2012 Annual report - Rio Tinto

1 Highlights IFCC hairman s letter 1 Group overview 2 Chief executive s statement 4 Strategic context 5 Group strategy and business model 6 Key performance indicators 8 Principal risks and uncertainties 10 PerformanceSustainable development 14 Product groupsAluminium 22 Copper 24 Diamonds & Minerals 26 Energy 28 Iron Ore 30 Business Support & Operations 32 Exploration 32 Technology & Innovation 33 Financial review 34 Five year review 42 Acquisitions and divestments 43 Capital projects 44 Production, reserves and operationsMetals and minerals production 47 Ore reserves 51 Mineral resources 55 Competent Persons 60 Mines and production facilities 62 GovernanceLetter from the chairman 71 Corporate governance 72 Board of directors 83 Executive Committee 86 Directors report 87 Remuneration report Letter from the chairman 92 Remuneration Policy report 95 Remuneration Implementation report 102 Remuneration report appendix tables 111 Shareholder information 127 Financial statementsDetailed contents 138 Group income statement 139 Group statement of comprehensive income 140 Group cash flow statement 141 Group statement of financial position 142 Group statement of changes in equity 143 Reconciliation with AAS 145 Outline of dual listed companies structure and basis of financial statements 145 Notes to the 2012 financial statements 146 Company balance sheet 216 Financial information by business unit 219 Summary of ASIC relief 223

2 Directors declaration 224 Auditor s independence declaration 225 Independent auditors report 226 Financial summary 2003- 2012 228 Summary financial data 230 Additional informationFinancial calendar 231 Useful information 2322012 Annual reportPerformance highlightsThis Annual report complies with Australian and UK reporting of Rio Tinto s shareholder documents are available on the website at They can also be obtained free of charge from the Company. Some shareholders may prefer to receive the Annual review which contains summary financial statements for 2012 , although shareholders should note that it does not allow as full an understanding of the Group as the Annual statement about forward-looking statementsThis document contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Rio Tinto Group. These statements are forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, and Section 21E of the US Securities Exchange Act of 1934.

3 The words intend , aim , project , anticipate , estimate , plan , believes , expects , may , should , will , or similar expressions, commonly identify such forward-looking of forward-looking statements in this Annual report include those regarding estimated ore reserves, anticipated production or construction dates, costs, outputs and productive lives of assets or similar factors. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this document that are beyond the Group s control. For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for our products, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, the effect of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political light of these risks, uncertainties and assumptions, actual results could be materially different from projected future results expressed or implied by these forward-looking statements which speak only as to the date of this Annual report .

4 Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward-looking statements will not differ materially from actual financial resultsOur underlying financial results reflect record iron ore production and shipments and a second half recovery in copper volumes. This was in the context of lower average market prices in 2012 which reduced underlying earnings by US$ billion compared with 2011: Underlying earnings1 of US$ billion. Net loss of US$ billion after impairments of US$ billion, primarily relating to aluminium businesses as well as coal assets in Mozambique. 15 per cent increase in full year dividend to 167 US cents per months to 31 December(All amounts are US$ millions unless otherwise stated)20122011 ChangeUnderlying earnings19,30315,549-40%Net (loss)/earnings1(2,990)5,826-151%Cash flows from operations 16,45027,388-40%Capital expenditure17,41812,298+42%Underlying earnings per share US (loss)/earnings per share from continuing operations US cents( ) dividends per share US +15%The financial results are prepared in accordance with IFRS as adopted by the European Union (EU IFRS).

5 1. Underlying earnings is the key financial performance indicator which management uses internally to assess performance. It is presented here to provide greater understanding of the underlying business performance of the Group s operations attributable to the owners of Rio Tinto . Net earnings and underlying earnings relate to profit attributable to owners of Rio Tinto . Underlying earnings is defined and reconciled to net earnings in note 2 on page 162. 2012 Annual reportThis report forms part of our 2012 corporate reporting suite. You can view our Annual report , Annual review and Sustainable development report online at: review: Highlights from around our business, including a summary of our 2012 performanceSustainable development report :Our sustainable development strategy and performance, and our approach in actionScan this code to view the reporting centre on your mobile or tabletSitemap | Privacy | Cookies | Te rms & Conditions | Help | AccessibilityStay up to date with us2012201120102009200810,3036,29815,5499 ,30313,987 Pursuing greater value for shareholdersOur 2012 suite of corporate reports presents a complete picture of how we have performed during the year and gives context to our actions and Walsh sets the context for this year s reportsWatch the interviewAnnual reviewAnnual reportSustainable developmentUnderlying earnings9,303mUS$Detailed information on our operations, performance and corporate governanceVisit websiteDownload PDFWe will now have a single-minded focus on how we deliver our strategy in every market in which we operate, everywhere around the Walsh.

6 Chief executive2012 Reporting centreAnnual reviewAnnual s letterOur business performed well in 2012 , generating strong cash flows and underlying earnings of US$ billion. Although lower than last year, principally due to lower commodity prices and higher costs, these results demonstrate the quality of our assets and the sustainable cash-generating abilities of our underlying businesses. However, as foreshadowed at the beginning of the year, we recorded impairments of US$ billion, resulting in the Group reporting a net loss of US$3 billion for 2012 . These write-downs are deeply disappointing. In particular the substantial impairment of our Mozambique coal business is unacceptable. Following these impairments, Tom Albanese stood down from the board by mutual agreement, recognising his accountability as chief executive for these impairments. On behalf of the board, I would like to acknowledge Tom s contribution and dedication to the company over his 30 years of service.

7 The board s objective is to ensure that the business delivers sustainable growth in value to you, our shareholders. Your directors are confident that Sam Walsh, who succeeded Tom Albanese as chief executive, will lead a renewed and focused organisation to do just this and we are working closely together with this objective in mind. Disciplined capital managementYour board aims to unlock greater value for our shareholders through investing in the best opportunities to deliver attractive returns that are well above our cost of capital. Recent events demonstrate that there is a need for greater discipline across our business, particularly in the way we manage and allocate capital. Under Sam s leadership, we will be simplifying and strengthening our systems in this area, and seeking greater accountability for decision-making across the board regularly evaluates opportunities put forward by the business against all competing uses for cash, striving to achieve the right balance between disciplined investment, strengthening our balance sheet and returning cash to commitment to a strong balance sheet, and our aim to retain a single A credit rating, ensures discipline and flexibility in our investment approach, helping us to build a robust and strongly performing business over the long term.

8 Our confidence is reflected in the 15 per cent increase in our Annual dividend in 2012 . Our cash returns to shareholders totalled US$ billion in 2012 , including completion of the Group s US$7 billion share buy-back programme as well as the ordinary dividend payment. Focus of the board One of the primary roles of Rio Tinto s board is to provide oversight of strategy development and delivery, while maintaining the highest standards of corporate governance. The board conducted its Annual strategy review with the executive team in September, reaffirming our commitment to invest in and operate large, long-term, expandable, low-cost mines and businesses. The board also took the opportunity in 2012 to visit a number of the Group s operations in Australia and Southern Africa to gain a deeper understanding of the strategic issues at play. Amidst continuing volatility in the global economy and major structural shifts affecting the sector, improvements need to be made in how we execute this strategy.

9 The board has tasked Sam Walsh and his executive team with ensuring we improve capital allocation, deliver our growth projects and improve productivity at all of our sites, while building on our industry leading capabilities in areas such as stakeholder engagement and sustainable development. As geopolitical risks continue, we have continued to look for new ways to form more effective relationships and partnerships around the world. Rio Tinto has always taken its role as a responsible business very seriously. We believe earning the trust of our host communities and governments is vital in creating sustainable shareholder value. As the company enters its 140th year of operation this year, we recognise we wouldn t still be in business without the support of our many 2012 , considerable time was spent engaging with investors on issues ranging from our capital allocation methodology to executive remuneration. More recently, we undertook an assessment of board effectiveness and, for the first time, the board s Annual evaluation was conducted by an independent expert.

10 Considerable attention will be given to the outcomes of our shareholder engagement and this evaluation exercise in the year to my letter last year, I commented on the importance of succession planning. My goal is to make sure the board combines a broad set of skills and international experience. Rio Tinto s board should be diverse in the widest sense with the best blend of appropriately skilled and experienced people from our industry, but also outside of it. We announced last year that Guy Elliott will step down from the board at the end of 2013. I would like to thank Guy for his invaluable contribution over 33 years with the company. Chris Lynch, who joined the board as a non-executive director in 2011, will formally succeed Guy as chief financial officer on 18 April at the conclusion of the Rio Tinto plc Annual general meeting. We are fortunate to have appointed someone so well-qualified to take over from well as succession planning, the board committees have always played an important oversight role, freeing the board to focus on strategic matters.