency currency average average amount amount strike rate barrier rate Sold knock-in A$ put options A$m US$m A$/US$ A$/US$ US$m Less than 1 year Total fair value (114) Deduct: Fair value recognised on acquisition 49 Fair value not recognised (65) c) Forward contracts hedging future capital expenditure Buy Sell Weighted Fair value currency currency average amount amount exchange rate Buy Australian dollar; sell US dollar A$m US$m A$/US$ US$m Less than 1 year to 5 years 1, (1) 1, Buy Canadian dollar; sell US dollar C$m US$m C$/US$ US$m Less than 1 year (14) 1 to 5 years (3) (17) Fair value not recognised (16) 2001 Rio Tinto Annual report and financial statements 99

102 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 27 FINANCIAL INSTRUMENTS CONTINUED d) Currency exposures arising from the Group s net monetary assets/(liabilities) After taking into account the effect of relevant derivative instruments, almost all the Group s net debt is either denominated in US dollars or in the functional currency of the entity holding the debt. This table sets out the currency exposures arising from net monetary assets/(liabilities) other than net debt, which are not denominated in the functional currency of the relevant business unit. Gains and losses resulting from such exposures are recorded in the profit and loss account. United Other 2001 United Other 2000 States currencies Total States currencies Total dollar dollar US$m US$m US$m US$m US$m US$m US$m Functional currency of business unit: United States dollar Australian dollar Canadian dollar 47 (12) (43) (27) Sterling South African rand 170 (6) (6) 123 Other currencies Total United Other 2001 United Other 2000 States currencies Total States currencies Total dollar dollar m m m m m m m Functional currency of business unit: United States dollar Australian dollar Canadian dollar 32 (8) (29) (18) Sterling South African rand 117 (4) (4) 82 Other currencies Total United Other 2001 United Other 2000 States currencies Total States currencies Total dollar dollar A$m A$m A$m A$m A$m A$m A$m Functional currency of business unit: United States dollar Australian dollar Canadian dollar 92 (23) (77) (48) Sterling South African rand 332 (12) (11) 221 Other currencies Total , Rio Tinto Annual report and financial statements

103 27 FINANCIAL INSTRUMENTS CONTINUED B) Interest rates (i) Financial liabilities and assets including the effect of interest rate and currency swaps This table analyses the currency and interest rate composition of the Group s financial assets and liabilities: United Australian Sterling South Other Total Total States dollar African currencies carrying carrying dollar rand value value US$m US$m US$m US$m US$m US$m US$m US$m NOTES TO THE 2001 FINANCIAL STATEMENTS Financial liabilities (f) Fixed rate (822) (822) (649) Floating rate (5,105) (258) (32) (123) (61) (5,579) (5,148) (5,927) (258) (32) (123) (61) (6,401) (5,797) Financial assets (f) Fixed rate Floating rate (including loans to joint ventures and associates) (5,358) (7) (5) (105) 27 (5,448) (4,823) Less: Loans to joint ventures and associates (floating rate) Net debt (note 26) (263) (227) (5,711) (5,050) United Australian Sterling South Other Total Total States dollar African currencies carrying carrying dollar rand value value m m m m m m m m Financial liabilities (f) Fixed rate (567) (567) (434) Floating rate (3,517) (178) (22) (85) (42) (3,844) (3,445) (4,084) (178) (22) (85) (42) (4,411) (3,879) Financial assets (f) Fixed rate Floating rate (including loans to joint ventures and associates) (3,691) (5) (3) (73) 19 (3,753) (3,228) Less: Loans to joint ventures and associates (floating rate) Net debt (note 26) (182) (151) (3,935) (3,379) United Australian Sterling South Other Total Total States dollar African currencies carrying carrying dollar rand value value A$m A$m A$m A$m A$m A$m A$m A$m Financial liabilities (f) Fixed rate (1,607) (1,607) (1,168) Floating rate (9,981) (504) (63) (240) (119) (10,907) (9,267) (11,588) (504) (63) (240) (119) (12,514) (10,435) Financial assets (f) Fixed rate Floating rate (including loans to joint ventures and associates) ,595 1,597 (10,476) (13) (10) (205) 53 (10,651) (8,681) Less: Loans to joint ventures and associates (floating rate) Net debt (note 26) (514) (409) (11,165) (9,090) 2001 Rio Tinto Annual report and financial statements 101

104 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 27 FINANCIAL INSTRUMENTS CONTINUED (ii) Fixed rate liabilities and assets, presented gross, and interest rate and currency swaps The total of fixed rate liabilities shown in (i) above consists of the following gross liabilities: Principal Average 2001 Principal Average 2000 fixed Excess of fixed Excess of rate fair value ratel fair value over over principal principal Maturity US$m % p.a. US$m US$m % p.a. US$m Less than 1 year to 5 years 1, (42) (7) More than 5 years (4) (2) US$ fixed rate liabilities 1, (46) 1, (9) Less than 1 year to 5 years Non US dollar fixed rate liabilities (a) Fixed rate liabilities before interest rate and currency swaps 1,793 1,161 The total of fixed rate liabilities shown in (i) above consists of the liabilities shown in (ii) above after taking account of the interest rate and currency swaps below: Principal Average 2001 Principal Average 2000 fixed Fair fixed Fair rate value rate value Maturity US$m % p.a. US$m US$m % p.a. US$m Less than 1 year to 5 years Interest rate swaps to US$ floating rates (b) Less than 1 year More than 5 years (6) Interest rate swaps from non US$ fixed rates to US$ floating rates (b) (6) Less than 1 year to 5 years (18) More than 5 years (1) Interest rate swaps to US$ fixed rates (b) (19) Interest rate and currency swaps (net impact) Total fixed rate financial liabilities after interest rate and currency swaps (b),(d) Principal Average 2001 Principal Average 2000 fixed Excess of fixed Excess of rate fair value rate fair value over over principal principal US$m % p.a. US$m US$m % p.a. US$m Less than 1 year to 5 years Total fixed rate financial assets (a) (b) (c) (d) (e) (f) All of the above non US dollar liabilities are swapped to US dollars. As a consequence of acquisitions during 2000, the Group holds a number of interest rate swaps to receive US$ floating rates and pay US$ fixed rates which have been included in the total of fixed rate debt shown above. Similarly, as a consequence of acquisitions in 2000, the Group acquired interest rate option contracts which give it the right to pay fixed interest rates and receive floating interest rates. As at 31 December 2001, these options had a principal of US$180 million (2000: US$210 million) and a US$nil (2000: US$nil) fair value. The Group has US$129 million of finance leases (2000: US$137 million), one of which has a principal of US$96 million, a maturity of 2018 and a floating interest rate. After taking into account all interest rate swaps, the Group s fixed rate debt totals US$822 million and has a weighted average interest rate of 7.0 per cent and a weighted average time to maturity of four years. Interest rates on the great majority of the Group s floating rate financial liabilities and assets will have been reset within six months. The interest rates applicable to the Group s US dollar denominated floating rate financial liabilities and assets did not differ materially at the year end from the three month US dollar LIBOR rate of 1.88 per cent. The above table does not include the remaining net US$80 million (2000: US$128 million) provision for the mark to market valuation of the hedge books held by companies acquired in 2000 and 2001 or other financial assets of US$343 million (2000: US$62 million), all of which are non interest bearing. Further details of the instruments included within the acquisition provision for mark to mark valuation of the hedge books held by companies acquired are shown in section A above and section C below Rio Tinto Annual report and financial statements

105 27 FINANCIAL INSTRUMENTS CONTINUED C) Commodities The Group s material commodity derivatives are itemised below: Forward contracts hedging trading transactions Ounces Weighted Fair of gold average value price/ounce US$m A$ forward contracts to sell gold Less than 1 year 94,500 A$537 (1) 1 to 5 years 382,400 A$605 1 More than 5 years 5,950 A$637 NOTES TO THE 2001 FINANCIAL STATEMENTS 482,850 A$592 Million lbs of copper Weighted average price/lb US$ future contracts to buy copper against fixed price sales to a customer Less than 1 year 65 66c 6 Other commodity derivatives, including options, of which US$3 million relates to acquisitions during Total fair value 11 Deduct: Fair value recognised on acquisition (1) Fair value not recognised 10 D) Liquidity The maturity profile of the Group s net debt is discussed in the Balance Sheet section of the Financial review on page 30. Financial assets and liabilities are repayable as follows: A$m A$m m m US$m US$m Financial liabilities within net debt (7,497) (7,670) (2,643) (2,851) Within 1 year, or on demand (3,835) (4,261) (1,505) (279) (531) (104) Between 1 and 2 years (770) (155) (291) (1,116) (102) (415) Between 2 and 3 years (149) (620) (298) (261) (105) (97) Between 3 and 4 years (152) (145) (2,299) (239) (810) (89) Between 4 and 5 years (1,176) (133) (624) (870) (220) (323) After 5 years (319) (483) (12,514) (10,435) (4,411) (3,879) (6,401) (5,797) Financial assets within net debt 1,120 1, Within 1 year, or on demand Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years 39 1 After 5 years (11,165) (9,090) (3,935) (3,379) (5,711) (5,050) In addition, of the remaining US$80 million net provision for the mark to market valuation of the hedge books held by companies acquired in 2000 and 2001, US$23 million matures in 2002, US$40 million in 2003 to 2006 and US$17 million thereafter. The loans to joint ventures and associates are shareholder loans which do not have a pre-defined maturity date. In addition, there are other assets regarded as financial instruments totalling US$343 million of which US$204 million is expected to be received within one year, and the remainder after one year. In accordance with FRS 4, all commercial paper is classified as short term borrowings though US$1.9 billion is backed by medium term facilities. Under US and Australian GAAP, this amount would be grouped within non-current borrowings at 31 December The maturity of US$135 million of the commercial paper included above as due in one year can be extended beyond one year at the Group s option Rio Tinto Annual report and financial statements 103

106 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 27 FINANCIAL INSTRUMENTS CONTINUED A total of US$866 million was issued at year end under the US$2 billion European Medium Term Notes facility, of which US$446 million is repayable within one year. A US$500 million five year bond was issued from a possible US$1 billion which is available under the SEC shelf registration filed in 2001 depending on market conditions and terms. At 31 December 2001, the Group had unutilised standby credit facilities totalling US$3,625 million. The total facilities, which are summarised below, are for back-up support for the Group s commercial paper programmes and for general corporate purposes A$m A$m m m US$m US$m 3,372 7,002 1,189 2,602 Within 1 year 1,725 3, Between 1 and 2 years 75 3, , After 2 years 1, ,087 7,452 2,498 2,769 3,625 4,140 E) Fair values of financial instruments The carrying values and the fair values of Rio Tinto s financial instruments at 31 December are shown in the following table. Fair value is the amount at which a financial instrument could be exchanged in an arm s length transaction between informed and willing parties. Where available, market values have been used to determine fair values. In other cases, fair values have been calculated using quotations from independent financial institutions, or by discounting expected cash flows at prevailing market rates. The fair value of cash, current asset investments and short term borrowings approximates to the carrying value, as a result of their short maturity. Carrying 2001 Carrying 2000 value Fair value Fair US$m value value Primary financial instruments held or issued to finance the Group s operations: Cash (note 15) Current asset investments (note 15) Short term borrowings (note 16) (3,835) (3,835) (4,261) (4,261) Medium and long term borrowings (note 20) (2,566) (2,607) (1,536) (1,545) Loans to joint ventures and associates (note 12) Other assets (5,105) (5,147) (4,761) (4,769) Derivative financial instruments held to manage the interest rate and currency profile: Currency forward contracts hedging trading transactions (A) (32) (314) (53) (175) Currency option contracts hedging trading transactions (A) (49) (114) (77) (99) Currency forward contracts hedging future capital expenditure (A) (16) (11) Interest rate swap agreements and options (B) 4 9 Commodity forward/future contracts hedging trading transactions (C) Commodity option contracts hedging trading transactions (C) 1 (5,185) (5,576) (4,889) (5,034) Carrying 2001 Carrying 2000 value Fair value Fair m value value Primary financial instruments held or issued to finance the Group s operations: Cash (note 15) Current asset investments (note 15) Short term borrowings (note 16) (2,643) (2,643) (2,851) (2,852) Medium and long term borrowings (note 20) (1,768) (1,797) (1,028) (1,034) Loans to joint ventures and associates (note 12) Other assets (3,517) (3,546) (3,188) (3,195) Derivative financial instruments held to manage the interest rate and currency profile: Currency forward contracts hedging trading transactions (A) (22) (216) (35) (118) Currency option contracts hedging trading transactions (A) (34) (79) (52) (67) Currency forward contracts hedging future capital expenditure (A) (11) (7) Interest rate swap agreements and options (B) 3 6 Commodity forward/future contracts hedging trading transactions (C) Commodity option contracts hedging trading transactions (C) 1 (3,572) (3,841) (3,274) (3,373) Rio Tinto Annual report and financial statements

107 27 FINANCIAL INSTRUMENTS CONTINUED Carrying 2001 Carrying 2000 value Fair value Fair A$m value value Primary financial instruments held or issued to finance the Group s operations: Cash (note 15) 1,327 1,327 1,318 1,319 Current asset investments (note 15) Short term borrowings (note 16) (7,497) (7,497) (7,670) (7,670) Medium and long term borrowings (note 20) (5,017) (5,097) (2,765) (2,781) Loans to joint ventures and associates (note 12) Other assets NOTES TO THE 2001 FINANCIAL STATEMENTS (9,980) (10,062) (8,569) (8,584) Derivative financial instruments held to manage the interest rate and currency profile: Currency forward contracts hedging trading transactions (A) (63) (614) (95) (315) Currency option contracts hedging trading transactions (A) (96) (224) (139) (178) Currency forward contracts hedging future capital expenditure (A) (31) (20) Interest rate swap agreements and options (B) 8 16 Commodity forward/future contracts hedging trading transactions (C) Commodity option contracts hedging trading transactions (C) 2 (10,137) (10,901) (8,799) (9,061) Gains and losses on hedges Changes in the fair value of derivatives used as hedges of trading transactions, capital expenditure and interest rate exposures, including changes relating to derivatives held by companies acquired during 2000 and 2001, are not recognised in the financial statements until the hedged position matures. Gains Losses Total net Total net gains/ gains/ US$m (losses) (losses) Unrecognised gains and losses on hedges at 1 January 23 (160) (137) 2 Gains and losses arising in previous years recognised in the year (3) (2) Gains and losses arising before 1 January that were not recognised in the year 20 (129) (109) Gains and losses arising in the year that were not recognised in the year 22 (262) (240) (137) Unrecognised gains and losses on hedges at 31 December 42 (391) (349) (137) Of which: Gains and losses expected to be recognised within one year 13 (101) (88) (28) Gains and losses expected to be recognised in more than one year 29 (290) (261) (109) 42 (391) (349) (137) Gains Losses Total net Total net gains/ gains/ m (losses) (losses) Unrecognised gains and losses on hedges at 1 January 15 (107) (92) 2 Gains and losses arising in previous years recognised in the year (2) (1) Gains and losses arising before 1 January that were not recognised in the year 13 (86) (73) 1 Currency translation 1 (1) (3) Gains and losses arising in the year that were not recognised in the year 15 (182) (167) (90) Unrecognised gains and losses on hedges at 31 December 29 (269) (240) (92) Of which: Gains and losses expected to be recognised within one year 9 (70) (61) (19) Gains and losses expected to be recognised in more than one year 20 (199) (179) (73) 29 (269) (240) (92) 2001 Rio Tinto Annual report and financial statements 105

108 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 27 FINANCIAL INSTRUMENTS CONTINUED Gains Losses Total net Total net gains/ gains/ A$m (losses) (losses) Unrecognised gains and losses on hedges at 1 January 45 (313) (268) 3 Gains and losses arising in previous years recognised in the year (6) (3) Gains and losses arising before 1 January that were not recognised in the year 39 (252) (213) Currency translation (5) (5) (11) Gains and losses arising in the year that were not recognised in the year 43 (507) (464) (236) Unrecognised gains and losses on hedges at 31 December 82 (764) (682) (247) Of which: Gains and losses expected to be recognised within one year 25 (197) (172) (51) Gains and losses expected to be recognised in more than one year 57 (567) (510) (196) 82 (764) (682) (247) 28 CONTINGENT LIABILITIES AND COMMITMENTS A$m A$m m m US$m US$m Commitments 1,099 2, Contracted capital expenditure at 31 December 562 1, Operating lease commitments Other commitments Included above are operating lease commitments falling due within one year of US$30 million (2000: US$33 million). Unconditional purchase obligations The aggregate amount of future payment commitments under unconditional purchase obligations outstanding at 31 December 2001, was US$2,049 million. The amounts payable in each of the next 5 years are as follows: 2002: US$164 million, 2003: US$164 million, 2004: US$166 million, 2005: US$124 million and 2006: US$124 million. These future payment commitments mainly consist of take or pay contracts for the supply of power. Contingent liabilities Indemnities and other performance guarantees on which no material loss is expected There are a number of legal claims arising from the normal course of business which are currently outstanding against the Group. No material loss to the Group is expected to result from these claims Rio Tinto Annual report and financial statements

109 29 PRINCIPAL SUBSIDIARIES At 31 December 2001 Class of Proportion Group Company and country of incorporation Principal activities shares held of class held interest % % Australia Argyle Diamond Mines Mining and processing of diamonds (c) Coal & Allied Industries Limited (d) Coal mining Ordinary Comalco Limited Bauxite mining; alumina production; Ordinary primary aluminium smelting Dampier Salt Limited Salt production Ordinary Energy Resources of Australia Limited Uranium mining Class A Hamersley Iron Pty Limited Iron ore mining Ordinary Peak Gold Mines Pty Limited Gold mining Ordinary Pacific Coal Pty Limited Coal mining Ordinary NOTES TO THE 2001 FINANCIAL STATEMENTS Brazil Rio Paracatu Mineraçao S.A. Gold mining Common Mineraçao Serra da Fortaleza Limitada Nickel mining Common Canada Iron Ore Company of Canada Inc (e) Iron ore mining; iron ore pellets Series A & E QIT-Fer et Titane Inc Titanium dioxide feedstock; high purity Common shares iron and steel Preferred shares France Talc de Luzenac S.A. Mining, refining and marketing of talc Ordinary FF Indonesia P.T. Kelian Equatorial Mining Gold mining Ordinary US$ Namibia Rössing Uranium Limited (f) Uranium mining B N$ C N10c Papua New Guinea Bougainville Copper Limited (g) Copper and gold mining Ordinary 1 Kina South Africa Palabora Mining Company Limited Copper mining, smelting and refining R Richards Bay Iron and Titanium (Pty) Limited Titanium dioxide feedstock; high purity iron R Sweden Zinkgruvan AB Zinc, lead and silver mining Ordinary United Kingdom Anglesey Aluminium Metal Limited Aluminium smelting Ordinary United States of America Kennecott Holdings Corporation Copper and gold mining, smelting and refining Common US$ (including Utah Copper and Kennecott Minerals) Kennecott Energy and Coal Company Coal mining Common US$ U.S. Borax Inc. Mining, refining and marketing of borates Common US$ Zimbabwe Rio Tinto Zimbabwe Limited Gold mining and metal refining Ordinary Z40c (a) The Group comprises a large number of companies and it is not practical to include all of them in this list. The list therefore only includes those companies that have a more significant impact on the profit or assets of the Group. (b) All companies operate mainly in the countries in which they are incorporated. (c) The entity marked (c) is unincorporated. (d) In accordance with FRS 7, certain operations acquired by Coal & Allied Industries Limited during the year have been excluded from the consolidation because it is expected that they will be sold within one year of acquisition. (e) In addition, the Group holds 20.3 per cent of the Labrador Iron Ore Royalty Income Fund which has interests in Iron Ore Company of Canada Inc. (f) The Group holding of shares in Rössing Uranium Limited carries per cent of the total voting rights. Rössing is consolidated by virtue of Board control. (g) The results of Bougainville Copper Limited are not consolidated refer to note 37. } Rio Tinto Annual report and financial statements 107

110 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 30 PRINCIPAL JOINT VENTURE INTERESTS At 31 December 2001 Name and country Principal activities Number of Class of Proportion Group of incorporation/operation shares held shares held of class held interest by the Group % % Australia Blair Athol Coal Coal mining (b) 71.2 Kestrel Coal mining (b) 80.0 Mount Thorley Coal mining (b) 58.0 Bengalla Coal mining (b) 29.1 Warkworth Coal mining (b) 40.4 Chile Minera Escondida Limitada Copper mining and refining 30 Indonesia Grasberg expansion Copper and gold mining (b) 40 P.T. Kaltim Prima Coal Coal mining 150 Ordinary US$ United States of America Decker Coal mining (b) 50.0 Greens Creek Silver, gold, zinc and lead mining (b) 70.3 Rawhide Gold mining (b) 51.0 The Group has joint control of the above ventures and therefore includes them in its accounts using the gross equity accounting technique. 31 PRINCIPAL ASSOCIATES At 31 December 2001 Name and country Principal activities Number of Class of Proportion Group of incorporation/operation shares held shares held of class held interest by the Group % % Papua New Guinea Lihir Gold Limited (d) Gold mining 185,758,126 Ordinary Kina Portugal Sociedade Mineira de Neves-Corvo S.A. Copper and tin mining 7,178,500 Esc South Africa Tisand (Pty) Limited Rutile and zircon mining 7,353,675 R United States of America Cortez Gold mining (b) 40.0 Freeport-McMoRan Copper & Gold Inc. (d) Copper and gold mining Class A in Indonesia 23,931,100 Common US$ Argentina Minera Alumbrera Limited Copper and gold mining 92,901,000 Common ,000,000 Preference PRINCIPAL JOINT ARRANGEMENTS At 31 December 2001 Name and country Principal activities Number of Class of Proportion Group of incorporation/operation shares held shares held of class held interest by the Group % % Australia Boyne Smelters Limited Aluminium smelting 84,050,059 Ordinary Gladstone Power Station Power generation (b) 42.1 Northparkes Mine Copper/gold mining and processing (b) Queensland Alumina Limited Alumina production 854,078 Ordinary Robe River Iron Associates Iron ore mining (b) Canada Diavik Mining and processing of diamonds (b) 60 New Zealand New Zealand Aluminium Smelters Limited Aluminium smelting 24,998,400 Ordinary (a) (b) (c) (d) The Group comprises a large number of companies and it is not practical to include all of them in this list. The list therefore only includes those companies that have a more significant impact on the profit or assets of the Group. Those joint ventures, associates and joint arrangements marked (b) are unincorporated entities. All entities operate mainly in the countries in which they are incorporated except where stated. The Group equity accounts for its interests in Freeport-McMoRan Copper & Gold Inc. and Lihir Gold Limited because it exercises significant influence over their activities Rio Tinto Annual report and financial statements

111 33 PURCHASES AND SALES OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Acquisitions Book Accounting Revaluations Fair value policy value to US$m adjustments Group Tangible fixed assets 392 (360) Investment in joint ventures Inventories 42 (28) (2) 12 Accounts receivable and prepayments Accounts payable and accruals (37) 39 (9) (7) Taxation (11) 11 Provisions for liabilities and charges (55) 34 8 (13) Net debt (127) 2 (125) Outside interests 6 6 Net tangible assets acquired 259 (43) Goodwill 347 Total consideration for acquisitions (cash) 958 NOTES TO THE 2001 FINANCIAL STATEMENTS Book Accounting Revaluations Fair value policy value to m adjustments Group Tangible fixed assets 273 (250) Investment in joint ventures Inventories 29 (19) (1) 9 Accounts receivable and prepayments Accounts payable and accruals (26) 26 (6) (6) Taxation (8) 8 Provisions for liabilities and charges (38) 23 6 (9) Net debt (88) 1 (87) Outside interests 3 3 Net tangible assets acquired 179 (30) Goodwill 240 Total consideration for acquisitions (cash) 665 Book Accounting Revaluations Fair value policy value to A$m adjustments Group Tangible fixed assets 757 (696) Investment in joint ventures Inventories 82 (54) (4) 24 Accounts receivable and prepayments Accounts payable and accruals (72) 75 (17) (14) Taxation (21) 21 Provisions for liabilities and charges (106) (25) Net debt (246) 4 (242) Outside interests Net tangible assets acquired 501 (83) 764 1,182 Goodwill 671 Total consideration for acquisitions (cash) 1,853 On 29 January 2001, the Group s 72.7 per cent subsidiary, Coal & Allied, purchased the Australian coal operations of the Peabody Group. The Group s other acquisitions included: an additional 8.3 per cent equity share in Queensland Alumina purchased by Comalco on 4 September 2001; Cargill s salt producing assets at Port Hedland, Australia, purchased by Dampier Salt on 17 August 2001; and the purchase by Kennecott Energy of PacifiCorp s interest in a coal supply agreement on 15 May The acquisition method of accounting has been adopted for these transactions. The goodwill arising has been capitalised and is being amortised over the economic lives of the relevant assets, some of which exceed 20 years. The majority of the book values of these businesses were recorded under Australian GAAP. The accounting policy adjustments principally result from the requirement under UK GAAP to gross equity account for joint ventures and to include the amounts attributable to businesses expected to be sold within one year of acquisition as a single asset, which has been included within accounts receivable. These policy adjustments have given rise to reallocations between the classes of assets and liabilities included in net tangible assets acquired. The reduction in the total of net tangible assets acquired of US$(43) million as a result of accounting policy adjustments largely relates to the alignment of the treatment of closure and restoration costs (US$23 million) and overburden removal costs (US$20 million) with Rio Tinto s UK GAAP accounting policies Rio Tinto Annual report and financial statements 109

112 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 33 PURCHASES AND SALES OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES CONTINUED Mining properties, included within tangible fixed assets and investments in joint ventures, were revalued by reference to: the net present values of the projected cash flows for each business acquired, based on circumstances existing at the date of acquisition; less the estimated fair values of other separately identifiable assets and liabilities. Revaluation adjustments to other tangible fixed assets were based on depreciated replacement cost or, where appropriate, the asset s recoverable amount. Accounts receivable, including assets held for resale, were revalued on the basis of estimates of the net present value of the cash that will be realised. Due to the complexity of these acquisitions and the plans to dispose of certain businesses acquired, the fair values currently established are provisional and are subject to review during The valuation of mining properties acquired in 2000 in the balance sheet reported as at 31 December 2000, was restricted to proven and probable reserves pending a review of the fair values of the properties acquired. The revised valuations incorporated in the balance sheet as at 31 December 2001 recognise the net present value of the cash flows from mineral resources that do not yet have the status of proven and probable reserves, but only where there is a high degree of confidence that such resources will be mined economically. The revised values ascribed to the mining properties also take account of updated estimates of the future cash flows for each of the businesses acquired, based on a closer examination of the potential of these businesses at the date of acquisition, and the proceeds of the disposals referred to below. As a result of the further information described above, a net amount of US$125 million has been recategorised from goodwill. As a consequence, tangible fixed assets have increased by US$129 million and there were also adjustments to outside shareholders interests. Disposals Total disposal proceeds for the sale of subsidiaries, joint ventures and associates were US$299 million. The Group disposed of the forestry operations and certain other assets acquired with North Limited in These disposals had no earnings effect as the fair values ascribed to these assets on acquisition have been adjusted during 2001 to reflect the sale proceeds. In addition, the Group disposed of its interest in the Norzink smelter, realising a gain of US$54 million on which no tax was payable. 34 DIRECTORS REMUNERATION Aggregate remuneration of the directors of the Companies was as follows: A$ 000 A$ US$ 000 US$ ,309 15,611 5,821 5,935 Emoluments 8,402 8,973 8,679 5,165 3,059 1,921 Long term incentive plans 4,439 2,870 24,988 20,776 8,880 7,856 12,841 11, Pension contributions Gains made on exercise of share options 17 9 For 2001, a total of 2,030,214 (A$5,719,166), (2000: 1,486,000 (A$3,941,000)) was attributable to the highest paid director in respect of the aggregate amounts disclosed in the above table, including gains made on exercise of share options. The accrued pension entitlement for the highest paid director was 579,000 (A$1,642,452), (2000: 445,000 (A$1,197,000)). The aggregate remuneration, including pension contributions and other retirement benefits, incurred by Rio Tinto plc in respect of its directors was 5,384,000 (2000: 4,664,000). There were no pension contributions. The aggregate remuneration, including pension contributions and other retirement benefits, incurred by Rio Tinto Limited in respect of its directors was A$9,841,000 (2000: A$8,429,000). The aggregate pension contribution was A$7,200 (2000: A$7,417). A director retired at the end of 2000 and, in addition to the emoluments included above, he received cash payments and enhanced pension entitlements amounting to 993,014. This director received further payments and benefits in 2001 of 100,689. In respect of this director, a total of 22,364 Rio Tinto plc shares from a long term incentive plan will vest on 1 March The equivalent monetary value of these shares as at 8 February 2002 was 312,872. During 2001, six directors (2000: eight) accrued retirement benefits under defined benefit arrangements. Emoluments included in the table above have been translated from local currency at the average rate for the year with the exception of bonus payments, which together with amounts payable under long term incentive plans, have been translated at the year end rate. More detailed information concerning directors remuneration, shareholdings and options is shown in the remuneration report including Tables 1 to 4, on pages 52 to Rio Tinto Annual report and financial statements

113 35 RELATED PARTY TRANSACTIONS Information about material related party transactions of the Rio Tinto Group is set out below: Subsidiary companies: Details of investments in principal subsidiary companies are disclosed in note 29. Joint ventures and associates: Information relating to joint ventures and associates can be found in the following notes: Note 4 Net interest payable and similar charges Note 5 Amortisation of discount related to provisions Note 6 Taxation charge for the year Note 12 Fixed asset investments Note 14 Accounts receivable and prepayments Note 17 Accounts payable and accruals Note 22 Share premium and reserves Note 30 Principal joint venture interests Note 31 Principal associates NOTES TO THE 2001 FINANCIAL STATEMENTS Information relating to joint arrangements can be found in note 32 Principal joint arrangements. Pension funds: Information relating to pension fund arrangements is disclosed in note 38. Directors: Details of directors remuneration are set out in note 34 and in the remuneration report on page 50 to 54. Leighton Holdings Limited ( Leighton ): In 2001, Mr Morschel became a director and, subsequently, the chairman of Leighton, Australia s largest project development and contracting group. A number of Rio Tinto companies in Australia and Indonesia have, in the ordinary course of their businesses, awarded commercial contracts to subsidiaries of Leighton. The directors do not consider the value of these contracts to be material to the business of either Leighton or the Rio Tinto Group. 36 EXCHANGE RATES IN US$ The principal exchange rates used in the preparation of the 2001 financial statements are: Annual average Year end Sterling Australian dollar Canadian dollar South African rand BOUGAINVILLE COPPER LIMITED (BCL) The Panguna mine remains shut down. Access to the mine site has not been possible and an accurate assessment of the condition of the assets cannot be determined. Considerable funding would be required to recommence operations to the level which applied at the time of the mine s closure in 1989 and these funding requirements cannot be forecast accurately. Accounting treatment of BCL The directors do not have access to reliable, verifiable or objective information on BCL and the directors have therefore decided to exclude BCL information from the financial statements. Results reported by BCL BCL reported a net profit of US$3 million for the financial year (2000: profit of US$6 million). This is based upon actual transactions for the financial year. Investment in BCL The Group owns 214,887,966 shares in BCL, representing 53.6 per cent of the issued share capital. The investment of US$195 million was fully provided against in At 31 December 2001, the market value of the shareholding in BCL was US$15 million. Capital and reserves The aggregate amount of capital and reserves reported by BCL as at 31 December 2001 was US$79 million (2000: US$96 million) Rio Tinto Annual report and financial statements 111

114 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 38 POST RETIREMENT BENEFITS a) Description of schemes The Group operates a number of pension schemes around the world. Whilst some of these schemes are defined contribution, the majority are of the defined benefit type, with assets held in separate trustee administered funds, which are reviewed by independent qualified actuaries. A triennial actuarial valuation of the Group s UK plan was made at 31 March 2000 using the projected unit method. The main financial assumptions used to calculate the 2001 pension cost were: rate of return on investments 8.25 per cent (2000: 8.0 per cent), rate of earnings growth 6 per cent (2000: 6 per cent) plus promotional salary scale, rate of pension increase 3.0 per cent (2000: 3.0 per cent). Assets were measured at market value (2000: market value). Based on an average of the market prices for the four quarters to 31 December 2001, the value of the assets in the UK fund was sufficient to cover 157 per cent (2000: 190 per cent) of the benefits that had accrued to members after allowing for expected increases in earnings. The value of the assets was US$1,397 million (2000: US$1,588 million). In Australia, whilst Group companies sponsor or subscribe to a number of pension plans, the Rio Tinto Staff Superannuation Fund is the only significant scheme. Actuarial valuations are made annually using the projected unit method. The main financial assumptions used for the valuation as at 30 September 2001 were: rate of return on investments (after tax) 7.5 per cent (2000: 7.5 per cent), rate of earnings growth 4.0 per cent (2000: 4.0 per cent) plus promotional salary scale, rate of pension increase 2.5 per cent (2000: 2.5 per cent). Assets were measured at market value (2000: market value). At 30 September 2001, the value of the assets in the Australian Fund was sufficient to cover 113 per cent (2000: 129 per cent) of the benefits that had accrued to members after allowing for expected increases in earnings. The market value of the assets was US$522 million (2000: US$576 million). A number of defined benefit pension plans are sponsored by the US entities, typically with separate provision for salaried and hourly paid staff. Actuarial valuations are made annually using the projected unit method. The main financial assumptions used for the valuation as at 30 September 2001 were: rate of return on investments: 7.5 per cent (2000: 8.0 per cent), rate of earnings growth, where appropriate, 4.0 per cent (2000: 4.5 per cent). Assets were measured at market value (2000: market value). At 30 September 2001, the value of the assets in the US plans was sufficient to cover 100 per cent (2000: 134 per cent) of the benefits that had accrued to members after allowing for expected increases in earnings. Within the total there were plans which had deficits of US$67 million (2000: US$3 million). The market value of the assets was US$593 million (2000: US$728 million). A number of defined benefit pension plans are sponsored by entities in Canada. Actuarial valuations are usually made annually using the projected unit method. The main financial assumptions used for the valuation as at 30 September 2001 were: rate of return on investments: 8.0 per cent (2000: 8.0 per cent), rate of earnings growth, where appropriate, 5 per cent (2000: 5 per cent). Assets were measured at market value (2000: market value). At 30 September 2001, the value of the assets in the Canadian plans was sufficient to cover 109 per cent (2000: 114 per cent) of the benefits that had accrued to members after allowing for expected increases in earnings. Within the total there were plans which had deficits of US$27 million (2000: US$12 million). The market value of the assets was US$496 million (2000: US$631 million). The defined benefit schemes outside the UK, Australia and North America were assessed at various dates during 1999, 2000 and The total market value of the assets at the assessment dates was US$224 million (2000: US$273 million). The actuarial value of the total assets of these schemes was sufficient to cover 137 per cent (2000: 135 per cent) of the benefits that had accrued to members after allowing for expected increases in earnings. The expected average remaining service life in the major schemes ranges from 10 to 20 years with an overall average of 12 years. Certain subsidiaries of the Group, mainly in the US, provide health and life insurance benefits to retired employees and in some cases their beneficiaries and covered dependants. Eligibility for cover is dependent upon certain age and service criteria. These arrangements are unfunded. On 30 September 2001, the unfunded accumulated post retirement health and life insurance benefits obligation and annual cost of accrual of benefits were determined by independent actuaries using the projected unit method. In the US, the main financial assumptions were: discount rate 7.5 per cent (at 30 September 2000: 8.0 per cent), Medical Trend Rate 8.5 per cent reducing to 5.0 per cent by the year 2009 (at 30 September 2000 initially 7.0 per cent reducing to 5.5 per cent by the year 2004), claims cost based on individual company experience. The assumptions were consistent with those adopted for determining pension costs. At 30 September 2001, the unfunded accumulated post retirement health and life insurance benefits obligation (excluding associates and joint ventures) was US$362 million (at 30 September 2000: US$338 million) Rio Tinto Annual report and financial statements

115 38 POST RETIREMENT BENEFITS CONTINUED b) FRS 17 Transitional disclosures for 2001 FRS 17 Retirement Benefits, which deals with accounting for post retirement benefits, is fully effective for the year ending 31 December 2003 but additional disclosures are required for the current year, which are shown below. The standard requires pension deficits to be recognised in full and surpluses, to the extent that these are considered recoverable. Annual service cost and net financial income on the assets and liabilities of the schemes will be recognised through earnings. Other fluctuations in the value of the surplus will be recognised in the statement of recognised gains and losses. Details of post retirement benefit scheme assets and liabilities at 31 December 2001, valued in accordance with FRS 17, are set out below: UK Australia US Canada Other (mainly Africa) NOTES TO THE 2001 FINANCIAL STATEMENTS Main assumptions for FRS 17 purposes Rate of increase in salaries 5.5% 4.0% 3.5% 4.0% 10.5% Rate of increase in pensions in payment 2.5% 2.5% 5.8% Discount rate 6.0% 6.5% 7.0% 7.0% 11.5% Inflation 2.5% 2.5% 2.5% 2.5% 5.8% The main financial assumptions used for the health care schemes, which are predominantly in the US, were: discount rate: 7%, Medical Trend rate: 7.5% reducing to 4% by the year 2009, claims cost based on individual company experience. The assets in the schemes, the expected rates of return and the contributions made were: UK Australia US Canada Other Total (mainly Africa) Long term rate of return expected at 31 December 2001 Equities 8.5% 8.0% 9.0% 8.5% 12.5% Bonds 5.5% 6.0% 6.5% 6.5% 11.0% Other 5.3% 6.3% 6.8% 5.1% 9.7% Value at 31 December 2001 (US$ million) Equities ,358 Bonds Other , ,422 Contributions made during 2001 (US$ million) In addition, there were payments of US$13 million in respect of unfunded health care schemes in the year. The payments for future years cannot be pre-determined, since these schemes are unfunded. In relation to pensions, it is expected that there will be no regular employer or employee contributions to the UK scheme in the period before the next full valuation. There are no pre-agreed rates outside the UK and Australia for periods beyond The contribution rates for the Australian defined contribution schemes are broadly equal to the statutory minimum payable of 8 per cent, rising to 9 per cent from 1 July In the US, contributions are agreed annually in nominal terms. Contribution rates for the Canadian schemes vary between the plans from zero to 6.5 per cent. The most recent full valuation of the UK schemes was at 31 March The most recent full valuation of the Australian schemes was at 30 September For both the US and Canadian schemes the most recent full valuation was at 1 January The following amounts at 31 December 2001 were measured in accordance with FRS 17: UK Australia US Canada Other Healthcare Total US$m US$m US$m US$m US$m US$m US$m Total market value of assets 1, ,422 Present value of scheme liabilities (1,036) (537) (619) (587) (242) (323) (3,344) Surplus/(deficit) in the scheme (6) (6) (323) 78 Related deferred tax (19) Related outside shareholders interest 24 Net post retirement asset 83 If the above amounts had been recognised in the financial statements, the Group s shareholders funds at 31 December 2001 would be as follows: US$m Shareholders funds including SSAP 24 post retirement net asset 7,183 Deduct: SSAP 24 post retirement net asset 140 Shareholders funds excluding SSAP 24 post retirement net asset 7,043 Add: FRS 17 post retirement net asset 83 Shareholders funds including FRS 17 post retirement net asset 7, Rio Tinto Annual report and financial statements 113

116 Notes to the 2001 financial statements continued NOTES TO THE 2001 FINANCIAL STATEMENTS 39 PARENT COMPANY BALANCE SHEETS Rio Tinto plc* Rio Tinto Limited** At 31 December US$m US$m A$m A$m Fixed assets (non current assets**) 5,002 5,674 8,802 9,415 Investments Deferred taxation 40 Note 5,002 5,674 8,822 9,443 Current assets 1,780 1,516 1,906 1,130 Amounts owed by subsidiaries Accounts receivable and prepayments 6 9 Deferred taxation Cash at bank and in hand 1,883 1,565 1,919 1,163 Creditors due within one year (214) (683) (103) (49) Amounts owed to subsidiaries (3) Accounts payable and accruals (418) (409) (378) (348) Dividends payable (632) (1,095) (481) (397) 1, , Net current assets 6,253 6,144 10,260 10,209 Total assets less current liabilities Creditors due after one year (7,237) (7,520) Amounts owed to subsidiaries (36) (1) (1) Provisions, including deferred taxation 40 6,217 6,144 3,022 2,688 Capital and reserves ,693 1,691 Called up share capital 40 1,600 1,587 Share premium account Other reserves 40 4,252 4, Profit and loss account 40 6,217 6,144 3,022 2,688 Shareholders funds * See note (a) on page 115 ** Prepared under Australian GAAP The financial statements on pages 66 to 117 were approved by the directors on 22 February 2002 and signed on their behalf by R P Wilson C R H Bull Rio Tinto Annual report and financial statements

117 40 OTHER PARENT COMPANY DISCLOSURES Rio Tinto plc (a) Rio Tinto Limited* US$m US$m A$m A$m Fixed asset investments Shares in group companies and, for Rio Tinto Limited, other investments: 2, ,545 2,984 At 1 January 160 1,423 (17) (439) Additions/(disposals) NOTES TO THE 2001 FINANCIAL STATEMENTS 2,235 2,075 2,528 2,545 At 31 December Loans to group companies: 3,599 1,360 6,870 3,202 At 1 January (328) Adjustment on currency translation (832) 2,567 (596) 3,668 (Repayments)/advances 2,767 3,599 6,274 6,870 At 31 December 5,002 5,674 8,802 9,415 Total Deferred taxation asset/(liability) on a full provision basis At 1 January (2) Adjustment on currency translation (36) (15) (11) 37 (Charged)/released to profit and loss account (36) At 31 December (36) 21 Timing differences (21) Losses carried forward (36) Deferred taxation as above Share capital account ,691 1,934 At 1 January (309) Shares repurchased 2 66 Issue of shares (17) Transfer to other reserves ,693 1,691 At 31 December Share premium account 1,587 1,711 At 1 January Premium on issues of ordinary shares (178) Transfer to other reserves 1,600 1,587 At 31 December Other reserves At 1 January (2) Adjustment on currency translation 195 Transfer from share capital and share premium At 31 December Profit and loss account 4, At 1 January (18) (2,024) Shares repurchased 60 3, ,103 Retained profit for year 4,252 4, At 31 December Contingent liabilities 2,734 1,584 6,624 5,574 Bank and other performance guarantees * Prepared under Australian GAAP (a) In 2000 the decision was taken to present Rio Tinto plc s financial statements in US dollars. The principal currency affecting Rio Tinto s international operations is the US dollar, and during 2000 all financing provided to/by Rio Tinto plc was redenominated into the US dollar. Accordingly, the directors concluded that the US dollar should be regarded as the principal currency affecting the company s own cash flows. Non-monetary items were translated into US dollars at the exchange rate in force when the change arose, or on 1 January 2000, depending on their underlying currency exposure. Monetary items have been translated at year end exchange rates. (b) Profit after tax for the year dealt with in the profit and loss account of the Rio Tinto plc parent company amounted to US$688 million (2000: US$3,881 million). As permitted by section 230 of the United Kingdom Companies Act 1985, no profit and loss account for the Rio Tinto plc parent company is shown. (c) Pursuant to the DLC merger both Rio Tinto plc and Rio Tinto Limited issued deed poll guarantees by which each guaranteed contractual obligations incurred by the other or, to the extent guaranteed by the other, any person. (d) Bank and other performance guarantees relate principally to the obligations of subsidiary companies. (e) The Group has a US$2 billion European Medium Term Note programme and a possible US$1 billion available under the SEC shelf registration filed in 2001 depending on market conditions and terms. Amounts utilised by subsidiary companies under these programmes are guaranteed by the parent companies and were US$866 million and US$500 million respectively at the year end. (f) Auditor s remuneration for the audit of Rio Tinto plc was US$0.6 million (2000: US$0.6 million) Rio Tinto Annual report and financial statements 115

118 Financial information by business unit FINANCIAL INFORMATION BY BUSINESS UNIT Net earnings (a) Gross turnover (b) Operating assets (c) Rio Tinto interest % US$m US$m US$m US$m US$m US$m Iron Ore Hamersley (incl. HIsmelt ) ,118 1, Robe River ,221 1,153 Iron Ore Company of Canada ,691 1,369 2,595 2,435 Energy Kennecott Energy Pacific Coal Kaltim Prima Coal Coal & Allied Rössing Energy Resources of Australia Other energy 1 1 (3) (1) ,309 1,806 1,833 1,236 Industrial Minerals ,768 1,869 2,086 1,958 Aluminium Comalco (d) ,499 1,589 1,893 1,740 Copper Kennecott Utah Copper ,902 2,381 Escondida Freeport Freeport Joint Venture Palabora Peak/Northparkes (e) Other copper Other metals (f) ,292 2,417 3,425 3,942 Diamonds & Gold Argyle Diavik Kennecott Minerals Kelian (9) Rio Tinto Zimbabwe Brazil (g) Other Diamonds & Gold ,262 1,168 Other items 27 (26) (207) (85) Exploration and evaluation (104) (108) Net interest (167) (138) Adjusted earnings 1,662 1,507 Exceptional asset write-downs (583) Total 1,079 1,507 10,438 9,972 12,887 12,394 Less: net debt (5,711) (5,050) Net assets 7,176 7,344 (a) Net earnings represent after tax earnings attributable to the Rio Tinto Group. Earnings of subsidiaries are stated before interest charges and exceptional asset write-downs but after the amortisation of the discount related to provisions. Earnings attributable to joint ventures and associates include interest charges. (b) Gross turnover includes 100 per cent of subsidiaries turnover and the Group s share of the turnover of joint ventures and associates. (c) Operating assets of subsidiaries comprise net assets before deducting net debt. For joint ventures and associates, Rio Tinto s net investment is shown. Previously operating assets of subsidiaries were stated before deduction of taxation liabilities and provisions. The definition of operating assets has now been amended better to reflect the Group s net investment. The 2000 comparative figures for operating assets have been restated. For joint ventures and associates shown above, Rio Tinto s shares of operating assets, defined as for subsidiaries, are as follows: Escondida US$840 million (2000: US$686 million), Freeport joint venture US$378 million (2000: US$412 million), Freeport associate US$486 million (2000: US$491 million), Kaltim Prima US$140 million (2000: US$150 million). (d) Rio Tinto s weighted average interest in Comalco for the year was 100 per cent compared with 89 per cent in (e) Rio Tinto has a 100 per cent interest in Peak and an 80 per cent interest in the Northparkes joint venture. (f) Includes Anglesey Aluminium in which Rio Tinto s interest is 51 per cent. (g) Includes Morro do Ouro in which Rio Tinto s interest is 51 per cent. (h) The product group structure was reorganised in 2001 and comparative figures have been restated accordingly Rio Tinto Annual report and financial statements

119 Capital expenditure (j) Depreciation (k) Employees (l) US$m US$m US$m US$m Number Number Iron Ore Hamersley (incl. HIsmelt ) ,070 2,164 Robe River Iron Ore Company of Canada , ,618 3,066 FINANCIAL INFORMATION BY BUSINESS UNIT Energy Kennecott Energy ,656 1,450 Pacific Coal Kaltim Prima Coal ,348 1,353 Coal & Allied , Rössing (1) Energy Resources of Australia Other energy ,935 4,937 Industrial Minerals ,079 7,239 Aluminium Comalco ,426 3,354 Copper Kennecott Utah Copper ,926 2,311 Escondida Freeport ,475 1,498 Freeport Joint Venture Palabora ,269 2,803 Peak/Northparkes Other copper Other metals ,168 8,681 Diamonds & Gold Argyle Diavik Kennecott Minerals Kelian ,035 Rio Tinto Zimbabwe ,850 1,962 Brazil ,181 1,154 Other Diamonds & Gold ,497 5,586 Other 3 (1) ,418 1,536 Less: joint ventures and associates (271) (176) (291) (267) Total 1, ,141 34,399 (i) (j) (k) (l) Business units have been classified above 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. Capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment. The details provided include 100 per cent of subsidiaries capital expenditure and 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. Depreciation figures include 100 per cent of subsidiaries depreciation and amortisation of goodwill and include Rio Tinto s share of the depreciation and goodwill amortisation of joint ventures and associates. Amounts relating to joint ventures and associates are deducted before arriving at the total of the depreciation column. Employee numbers, which represent the average for the year, include 100 per cent of employees of subsidiary companies. Employee numbers for joint arrangements, joint ventures and associates are proportional to the Group s equity interest. Part time workers are included on a full time equivalent basis and people employed by contractors are not included. Average employee numbers include a part year effect for companies acquired during the year. Temporary workers are included in employee numbers Rio Tinto Annual report and financial statements 117

120 Report of the Independent Auditors REPORT OF THE INDEPENDENT AUDITORS To the members of Rio Tinto plc and Rio Tinto Limited. We have audited the financial statements of the Rio Tinto Group which comprise the Group profit and loss account, the balance sheets, the Group cash flow statement, the Group statement of total recognised gains and losses, the reconciliation with Australian GAAP, and the related notes, and the additional disclosures relating to the remuneration of the directors specified for our review by the Financial Services Authority and set out in Tables 1 to 4 of the Remuneration report. Respective responsibilities of directors and auditors The directors responsibilities for preparing the Annual report and the financial statements in accordance with applicable United Kingdom law and accounting standards and Australian law are set out in the Statement of directors responsibilities in respect of the financial statements. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements, United Kingdom Auditing Standards issued by the Auditing Practices Board and the Listing Rules of the Financial Services Authority. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the United Kingdom Companies Act 1985 and the Australian Corporations Act 2001 as amended by the Australian Securities and Investments Commission order dated 9 April We also report to you if, in our opinion, the directors report is not consistent with the financial statements, if the companies have not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors remuneration and transactions is not disclosed. We read the other information contained in the Annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises the items listed in the contents section of the Annual report, excluding the 2001 audited financial statements. We review whether the corporate governance statement reflects Rio Tinto plc s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the board s statements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the companies or Group s corporate governance procedures or their risk and control procedures. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Rio Tinto Group, Rio Tinto plc and Rio Tinto Limited at 31 December 2001 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the United Kingdom Companies Act 1985 and the Australian Corporations Act 2001 as amended by the Australian Securities and Investments Commission order dated 9 April PricewaterhouseCoopers PricewaterhouseCoopers Chartered Accountants & Registered Auditors Chartered Accountants London Perth 22 February February 2002 In respect of the members of Rio Tinto plc In respect of the members of Rio Tinto Limited Rio Tinto Annual report and financial statements

121 Supplementary information 2001 Rio Tinto Annual report and financial statements 119

122 Supplementary information for United States investors SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS RECONCILIATION WITH US GAAP A$m A$m m m US$m US$m 2,085 2, Net earnings under UK GAAP 1,079 1,507 Increase/(decrease) before tax in respect of: (255) (180) (92) (69) Goodwill amortisation (132) (104) (418) (240) (150) (92) Exchange differences taken to earnings under US GAAP (216) (139) (93) (178) (33) (68) Mark to market of certain derivative contracts (48) (103) 905 (7) 325 (3) Asset write-downs 468 (4) (161) 2 (58) 1 Exploration and evaluation (83) 1 (141) (131) (51) (50) Pensions/post retirement benefits (73) (76) (12) (71) (4) (27) Higher cost of sales resulting from acquisition accounting (6) (41) (58) (21) Share options (30) (60) (52) (21) (20) Other (31) (30) Taxation: Tax effect of adjustments above Other tax adjustments 3 2 1,980 2, Net income under US GAAP 1,025 1, c 149.1c 51.8p 57.0p Basic earnings per ordinary share under US GAAP 74.5c 86.5c 143.8c 149.0c 51.8p 57.0p Diluted earnings per ordinary share under US GAAP 74.4c 86.4c 14,029 13,219 4,945 4,913 Shareholders funds under UK GAAP 7,176 7,344 Increase/(decrease) before tax in respect of: 3,476 3,469 1,225 1,289 Goodwill 1,778 1,927 1, Proposed dividends , Asset write-downs Reversal of additional provisions under FRS (141) (106) (50) (39) Amortisation on reversal of additional provisions under FRS 12 (72) (59) (538) (135) (190) (50) Pensions/post retirement benefits (275) (75) (196) (173) (69) (64) Start up costs (100) (96) (649) (185) (229) (69) Mark to market of derivative contracts (332) (103) (199) (34) (70) (13) Exploration and evaluation (102) (19) (86) (74) (30) (27) Higher cost of sales resulting from acquisition accounting (44) (41) (31) (16) (11) (7) Other (16) (9) Deferred tax on acquisitions: 1,500 1, Impact on mining property (1,500) (1,044) (529) (388) Impact on tax provisions (767) (580) 228 (28) 80 (11) Tax effect of other adjustments above 116 (15) (90) (88) (32) (33) Other tax adjustments (46) (49) 18,712 17,685 6,594 6,572 Shareholders funds under US GAAP 9,571 9,825 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 ). 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 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. Under US GAAP, goodwill for acquisitions prior to 1 July 2001 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 40 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 and amortised under UK GAAP in accordance with FRS 10. As noted below in New US accounting standards, Statement of Financial Accounting Standard 142 ( FAS 142) will prohibit the amortisation of goodwill in future years and this prohibition also applies in 2001 to acquisitions on or after 1 July Goodwill amortisation of US$3 million charged under UK GAAP for acquisitions in the second half of 2001 has therefore been written back for US GAAP earnings in these reconciliation statements. Exchange differences taken to earnings under US GAAP 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. Exchange losses of US$216 million pre-tax (2000: US$139 million), US$148 million net of tax and minorities (2000: US$56 million net of tax and minorities) on US dollar debt that do not qualify for hedge accounting under US GAAP have therefore been recorded in US GAAP earnings Rio Tinto Annual report and financial statements

123 RECONCILIATION WITH US GAAP CONTINUED Mark to market of derivative contracts 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. Under US standard FAS 52, which applied prior to 1 January 2001, some of these transactions did not qualify for hedge accounting, principally because they were not yet contractual commitments. Provision for unrealised pre-tax losses of US$103 million (US$67 million net of tax and minorities) on derivatives relating to such transactions was therefore recognised in earnings under US GAAP at 31 December Under FAS 133, which applies to Rio Tinto from 1 January 2001, all derivative instruments are included in the balance sheet as assets or liabilities measured at fair value. 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 pre-tax losses of US$48 million (US$26 million after tax and minorities) on such derivatives have therefore been taken to US GAAP earnings. Further explanation of the transition adjustment is given on page 128. Asset write-downs Under UK GAAP, impairment of fixed assets is recognised and measured by reference to the discounted cash flows expected to be generated by the asset. Under US GAAP, impairment 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. The 2001 US GAAP impairment write-down is US$243 million pre-tax (US$183 million net of tax and minorities). This is US$472 million pre-tax (US$400 million net of tax and minorities) below the charge of US$715 million pre-tax (US$583 million net of tax and minorities) included under UK GAAP. The net difference of US$468 million related to asset write-downs comprises the above US$472 million, offset by US$4 million (US$3 million net of tax and minorities) of additional current year amortisation related to US GAAP adjustments made in previous years. SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS Exploration and evaluation Under UK GAAP, expenditure on a project can be carried forward after it has reached a stage where there is a high degree of confidence in its viability. US GAAP does not allow expenditure to be carried forward unless the viability of the project is supported by a full feasibility study. In addition, under UK GAAP, provisions made against exploration and evaluation in prior years can be reversed when the project proceeds to development to the extent that the relevant costs are recoverable. US GAAP does not allow such provisions to be reversed. Pensions/post retirement benefits Under UK GAAP, post retirement benefits are accounted for in accordance with Statement of Standard Accounting Practice 24. The expected costs under defined benefit arrangements are spread over the service lives of employees entitled to those benefits. Variations from the regular cost are spread on a straight line basis over the expected average remaining service lives of relevant current employees. Under US GAAP, the annual pension cost comprises the estimated cost of benefits accruing in the period adjusted for the amortisation of the surplus arising when FAS 87, Employers Accounting for Pensions, was adopted. The charge is further adjusted to reflect the cost of benefit improvements and any surpluses/deficits that emerge as a result of variances from actuarial assumptions. For US purposes, only those surpluses/deficits outside a 10 per cent fluctuation corridor are spread. The reduction in shareholders funds at 31 December 2001 includes the effect of the US GAAP requirement to make immediate provision for pension fund deficits through other comprehensive income. The provision reflects the recent reduction in equity values. Higher cost of sales resulting from acquisition accounting Under UK GAAP, the inventories of acquired companies are valued at the lower of replacement cost and net realisable value. Under US GAAP, such inventories are recognised at the time of acquisition on the basis of expected net sales proceeds. Earnings for the year are lower under US GAAP as a result of the higher cost of sales relating to inventories that were held at the date of acquisition. Share option plans The Group applies the methodologies set out in APB Opinion 25 ( APB 25 ), Accounting for Stock Issued to Employees, in calculating its US GAAP adjustments for share option plans and awards of share rights. Under APB 25, the compensation cost associated with share options granted under those schemes is calculated by reference to the difference between the grant price and the market price at the date when the employee becomes unconditionally entitled to the option. The cost is accrued over the vesting period of the options. For those schemes where the allocation of options is dependent upon performance conditions, the cost is based on the difference between the grant price and the share price at the period end pro-rated by reference to the vesting period. Under UK GAAP, no cost is accrued where the option scheme applies to all relevant employees and the intention is to satisfy the share options by the issuance of new shares. An adjustment is therefore required to reflect the increased cost of the schemes under US GAAP. The Group is permitted to adopt the disclosure only option under FAS 123, Accounting for Stock Based Compensation. Had the Group elected to recognise compensation expense based upon the fair value at grant date for awards made in 2001 and 2000, net income under US GAAP would have been increased by US$7 million and reduced by US$3 million respectively. Basic and diluted earnings per share would increase by 0.6 US cents (2000: reduction of 0.2 US cents) from those reported. Proposed dividends Under UK GAAP, ordinary dividends are recognised in the financial year in respect of which they are paid. Under US GAAP, such dividends are not recognised until they are formally declared by the board of directors or approved by the shareholders. Other Other adjustments to earnings include amounts related to differences between UK and US accounting principles in respect of depreciation of mining assets, revenue recognition, start up, close down and restoration costs (see below). Goodwill amortisation and depreciation of mining assets Under UK GAAP, mining assets are fully depreciated over their economic lives or the remaining life of the mine if shorter. In some cases, mineral resources that do not yet have the status of reserves are taken into account in determining depreciation charges, where there is a high degree of confidence that they will be mined economically. For US GAAP, only proven and probable reserves are taken into account in the calculation of depreciation, depletion and amortisation charges. As a result, adjustments have been made in 2001 to depreciation included in Other and Goodwill amortisation, that reduced US GAAP pre-tax earnings by US$6 million and US$16 million respectively Rio Tinto Annual report and financial statements 121

124 Supplementary information for United States investors continued SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS RECONCILIATION WITH US GAAP CONTINUED Revenue recognition Staff Accounting Bulletin No. 101 ( SAB 101 ) Revenue Recognition in Financial Statements has the result that, in some cases, sales recorded as revenue under UK GAAP are deferred and are not recognised as revenue under US GAAP until a future accounting period. Occasionally, sales of goods recorded as revenue for UK GAAP purposes may be kept in store by Rio Tinto at the request of the buyer. Under US GAAP, such transactions cannot be recognised as revenue unless the goods are physically segregated from the supplier s other inventory and certain additional criteria are met. Also, under UK GAAP, certain sales contracts are recognised as revenue when the goods are delivered to the ship for export to the customer; but do not qualify for recognition under US GAAP until they have reached the destination specified by the customer in the sales contract and title has passed. In 2001, such timing differences resulted in an adjustment, included in Other, that increased US GAAP pre-tax earnings by US$5 million (2000: US$16 million reduction). Start up costs Under US GAAP, US Statement of Position 98-5, Reporting on the Costs of Start up Activities, requires that the costs of start up activities are expensed as incurred. Under UK GAAP, some of these start up costs qualify for capitalisation and are amortised over the economic lives of the relevant assets. Provisions Additional provisions were recognised for UK GAAP purposes on implementation of FRS 12 in There was no corresponding change in US accounting standards. The additional provisions are therefore reversed in the calculation of shareholders funds under US GAAP. Taxation Under UK GAAP, provision is made for deferred tax under the liability method where in the opinion of the directors it is probable that a tax liability will become payable within the foreseeable future. Under US GAAP, FAS 109, Accounting for Income Taxes, requires that deferred tax is provided in full on the liability basis. Deferred tax on acquisitions Under UK GAAP, the Group has provided for deferred tax in respect of the fair value adjustments to tangible fixed assets made on acquisitions but only where such revaluations reinstate amounts that qualified for tax allowances. Under US GAAP, deferred tax must be provided on all fair value adjustments to tangible assets recorded on acquisition, with a consequential increase in the amount allocated to mining properties or goodwill as appropriate. Consolidated statement of cash flows The consolidated statement of cash flows prepared in accordance with FRS 1 (revised) presents substantially the same information as that required under US GAAP. Under US GAAP, however, there are certain differences from UK GAAP with regard to the classification of items within the cash flow statement and with regard to the definition of cash and cash equivalents. Under US GAAP, tax paid and interest would form part of operating cash flow. Under UK GAAP, cash for the purposes of the cash flow statement is defined as cash in hand and deposits repayable on demand with any qualifying financial institution, less bank borrowings from any qualifying financial institution repayable on demand. Deposits are repayable on demand if they can be withdrawn at any time without notice and without penalty or if a maturity or period of notice of not more than 24 hours or one working day has been agreed. Under US GAAP, cash equivalents comprise cash balances and current asset investments with an original maturity of less than three months and exclude bank borrowings repayable on demand. Unrealised holding gains and losses UK GAAP permits current asset investments to be valued at the lower of cost and net realisable value. Under US GAAP, FAS 115 requires that unrealised holding gains and losses on investments classified as available for sale are excluded from earnings and reported instead within a separate component of shareholders funds until realised. New US accounting standards In July 2001, the Financial Accounting Standards Board ( FASB ) issued FAS 141, Business combinations, FAS 142, Goodwill and Other Intangible Assets and FAS 143, Accounting for Obligations Associated with the Retirement of Long-Lived Assets. In October 2001, the FASB issued FAS 144, Accounting for the Impairment or Disposal of Long Lived Assets. FAS 141 eliminates the pooling of interest method of accounting for business combinations, and changes the criteria for distinguishing goodwill from other intangible assets. FAS 141 is required to be adopted for all business combinations initiated after 30 June Under FAS 142, goodwill and indefinite lived intangible assets are no longer amortised but are reviewed annually for impairment. FAS 142 is effective from 1 January As at that date, Rio Tinto had unamortised goodwill of US$2,800 million on a US accounting basis. The amortisation expense related to goodwill was US$213 million for the year ended 31 December Rio Tinto has not yet completed its assessment of the impact of FAS 142. The Group expects, however, that a portion of the goodwill amortisation expense may relate to items which may be classified as other intangible assets under FAS 142, and which may, therefore, continue to be amortised. FAS 143 will be effective for the financial year ending 31 December The standard requires that the obligation for close down and restoration costs is capitalised at the time of recognition. The asset is subsequently amortised over its useful life and the discount on the liability is unwound. FAS 144 will be effective for financial years beginning after 15 December The standard requires, among other things, that long-lived assets to be sold are measured at the lower of book value and fair value, less cost to sell. The adoption of FAS 141, 143 and 144 is not expected to have a material effect on the reported financial position, results of operations or cash flows of the Rio Tinto Group. New UK Accounting Standards FRS 17 Retirement Benefits is fully effective for 2003 but additional disclosures are required for 2001 which are included in note 38 to the financial statements. FRS 19 Deferred Tax, which is effective for 2002, requires companies to provide for deferred tax on a full rather than a partial provision basis. Discounting of deferred tax balances is optional under the standard. The consequences of certain aspects of the new standard are still under consideration. However, FRS 19 is not expected to have a material effect on the earnings of the Group Rio Tinto Annual report and financial statements

125 Post retirement benefits Information in respect of the net periodic benefit cost and related obligation determined in accordance with FAS 87, 106 and 132 is given below. Benefits under the major pension schemes are principally determined by years of service and employee remuneration. Pension scheme funding policy is based on annual contributions at a rate that is intended to fund benefits as a level percentage of pay over the working lifetime of the scheme s participants. The assets of the UK schemes are invested primarily in UK and overseas equities and UK fixed interest stocks. The assets of the Australian schemes are invested primarily in Australian and overseas equities and fixed interest stocks. The assets of the most significant pension schemes outside the UK and Australia are invested primarily in common stocks, corporate and treasury bonds, real estate or real estate investment funds, under the direction of investment managers. Other post retirement benefits are provided to employees who meet the eligibility requirements, and their beneficiaries and dependants, through unfunded self insurance arrangements. The majority of these plans are for employees in the United States. The plans are non contributory, although some contain an element of cost sharing such as deductibles and co-insurance. Assumptions used to determine the net periodic benefit cost and the end of the year benefit obligation for the major pension schemes varied within the limits shown below. The average rate for each assumption has been weighted by benefit obligation. The assumptions used to determine the end of year benefit obligation are also used to calculate the following year s cost. SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS 2001 cost Year end benefit obligation Discount rate 6.0% to 12.0% (Average: 7.1%) 6.5% to 12.0% (Average: 7.0%) Long term rate of return on plan assets 7.5% to 12.0% (Average: 8.3%) 7.5% to 12.0% (Average: 8.2%) Increase in compensation levels 4.0% to 11.0% (Average: 5.3%) 4.0% to 11.0% (Average: 5.0%) The actuarial calculations in respect of the UK plans assume a rate of increase of pensions in payment of 3.0 per cent per annum. The actuarial calculations in respect of Australian plans assume a rate of increase of pensions in payment of 2.5 per cent per annum. These assumptions are consistent with the expected rates of return and salary increase assumptions in the respective valuations. Appropriate assumptions were made for plans in other countries. The weighted average discount rates used in determining the benefit obligation for the major post retirement benefit plans other than pension schemes were 8.0 per cent and 7.5 per cent as of 30 September 2000, and 30 September 2001, respectively. A healthcare cost trend rate of 7.0 per cent decreasing to 5.5 per cent by the year 2004, was used for 2001 costs. This was altered to a healthcare cost trend rate of 8.5 per cent decreasing to 5.0 per cent by the year 2009, to determine the benefit obligation at 31 December Components of net benefit expense Pension benefits Other benefits US$m US$m US$m US$m Service cost Interest cost on benefit obligation Expected return on plan assets (279) (253) Net amortisation and deferral: transitional obligation (12) (14) recognised gains (13) (11) (9) prior service cost recognised (1) (1) 7 (8) (12) (10) Net periodic benefit cost Curtailment charge 4 Net benefit expense Rio Tinto Annual report and financial statements 123

126 Supplementary information for United States investors continued SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS Funded status of the Group s principal schemes Pension benefits Other benefits US$m US$m US$m US$m Benefit obligation at end of year 2,803 2, Fair value of plan assets 3,188 3,864 Plan assets in excess of benefit obligation (362) (355) Unrecognised prior service cost (2) (4) Unrecognised net gain (94) (654) (96) (117) Unrecognised transitional asset (37) (51) Company contributions in fourth quarter Net amount recognised (460) (475) Comprising: benefit prepayment benefit provision (199) (58) (460) (475) intangible asset 32 accumulated other comprehensive income Net amount recognised (460) (475) Change in additional minimum liability before tax: US$m US$m Accrued pension benefit expense 148 (1) (Increase)/decrease in intangible asset (32) 1 Other comprehensive income before tax 116 Change in benefit obligation Pension benefits Other benefits US$m US$m US$m US$m Benefit obligation at start of year 2,894 2, Service cost Interest cost Contributions by plan participants 6 6 Actuarial (gains) and losses (91) (12) Benefits paid (195) (179) (13) (12) Plan amendments 12 1 Inclusion of defined contribution liabilities 63 Subsidiaries acquired Currency translation (173) (210) (18) (8) Benefit obligation at end of year 2,803 2, Change in plan assets Pension benefits Other benefits US$m US$m US$m US$m Fair value of plan assets at start of year 3,864 3,425 Actual return on plan assets (340) 477 Contributions by plan participants 6 6 Contributions by employer Benefits paid (195) (179) (13) (12) Inclusion of defined contribution assets 63 Subsidiaries acquired 406 Currency translation (232) (286) Fair value of plan assets at end of year 3,188 3,864 Sensitivity to change in healthcare trend The healthcare cost trend rate assumption has a significant effect on the amounts reported. Changing the healthcare cost trend rates by 1 per cent would result in the following effects: 1% increase 1% decrease US$m US$m US$m US$m Increase/(decrease) in service cost plus interest cost 5 5 (4) (4) Increase/(decrease) in benefit obligation at 30 September (34) (39) Rio Tinto Annual report and financial statements

127 Accumulated foreign currency translation recorded directly in shareholders funds under US GAAP At 1 January Current period change At 31 December Additional US GAAP cash flow information A summary of Rio Tinto s operating, investing and financing activities classified in accordance with US GAAP is presented below: US$m US$m (1,111) (606) (325) (505) (1,436) (1,111) US$m US$m SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS Net cash flow from operating activities 2,450 2,595 Net cash flow from investing activities (2,237) (4,097) Net cash flow from financing activities (281) 1,379 Decrease in cash and cash equivalents per US GAAP (68) (123) Increase/(decrease) in cash per UK GAAP 40 (44) Increase in non qualifying liquid resources for US GAAP (57) (195) (Decrease)/increase in bank borrowings repayable on demand included in cash under UK GAAP (51) 116 Decrease in cash and cash equivalents per US GAAP (68) (123) Cash and cash equivalents under US GAAP Cash per balance sheet under UK GAAP Qualifying liquid resources less non qualifying deposits (183) (114) Cash and cash equivalents under US GAAP There was an exchange gain of US$1 million (2000: loss of US$6 million) relating to US GAAP cash and cash equivalents during the year. Deferred tax credit/(charge) The credit/(charge) for deferred taxation arises as follows: US$m US$m accelerated capital allowances 207 (13) pension prepayments (30) (24) provisions 41 (7) other timing differences (186) (61) 32 (105) 2001 Rio Tinto Annual report and financial statements 125

128 Supplementary information for United States investors continued SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS Fixed asset investments The aggregates of the profit and loss accounts and balance sheets of equity and gross equity accounted companies on a 100 per cent basis are set out below: US$m US$m Profit and loss account: Sales revenue 6,313 5,961 Cost of sales (4,068) (3,889) Operating profit 2,245 2,072 Net interest (392) (429) Profit before tax 1,853 1,643 Taxation (604) (583) Profit attributable to outside shareholders (43) (37) Net profit on ordinary activities (100 per cent basis) 1,206 1,023 Balance sheet: Intangible fixed assets Tangible fixed assets 11,765 10,971 Investments Working capital Net cash less current debt (164) (71) Long term debt (5,838) (5,589) Provisions (1,949) (1,728) Outside shareholders interests (249) (283) Aggregate shareholders funds (100 per cent basis) 4,439 4,268 Unrealised holding gains and losses Under FAS 115, unrealised holding gains and losses on investments classified as available for sale are excluded from earnings and reported instead within a separate component of shareholders funds until realised. The following table shows the Group s investments in debt and equity securities which are held as available for sale in accordance with FAS 115. Net FAS 115 Unrealised Unrealised Tax Market unrealised net book holding holding (credit)/ value holding value gains losses charge gains/(losses) US$m US$m US$m US$m US$m US$m At 1 January (1) 19 5 Change in unrealised holding gains/losses (3) (9) (12) (12) Additions and other movements At 31 December (10) 63 (7) Rio Tinto Annual report and financial statements

129 Additional share capital information Rio Tinto plc Rio Tinto plc Rio Tinto plc Share Savings Plan Executive Share Share Option Plan Option Scheme Weighted Weighted Weighted average average average share price share price share price Number s Number s Number s Options outstanding at 1 January ,285, , ,381, Granted 975, ,931, Exercised (181,581) 7.27 (107,550) 7.65 (392,021) 8.20 Cancelled (68,933) 7.59 (135,712) SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS Options outstanding at 31 December ,010, , ,785, Rio Tinto Limited Share Savings Plan Rio Tinto Limited Share Option Plan Weighted Weighted average average share price share price Number A$ s Number A$ s Options outstanding at 1 January , Granted 1,393, , Exercised (78,775) Cancelled (12,589) (11,948) Options outstanding at 31 December ,380, ,694, The weighted average remaining contractual lives of options outstanding at 31 December 2001 for the Rio Tinto plc Share Savings Plan, the Rio Tinto plc Share Option Plan, the Rio Tinto Limited Share Savings Plan and the Rio Tinto Limited Share Option Plan are 2, 3, 4 and 5 years respectively. The weighted average fair value of share options at the date of grant was US$4.87 (2000: US$4.32). Property, plant and equipment by location The following supplements segmental information provided elsewhere in this report to provide additional information required under US GAAP % % US$m US$m North America ,622 6,217 Australia and New Zealand ,101 4,842 South America Africa Indonesia Europe and other countries ,598 12,159 Tax charge by product group The following supplements segmental information provided elsewhere in this report to provide additional information required under US GAAP US$m US$m Iron Ore (239) (191) Energy (212) (125) Industrial Minerals (219) (224) Aluminium Comalco (160) (211) Copper (154) (182) Diamonds & Gold (43) (53) Other items, including tax relief on asset write-downs Tax on exploration (718) (819) Covenants Of the Rio Tinto Group s medium and long term borrowings of US$2.6 billion, some US$0.4 billion relates to the group s share of non-recourse borrowings which are the subject of various financial and general covenants with which the respective borrowers are in compliance Rio Tinto Annual report and financial statements 127

130 Supplementary information for United States investors continued SUPPLEMENTARY INFORMATION FOR UNITED STATES INVESTORS Accounting for derivative instruments and hedging activities With effect from 1 January 2001, Rio Tinto adopted FAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended by FAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. The Statement, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated as a hedge or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognised in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income ( OCI ) and are recognised in the income statement when the hedged item affects earnings. For all derivatives which do not meet the FAS 133 criteria for designation as hedges, the changes in the fair value of the derivative are recognised in earnings. The adoption of FAS 133 on 1 January 2001, resulted in the following movements, pre tax and minorities, in OCI and earnings in relation to net derivative liabilities: Net Recorded Recorded derivative in OCI in retained liabilities earnings US$m US$m US$m Net derivative liabilities on balance sheet at 31 December 2000 (103) (103) Less: derivative assets on balance sheet at 31 December 2000 qualifying for the normal sales exemption under FAS 133 (a) (3) (3) Net derivative liabilities designated as hedges under FAS 52 taken to balance sheet on 1 January 2001 (b) (32) (32) Net derivative liabilities on balance sheet at 1 January 2001 (138) (32) (106) Less: net derivative liabilities marked to market through OCI at 1 January 2001 relating to contracts maturing in 2001 (c) (2) (2) Less: net derivative liabilities marked to market through retained earnings at 1 January 2001 relating to contracts maturing in 2001 (d) Add: mark to market of net derivative liabilities designated as FAS 133 cash flow hedges at 31 December 2001 (e) (147) (147) Add: mark to market of net derivative liabilities not designated as hedges under FAS 133 at 31 December 2001 (f) (55) (55) On balance sheet at 31 December 2001 (332) (181) (151) On implementation of FAS 133 at 1 January 2001, there was a transition adjustment of US$35 million before tax (US$20 million net of tax and minorities), of which US$3 million before tax (US$2 million after tax and minorities) related to earnings and US$32 million (US$18 million net of tax and minorities) related to OCI. These transition adjustments are explained in notes (a) and (b) below. (a) (b) (c) (d) (e) (f) The cumulative pre-tax credit to income of US$3 million arose because unrealised gains on derivative contracts relating to anticipated transactions which did not qualify for hedge accounting under FAS 52 are excluded from earnings under the normal purchase/normal sales exemption of FAS 133. The pre-tax reduction to OCI of US$32 million arose because unrealised losses on certain US$/A$ forward contracts and options which qualified as hedges of firm commitments under FAS 52, and were therefore held off balance sheet, have to be accounted for as liabilities under FAS 133. These derivatives qualify as cash flow hedges under FAS 133. During 2001, net gains of US$2 million relating to derivatives designated as cash flow hedges under FAS 133 were transferred from accumulated OCI to US GAAP earnings on maturity of the contracts. During 2001, accrued losses of US$10 million relating to derivatives that were not designated as hedges under FAS 52 were realised on maturity of the contracts. The fair value of net derivative liabilities designated as cash flow hedges under FAS 133 increased by US$147 million during 2001 resulting in a closing debit balance related to cash flow hedging activities of US$181 million in OCI. These cash flow hedges hedge the Group s exposure to the US dollar in relation to future trading transactions. The Group expects to reclassify US$10 million of this amount as reductions in pre tax profits over the next twelve months as these contracts and the transactions which they hedge mature. As at 31 December 2001, the Group had US$197 million of cash flow hedge derivative liabilities and US$16 million of cash flow hedge derivative assets. The cash flow hedges extend to 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. The fair value of these net derivative liabilities increased by US$55 million during As at 31 December 2001, the Group had US$24 million of assets relating to derivatives which do not qualify for hedge accounting under FAS 133, and US$175 million of liabilities Rio Tinto Annual report and financial statements

131 Financial summary US$m Consolidated turnover 10,159 9,623 8,795 7,755 8,140 6,901 7,436 7,112 7,197 7,875 8,152 Share of equity accounted entities 1,255 1,338 1, ,194 1,808 1,998 2,109 2,113 2,097 2,286 Gross turnover 11,414 10,961 9,874 8,716 9,334 8,709 9,434 9,221 9,310 9,972 10,438 Adjusted PBIT (a) 1,568 1,524 1,472 1,819 2,484 1,887 2,256 2,191 2,329 2,912 3,102 Exceptional items (b) (526) (172) (340) 25 (215) (443) (715) Finance charges (184) (108) (113) (81) (59) (108) (184) (240) (298) (403) (404) Profit before tax 858 1,244 1,019 1,763 2,210 1,779 2,072 1,508 2,031 2,509 1,983 Adjusted profit before tax (a) 1,384 1,416 1,359 1,738 2,425 1,779 2,072 1,951 2,031 2,509 2,698 Tax (excl. exceptional items) (554) (570) (487) (496) (818) (566) (668) (664) (548) (819) (850) Tax exceptional items (b) 92 (11) Outside shareholders interests (60) (73) (81) (109) (189) (143) (184) (184) (201) (183) (186) Profit attributable to Rio Tinto ,187 1,263 1,070 1, ,282 1,507 1,079 Adjusted earnings (a) ,133 1,418 1,070 1,220 1,103 1,282 1,507 1,662 Earnings per share (d) 24.4c 42.5c 49.0c 85.0c 90.5c 76.5c 87.1c 50.4c 93.6c 109.8c 78.5c Adjusted earnings per share (a) 56.1c 55.8c 57.0c 81.3c 101.6c 76.5c 87.1c 79.4c 93.6c 109.8c 120.9c Dividends per share Rio Tinto shareholders (US cents) n/a n/a n/a n/a n/a 51.00c 52.00c 52.00c 55.00c 57.50c 59.00c Rio Tinto plc (pence) 19.50p 19.50p 20.50p 27.50p 31.50p 31.71p 31.92p 31.99p 34.23p 38.87p 41.68p Rio Tinto Limited (Aus. cents) (d) 31.63c 41.86c 65.12c 55.81c 60.47c 65.05c 75.94c 83.52c 87.11c c c Assets employed Fixed assets 8,298 7,284 7,223 8,551 8,560 9,682 9,420 9,675 9,947 13,328 12,675 Investments 1,453 1,375 1,236 1,332 1,687 2,109 2,432 2,173 1,830 1,792 2,280 Working capital 1,621 1,514 1,404 1,458 1,325 1,578 1,440 1,235 1,293 1,380 1,896 Provisions (2,384) (2,165) (2,227) (2,593) (2,657) (2,795) (2,692) (2,733) (2,830) (3,242) (3,137) Outside shareholders interests (849) (444) (506) (653) (695) (770) (717) (673) (715) (864) (827) Net debt (2,490) (2,344) (1,339) (1,349) (1,483) (2,546) (2,839) (3,258) (2,429) (5,050) (5,711) Rio Tinto shareholders funds 5,649 5,220 5,791 6,746 6,737 7,258 7,044 6,419 7,096 7,344 7,176 Capital expenditure (f) (1,018) (828) (693) (1,428) (1,345) (1,738) (1,638) (1,180) (771) (798) (1,405) Acquisitions less disposals (9) (37) (100) (12) 281 (489) (279) (3,191) (659) Total cash flow from operations (g) 2,294 2,375 2,252 2,225 2,735 2,452 2,979 3,071 3,015 3,440 3,415 Cash flow before financing (h) (315) 200 1,118 (23) (170) (784) (335) (37) 825 (2,291) (590) Ratios Operating margin (i) 14% 14% 15% 21% 27% 22% 24% 24% 25% 29% 30% Net debt to total capital (j) 28% 29% 18% 15% 17% 24% 27% 31% 24% 38% 42% Adj. earnings: shareholders funds (k) 13% 14% 14% 18% 21% 15% 17% 16% 19% 21% 23% FINANCIAL SUMMARY (a) Adjusted earnings and adjusted earnings per share exclude exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the underlying performance of the Group. In this statement, Adjusted profit before interest and tax ( Adjusted PBIT ) and Adjusted profit before tax exclude the pre-tax values of such exceptional items. Adjusted PBIT includes the Group s share of joint ventures and associates operating profit. (b) These lines contain the exceptional items referred to in (a) above and related taxation. For 1998 and 2001, these comprise exceptional asset write-downs of US$403 million and US$583 million respectively, net of tax. For 1991 to 1995, these comprise amounts that are required to be excluded from operating profit under FRS 3. (c) Changes in accounting policy: Figures for 1991 and 1992 have been restated following the change in accounting policy for post retirement healthcare effected in Reported figures for have been restated following the change in accounting policy on implementation of FRS 12 in (d) Earnings per share and Rio Tinto Limited dividends per share have been adjusted for the years in respect of the 7.5 per cent bonus issue on 15 January 1996 which applied to Rio Tinto Limited shares. (e) Earnings per share have been adjusted for the enhanced Rio Tinto plc scrip dividend in (f) Capital expenditure comprises purchases of property, plant and equipment plus direct funding provided to joint ventures and associates for Rio Tinto s share of their capital expenditure, less disposals of property, plant and equipment. The figures include 100 per cent of subsidiaries capital expenditure, but exclude that of joint ventures and associates except where directly funded by Rio Tinto. (g) Total cash flow from operations comprises Cashflow from operating activities together with Dividends from joint ventures and associates. (h) Cash flow before financing represents the net cash flow before management of liquid resources and financing. (i) Operating margin is the percentage of Adjusted PBIT to Gross turnover. (j) Total capital comprises year end shareholders funds plus net debt and outside shareholders interests. (k) This represents Adjusted earnings expressed as a percentage of the mean of opening and closing shareholders funds Rio Tinto Annual report and financial statements 129

132 Rio Tinto share ownership RIO TINTO SHARE OWNERSHIP RIO TINTO PLC (a) As far as is known to Rio Tinto plc, it is not directly or indirectly owned or controlled by another corporation or by any government. (b) As of 8 February 2002 Rio Tinto plc was not aware of any persons owning more than three per cent of its Shares. As of 8 February 2002 the total amount of the voting securities owned by the directors of Rio Tinto plc as a group was: Title of Class Amount owned % of class Ordinary shares of 10p each 309,632 less than 1% (c) Rio Tinto plc does not know of any arrangements, the operation of which may result in a change in its control. RIO TINTO LIMITED (a) As far as is known to Rio Tinto Limited, with the exception of the arrangements described under The DLC Merger, it is not directly or indirectly owned or controlled by another corporation or by any government. (b) As of 8 February 2002, the total amount of the voting securities owned by the directors of Rio Tinto Limited as a group was: Title of Class Amount owned % of class Ordinary shares 100,665 less than 1% As of 8 February 2002 the persons known to Rio Tinto Limited as owning more than five per cent of its shares was: Title of Class Identity of person or group Amount owned % of class Ordinary shares Tinto Holdings Australia Pty Ltd 187,439, Ordinary shares Commonwealth Bank of Australia 24,976, The share holding of Tinto Holdings Australia Pty Ltd has been maintained. It was reduced from per cent in 2000 in accordance with a condition to the approval of the DLC merger by the Australian Government to reduce this interest to 39.0 per cent by the end of Tinto Holdings Australia Pty Ltd is an indirect wholly owned subsidiary of Rio Tinto plc. (c) Rio Tinto Limited does not know of any arrangements, the operation of which may result in a change in its control Rio Tinto Annual report and financial statements

133 Twenty largest shareholders As at 8 February 2002 RIO TINTO PLC Number of Percentage shares of issued share capital 1 BNY (Nominees) Limited 52,574, Chase Nominees Limited 42,219, HSBC Global Custody Nominee (UK) Limited <357206> 21,924, Stanlife Nominees Limited 21,857, Prudential Client HSBC GIS Nominee (UK) Limited <PAC> 21,304, Chase Nominees Limited <LEND> 17,513, The Bank of New York (Nominees) Limited 16,789, Vidacos Nominees Limited <FGN> 15,750, Nutraco Nominees Limited 15,712, Nortrust Nominees Limited <SLEND> 13,157, Chase Nominees Limited <USRESLD> 12,439, Mellon Nominees (UK) Limited <BSDTUSD> 11,863, BNY (OCS) Nominees Limited 11,859, Co-operative Insurance Society Limited 11,219, Chase Nominees Limited <LENDNON> 11,197, Nortrust Nominees Limited 10,457, Chase Nominees Limited <BGILIFEL> 9,894, Vidacos Nominees Limited 9,684, Schroder Nominees Limited 9,368, State Street Nominees Limited <SS01> 8,963, ,751, RIO TINTO LIMITED Number of Percentage shares of issued share capital 1 Tinto Holdings Australia Pty Ltd 187,439, Chase Manhatten Nominees Limited 45,769, National Nominees Limited 41,509, Westpac Custodian Nominees Limited 33,722, AMP Life Limited 9,931, Citicorp Nominees Pty Limited 9,322, Queensland Investment Corporation 9,159, ANZ Nominees Limited 9,132, Commonwealth Custodial Services Limited 8,136, MLC Limited 7,484, Citicorp Nominees Pty Limited <CFS WSLE Imputation Fnd a/c> 5,950, Mitsubishi Development Pty Limited 3,827, Citicorp Nominees Pty Limited <CFS WSLE Aust Share Fnd a/c> 3,710, NRMA Nominees Pty Limited 3,451, Citicorp Nominees Pty Limited <CFS Imputation Fnd a/c> 3,371, ING Life Limited 3,084, The National Mutual Life Association of Australasia Limited 3,077, HSBC Custody Nominees (Australia) Limited 3,039, Cogent Nominees Pty Limited 2,977, RBC Global Services Australia Nominees Pty Limited 2,680, ,778, RIO TINTO SHARE OWNERSHIP Analysis of ordinary shareholders As at 8 February 2002 Rio Tinto plc Rio Tinto Limited Holding Number of Percentage Number of Percentage Number of Percentage Number of Percentage holdings of holdings shares of issued holdings of holdings shares of issued share share capital capital 1 to 1,000 45, ,095, , ,250, ,001 to 5,000 22, ,266, , ,187, ,001 to 10,000 2, ,745, , ,916, ,001 to 25, ,680, ,034, ,001 to 125, ,159, ,305, ,001 to 250, ,655, ,500, ,001 to 1,250, ,223, ,144, ,250,001 to 2,500, ,725, ,361, ,500,001 and over ,753, ,271, ADRs 52,574, ,507, , ,064,880, , ,480, Number of holdings less than marketable parcel of A$500 1, Rio Tinto Annual report and financial statements 131

134 Definitions DEFINITIONS NON MINING DEFINITIONS Throughout this document, the collective expressions Rio Tinto, Rio Tinto Group and Group are used for convenience only. Depending on the context in which they are used, they mean Rio Tinto plc and/or Rio Tinto Limited and/or one or more of the individual companies in which Rio Tinto plc and/or Rio Tinto Limited directly or indirectly own investments, all of which are separate and distinct legal entities. Unless the context indicates otherwise, the following terms have the meanings shown below: ADR American Depositary Receipt (ADR) evidencing American Depositary Shares (ADS) Australian dollars Australian currency. Abbreviates to A$ Australian GAAP Billion Generally accepted accounting principles in Australia One thousand million Canadian dollars Canadian currency. Abbreviates to C$ Company Companies } Means, as the context so requires, Rio Tinto plc and/or Rio Tinto Limited DLC merger LME New Zealand dollars Pounds sterling Public shareholders Rand Rio Tinto Limited Rio Tinto Limited ADS Rio Tinto Limited group Rio Tinto Limited shareholders Rio Tinto Limited shares Rio Tinto Limited Shareholder Voting Agreement Rio Tinto Limited/RTL Special Voting Share Rio Tinto plc Rio Tinto plc ADS Rio Tinto plc group Rio Tinto plc ordinary shares Rio Tinto plc shareholders Rio Tinto Shareholder Voting Agreement Rio Tinto plc shares Rio Tinto plc/rtp Special Voting Share/shares Refers to the dual listed companies merger London Metal Exchange New Zealand currency. Abbreviates to NZ$ UK currency. Abbreviates to, pence or p The holders of Rio Tinto plc shares that are not companies in the Rio Tinto Limited Group and the holders of Rio Tinto Limited shares that are not companies in the Rio Tinto plc Group South African currency. Abbreviates to R Refers to Rio Tinto Limited, and, where the context permits, its subsidiaries and associated companies An American Depositary Share (ADS) representing the right to receive four Rio Tinto Limited shares Rio Tinto Limited and its subsidiaries and associated companies The holders of Rio Tinto Limited shares The ordinary shares in Rio Tinto Limited The agreement, dated 21 December 1995, between Rio Tinto plc, Rio Tinto Limited, RTL Shareholder SVC Limited and the Law Debenture Trust Corporation p.l.c. relating to the voting rights of the Rio Tinto plc Special Voting Share at meetings of shareholders of Rio Tinto plc The Special Voting Share in Rio Tinto Limited Rio Tinto plc and its subsidiaries and associated companies An American Depositary Share representing the right to receive four Rio Tinto plc Ordinary Shares Rio Tinto plc and its subsidiaries and associated companies The ordinary shares of 10p each in Rio Tinto plc The holders of Rio Tinto plc shares The agreement, dated 21 December 1995, between Rio Tinto plc, Rio Tinto Australian Holdings Limited, RTP Shareholder SVC Pty Limited, Rio Tinto Limited and the Law Debenture Trust Corporation p.l.c. relating to the voting rights of the Rio Tinto Limited shares held by the Rio Tinto plc Group and the Rio Tinto Limited Special Voting Share at meetings of Rio Tinto Limited Shareholders Rio Tinto plc ordinary shares The Special Voting Share of 10p in Rio Tinto plc Rio Tinto Limited shares or Rio Tinto plc Ordinary shares, as the context so requires Rio Tinto Annual report and financial statements

135 Sharing Agreement UK GAAP US dollars US GAAP The agreement, dated 21 December 1995, as amended between Rio Tinto Limited and Rio Tinto plc relating to the regulation of the relationship between Rio Tinto Limited and Rio Tinto plc following the DLC merger Generally accepted accounting principles in the UK US currency. Abbreviates to dollars, $ or US$ Generally accepted accounting principles in the US DEFINITIONS MINING AND TECHNICAL DEFINITIONS Alumina Aluminium oxide. It is extracted from bauxite in a chemical refining process and is subsequently the principal raw material in the electro-chemical process by which aluminium is produced Anode and cathode copper Bauxite Beneficiated bauxite Block Caving Borates Cathode copper Classification Concentrate Cutoff grade Doré DWT Flotation FOB Grade Headgrade Ilmenite Metallurgical coal Mineral resource Ore Ore milled At the final stage of the smelting of copper concentrates, the copper is cast into specially shaped slabs called anodes for subsequent refining to produce refined cathode copper Mainly hydrated aluminium oxides (AL 2 O 3.2H 2 O). Principal ore of alumina, the raw material from which aluminium is made Bauxite ore that has been treated to remove waste material to improve its physical or chemical characteristics An underground mining method. It involves undercutting the ore body to induce ore fracture and collapse by gravity. The broken ore is recovered through draw points below A generic term for mineral compounds which contain boron and oxygen Refined copper produced by electrolytic refining of impure copper or by electrowinning Separating crushed and ground ore into portions of different size particles The product of a physical concentration process, such as flotation or gravity concentration, which involves separating ore minerals from unwanted waste rock. Concentrates require subsequent processing (such as smelting or leaching) to break down or dissolve the ore minerals and obtain the desired elements, usually metals The lowest grade of mineralised material considered economic to process. It is used in the calculation of the quantity of ore present in a given deposit A precious metal alloy which is produced by smelting. Doré is an intermediate product which is subsequently refined to produce pure gold and silver Dead weight tons is the combined weight in long tons (2,240 pounds weight) of cargo, fuel and fresh water that a ship can carry A method of separating finely ground minerals using a froth created in water by specific reagents. In the flotation process certain mineral particles are induced to float by becoming attached to bubbles of froth whereas others, usually unwanted, sink Free onboard The proportion of metal or mineral present in ore, or any other host material, expressed in this document as per cent, grammes per tonne or ounces per tonne The average grade of ore delivered to the mill Mineral composed of iron, titanium and oxygen Also referred to as coking coal. By virtue of its carbonisation properties, it is used in the manufacture of coke, which is used in the steel making process Material of intrinsic economic interest occurring in such form and quantity that there are reasonable prospects for eventual economic extraction A rock from which a metal(s) or mineral(s) can be economically extracted The quantity of ore processed 2001 Rio Tinto Annual report and financial statements 133

136 DEFINITIONS Definitions continued Ore hoisted Ore reserve Pressure oxidation Probable ore reserves Proved ore reserves Rock mined The quantity of ore which is removed from an underground mine for processing That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination A method of treating sulphide ores. In the case of refractory gold ores, the object is to oxidise the sulphides to sulphates and hence liberate the gold for subsequent cyanide leaching. The technique involves reaction of the ore with sulphuric acid under pressure in the presence of oxygen gas Reserves for which quantity and grade and/or quality are computed from information similar to that used for proved 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 proved reserves, is high enough to assume continuity between points of observation 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 The quantity of ore and waste rock excavated from the mine. In this document, the term is only applied to surface mining operations Rutile A mineral composed of titanium and oxygen (TiO 2 ) Steam coal Stripping ratio Solvent extraction and electrowinning or SX-EW Tailings Titanium dioxide feedstock Also referred to as steaming coal, thermal coal or energy coal. It is used as a fuel source in electrical power generation, cement manufacture and various industrial applications The tonnes of waste material which must be removed to allow the mining of one tonne of ore Processes for extracting metal from an ore and producing pure metal. First the metal is leached into solution; the resulting solution is then purified in the solvent extraction process; the solution is then treated in an electro-chemical process (electrowinning) to recover cathode copper The rock wastes which are rejected from a concentrating process after the recoverable valuable minerals have been extracted A feedstock rich in titanium dioxide produced, in Rio Tinto s case, by smelting ores containing titanium minerals Zircon Zirconium mineral (ZrSiO 4 ) Notes l Ore reserve estimates in this document have been adjusted for mining losses and dilution during extraction l Metal grades have not been adjusted for mill recoveries, but mill recoveries are presented in the table of reserves and are taken into consideration in the calculation of Rio Tinto s share of recoverable metal l Unless stated to the contrary, reserves of industrial minerals and coal are stated in terms of recoverable quantities of saleable material, after processing or beneficiation losses l Reserve and resource terminology used in this document complies in general with the requirements of the Australian Stock Exchange, the London Stock Exchange and the US Securities and Exchange Commission. While there are differences in the definitions of the terms used by the various regulatory authorities, these are not believed to be significant Rio Tinto Annual report and financial statements

137 Conversion of weights and measures 1 troy ounce = 31.1 grammes 1 kilogramme = troy ounces 1 kilogramme = pounds 1 metric tonne = 1,000 kilogrammes 1 metric tonne = 2,204.6 pounds 1 metric tonne = short tons 1 short ton = 2,000 pounds 1 long ton = 2,240 pounds 1 gramme per metric tonne = troy ounces per short ton 1 gramme per metric tonne = troy ounces per metric tonne 1 kilometre = miles DEFINITIONS Exchange rates The following tables show, for the periods and dates indicated, certain information regarding the exchange rates for the pound sterling and Australian dollar, based on the Noon Buying Rates for pounds sterling and Australian dollars expressed in US dollars per 1.00 and per A$1.00. Pounds sterling Year ended 31 December* Period Average High Low end rate (through 8 February) Australian dollars Year ended 31 December* Period Average High Low end rate (through 8 February) Note *The Noon Buying Rate on such dates differed slightly from the rates used in the preparation of Rio Tinto s consolidated financial statements as of such date. No representation is made that pound sterling and Australian dollar amounts have been, could have been or could be converted into dollars at the Noon Buying Rate on such dates or at any other dates Rio Tinto Annual report and financial statements 135

138 Financial calendar FINANCIAL CALENDAR 31 January 2002 Announcement of results for March 2002 Rio Tinto plc and Rio Tinto Limited shares quoted ex-dividend for 2001 final dividend 8 March 2002 Record date for 2001 final dividend for Rio Tinto plc shares 13 March 2002 Record date for 2001 final dividend for Rio Tinto Limited shares 14 March 2002 Plan Notice Date for election under the Dividend Reinvestment Plan for the 2001 final dividend 8 April 2002 Payment date for 2001 final dividend 9 April 2002 Payment date for 2001 final dividend for holders of ADRs 11 April 2002 Annual general meeting Rio Tinto plc 18 April 2002 Annual general meeting Rio Tinto Limited 25 July 2002 Announcement of half year results for August 2002 Rio Tinto plc and Rio Tinto Limited shares quoted ex-dividend for 2002 interim dividend 16 August 2002 Record date for 2002 interim dividend for Rio Tinto plc shares 20 August 2002 Record date for 2002 interim dividend for Rio Tinto Limited shares 22 August 2002 Plan Notice Date for election under the Dividend Reinvestment Plan for the 2002 interim dividend 13 September 2002 Payment date for 2002 interim dividend 16 September 2002 Payment date for 2002 interim dividend for holders of ADRs January 2003 Announcement of results for 2002 Shareholder enquiries Enquiries relating to your shares or shareholding should be made to the respective Company s registrar. Enquiries relating to American Depositary Receipts (ADRs) should be made to the ADR administrator. Holders of share warrants to bearer should contact the company secretary for an application form to obtain their rights to registered ordinary shares. Rio Tinto plc Rio Tinto Limited ADR administrator Computershare Investor Computershare Investor The Bank of New York Services PLC Services Pty. Limited Depositary Receipts Division PO Box 82 Level Avenue of the Americas The Pavilions 565 Bourke Street 6th Floor Bridgwater Road Melbourne New York, NY10011 Bristol BS99 7NH Victoria 3000 USA UK Australia Tel: Tel: Tel: Fax: Fax: Fax: UK residents only Australian residents only Freephone: Freecall: Rio Tinto Annual report and financial statements

139 Rio Tinto plc 6 St James s Square London SW1Y 4LD UK (Registered office) Registered in England No Rio Tinto Limited 55 Collins Street Melbourne 3001 Australia (Registered office) ACN Tel: +44(0) Fax: +44(0) Tel: +61(0) Fax: +61(0) Photography by Anthony Bannister, Weldon Brewster, Kraig Carlstrom, Derek Cattani and Ian Macaulay. Design consultants Tor Pettersen & Partners. Printed in England by St Ives Westerham Press on paper granted the Nordic Swan award for environmental credentials. The paper is manufactured to ISO environmental standards using fibres from sustainable sources and pulps which are totally chlorine free. Printed in Australia by PMP Financial. Rio Tinto plc and Rio Tinto Limited.

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