Rio Tinto - 20-F annual report

Introduction to Rio Tinto

Rio Tinto is a leading global mining group that focuses on finding, mining and processing the Earth’s mineral resources. Our vision is to be a company that is admired and respected for delivering superior value, as the industry’s most trusted partner.

With a view to sustaining returns to shareholders over time, we take a long-term approach to our activities. This means concentrating on developing Tier 1 orebodies into long-life, low-cost, expandable operations that are capable of providing competitive returns throughout business cycles.

We have a diverse portfolio and a global presence: our 66,000 people work in more than 40 countries. Our five product groups summarised below are supported by our Exploration and Technology & Innovation groups (also see pages 26 to 37). We are committed to creating a culture of high performance – providing challenging work and opportunities to grow, and rewarding those who help deliver superior value.

Sustainable development is integrated into everything we do. Our operations give us the opportunity to bring long-lasting positive change to the communities, regions and countries in which we work, and our metals and minerals are transformed into end products that contribute to higher living standards.

The safety of our people, and our values – accountability, respect, teamwork and integrity – are at the core of our way of working. Our responsible approach to mineral development ensures we gain and maintain our licence to operate. It means we provide confidence to our stakeholders, and improve our access to the mineral resources, people and capital we need.

Aluminium product group

Building on more than a century of experience and expertise, Rio Tinto Alcan is a global leader in the aluminium industry. Our fully-integrated facilities include high-quality bauxite mines, large-scale alumina refineries, and some of the world’s lowest-cost, most technologically-advanced primary aluminium smelters.

Products

Bauxite

Bauxite is the natural ore used to make aluminium. It is refined into alumina which is smelted into aluminium metal. Our wholly-owned and joint venture bauxite mines are located in Australia, Brazil and Guinea.

Alumina

Alumina (aluminium oxide) is extracted from bauxite via a refining process. Approximately four tonnes of bauxite are required to produce two tonnes of alumina, which in turn makes one tonne of aluminium metal. Our wholly-owned and joint venture alumina refineries are located in Australia, Brazil and Canada.

Aluminium

Aluminium is a unique and versatile modern metal. Light, strong, flexible, non-corrosive and infinitely recyclable, aluminium is one of the most widely-used metals in the world. Its largest markets are transportation, machinery and construction. Our smelters are mainly concentrated in Canada. We also have plants in France, Australia, New Zealand, Cameroon, Iceland, Norway, the UK and Oman.

Strategic advantages

Copper product group

Rio Tinto’s Copper product group is made up of four operating assets and two key development projects. Our operating assets are world-class and our project pipeline of longer-term opportunities will help ensure we will continue to be well positioned to meet demand for one of the world’s most sought-after resources.

Products

Copper

The world uses more than 26 million tonnes of copper every year. It is malleable, durable, resistant to corrosion, hygienic and an excellent conductor of heat and electricity, making it useful in a broad range of building, construction and electrical applications. Copper is a metal at the forefront of green innovation. Hybrid and electric cars rely on it, as do renewable energy sources such as solar power, wind farms, thermal and hydroelectricity. Copper is known for its antibacterial properties and is increasingly used in hospitals and other medical facilities.

Gold

Gold’s conductivity and non-corrosive properties make it a vital fabrication material in technology, electronics, jewellery, space exploration and dentistry. We are one of the world’s top 15 gold producers, and the largest among the diversified miners. We have interests in two copper-gold mines that rank among the world’s largest gold resources, at Oyu Tolgoi and Grasberg.

Silver

Silver has very good electrical and thermal properties. It is used in many electrical and electronic applications, such as photovoltaic cells, and is the principal ingredient of x-ray film. Silver is also regarded as a precious metal used for investment and in jewellery.

Molybdenum

Molybdenum is a metallic element frequently used to produce stainless steel and other metal alloys. It enhances the metal’s toughness, high-temperature strength and corrosion resistance.

Strategic advantages

Dear shareholders,

In 2013 your company was focused on improving the performance of the business, strengthening capital allocation processes and reducing our level of indebtedness – all with a view to ensuring a greater commitment to creating real value for shareholders.

I am pleased to report that substantial progress had been made on meeting these priorities. We achieved underlying earnings of US$10.2 billion and significantly improved cash flow by 22 per cent over 2012. We exceeded our cost reduction targets and set production records. Our net earnings performance of US$3.7 billion takes account of non-cash exchange rate losses and impairments.

We are deeply saddened by the deaths of three of our employees at our managed sites last year and improving safety at all of our operations during the year ahead is of paramount importance.

Our overall performance gave the board the confidence to raise the 2013 full year dividend by 15 per cent. This increased dividend represents an important milestone on the road to improved shareholder value.

Stronger business, creating options

During 2013 greater discipline and accountability was restored throughout the business, particularly in the allocation and management of capital. We simplified and strengthened our systems in this area and improved decision-making capability across the organisation.

Your 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 investors.

The reduction in our net debt during 2013 is an indication of our commitment to a stronger balance sheet and provides flexibility in terms of returns and investment. We are building more resilience in our business, which gives your board greater flexibility to respond to macroeconomic developments as they arise.

Strategy development and disciplined delivery

During the year your board supported Sam Walsh on the implementation of his plan to improve performance, strengthen the balance sheet and deliver results. We worked with him on reviewing the company’s strategy and reaffirmed our commitment to invest in and operate long-life, low-cost, expandable mines and businesses. The board also took the time to visit our world-class iron ore operations in the Pilbara in Western Australia to get a deeper understanding of the strategic and operational issues at play.

Sam, his executive team, and all of our 66,000 employees across the world have worked hard during a challenging year and made a large contribution to restore the company to a position of strength. I thank all of our people for their efforts and commend Sam for this leadership during a tough time. But there is more we must do.

Amidst continued market uncertainty, impacts of quantitative easing and austerity programmes still washing through markets around the world, your board has tasked the executive team with ensuring they successfully execute our strategy and make sure the gains delivered are sustained. The discipline of 2013 must be carried forward into the year ahead and beyond, with a specific focus on delivering our growth projects and producing further productivity improvements at all of our sites.

As geopolitical and social risk increase, we remain convinced that businesses which form effective relationships and partnerships around the world will prosper over the longer term. Rio Tinto has always taken its role as a responsible business very seriously and throughout the year ahead we will continue to build our capabilities in stakeholder engagement and sustainable development. We believe earning the trust of our host communities and governments is vital in creating sustainable shareholder value.

Maintaining good governance

Good governance is essential for the long-term success of the Group. In 2013, we have seen a greater level of focus, discipline and accountability throughout the organisation. This continues to be underpinned by your board’s oversight of a robust corporate governance framework to support our business and strategic delivery.

My role as chairman is to lead the board and to ensure it is focused on its oversight of management and the delivery of our strategy. Sam Walsh’s role as chief executive is to focus on sustained operational excellence and growth of the business – and to do so with safety top of mind. Our roles are complementary but distinct. The separation of executive and non-executive accountabilities is essential to good governance: the executives have an operational role, whereas the non-executives have an oversight role, ensuring accountability and exercising strong and deliberate challenge through the board decision-making process to ensure appropriate control mechanisms are in place to safely implement our strategy and plans.

Your board devotes much of its time to reviewing, debating and challenging proposals for investment from management, as well as dealing with a wide range of other issues including safety and the Group’s strategic direction, monitoring business performance, optimising capital allocation and expenditure whilst carefully evaluating the wide range of risks facing the business.

Leadership

Leadership is critical at all levels – at board level, at executive level, and throughout the business. We are committed to effective succession planning at both the board and executive level. My goal is to make sure your board combines the diverse blend of skills and international experience that is available to it now and to enhance it further for the future. Rio Tinto’s board should have the best blend of appropriately skilled and experienced people from our industry, but also outside of it.

2013 saw a number of changes to the executive team, starting with the appointment of Sam Walsh as chief executive. Following Guy Elliott’s decision to retire at the end of 2013, your board appointed Chris Lynch as chief financial officer with effect from April 2013. The board announced the promotion of Jean-Sébastien Jacques as chief executive, Copper, following Andrew Harding’s move to become chief executive, Iron Ore and appointed Greg Lilleyman as Group executive, Technology & Innovation with effect from 1 January 2014, following the retirement of Preston Chiaro from the Executive Committee at the end of 2013.

Preston retires as an executive on 1 April 2014. I would like to thank Guy and Preston for their significant contributions to Rio Tinto over their many years with the Group and we wish them well in their retirement as executives.

Moving forward, I am very pleased to announce today the appointment of two new non-executive directors. Anne Lauvergeon and Simon Thompson will bring a wealth of experience to your board given their combined experience in a number of leading international businesses. We also announced today that Vivienne Cox will stand down at the end of the annual general meeting in London in April, after nine years on the board. I would like to thank Vivienne for her significant contribution to Rio Tinto over this time and wish her well for the future.

We are a balanced and diverse board, comprising myself as chairman, two executive directors and eight (soon to be nine after the new appointments and Vivienne Cox’s retirement) independent non-executive directors, all of whom are rigorously assessed to ensure they continue to meet strict independence criteria. The directors bring with them truly international experience from a wide range of professional, business and public office backgrounds.

Dear shareholders,

2013 was a challenging and very rewarding year for Rio Tinto. I was proud to be appointed chief executive of your company a year ago at a time when shareholders had lost some confidence in the business. Change was needed. Trust and confidence in management had to be rebuilt. While I was determined that Rio Tinto would not repeat the mistakes of the past, I also recognised the solid foundations of an outstanding company with extremely good people and assets.

Transforming our business to focus on greater value for shareholders

So, while Rio Tinto was in many ways an outstanding business, we needed to refocus on meeting the expectations of the owners of our company. I defined our 2013 goal as delivering greater value for our shareholders and during the year, I personally met with and listened to hundreds of investors and analysts, as well as our employees, customers and suppliers across the world.

They all told me, we want to see Rio Tinto return to a position of strength. Similarly, I too want Rio Tinto to be a company admired and recognised not just for superior performance but for embodying our values in all that we do. In February 2013, I set out my plan to improve and build upon the strong foundations of the company. This included creating a tightly-run, and more disciplined and accountable business. In 2013, we have done just this and forged ahead with a single-minded emphasis on delivering our priorities to improve performance, strengthen the balance sheet and deliver results in every market in which we operate, everywhere around the world.

Our performance in 2013 reflects the efforts of all of our 66,000 employees to turn this business around. I am humbled by the enthusiasm, passion and talent I have seen, and the willingness of all our people to embrace the change required and improve performance. Against a backdrop of continuing market uncertainty, we have improved earnings and cash flows. We have reduced costs, net debt and capital expenditure. We have delivered greater value for you, our shareholders, which is reflected in the 15 per cent increase in our 2013 full year dividend.

In short, last year, we did what we said we would do. But we are restless to improve further. Our 2013 net earnings reflected impairments on some of our assets and we are absolutely focused on making sure we improve project execution and deliver further business improvements. This, together with improving our safety performance, will be our continuing focus in 2014.

Building a safer business

While we can look back with pride at the many successes we delivered in 2013, we failed to meet our critical goal of no fatalities in our business. Three of our colleagues died working at Rio Tinto managed operations last year. Thirty seven people died at non-managed operations, including 33 at the Grasberg mine in Papua, Indonesia. These are terrible tragedies. With regard to Grasberg, we are continuing to work with our joint venture partner to share our safety capabilities and learnings so we can both improve our safety performance, and this process is ongoing.

All of these deaths weigh heavily on me personally and I, and my management team, feel enormous sorrow for the families and friends of these colleagues. I was also deeply saddened by a further fatality at Grasberg and another at the Gove refinery this year. I am determined that we will turn our safety performance around. We have made significant gains over the course of our safety journey but we have more to do. Strong safety leadership, improved management of critical risks, and learning from all significant incidents are of paramount importance.

Delivering our strategy

We are still operating in a volatile macroeconomic environment. Despite more optimistic signs coming through from OECD economies, and growth remaining

relatively strong in developing economies, the underlying structural fragilities remain. With volatility expected to continue over the short term, we will stand by the priorities we set for ourselves a year ago: to improve performance, strengthen the balance sheet and deliver results. These priorities have already proved effective in making us a more robust organisation, and with continuing focus, we will grow stronger still.

1. Improving performance

We exceeded our targets for reducing operating cash costs and exploration and evaluation expenditure in 2013. These results demonstrate the exceptional work being done across the business to address our cost base. These efforts will continue in 2014, in order to reach a US$3 billion improvement in operating cash costs versus 2012. Our aim is to sustain exploration and evaluation spend at around 2013 levels in 2014 and beyond.

Our 2013 performance was further bolstered by increased production. We set new production records in bauxite, thermal coal and iron ore, and across the Group, our total production grew by nine per cent in 2013 on a copper equivalent basis. Our focus on productivity will persist in 2014, in tandem with our keen eye on costs. Our efforts to reduce costs and increase performance, resulted in improved underlying earnings of US$10.2 billion, up ten per cent on 2012.

2. Strengthening our balance sheet

The excellent performance achieved in reducing costs, together with volume growth, is leading to stronger cash flows. Combined with cash inflows from divestments and lower capital expenditure, we were more than able to reverse the increase in net debt we saw in the first half of the year.

In November, we announced our breakthrough pathway for expanding our Pilbara operations towards 360 million tonnes per annum at a US$3 billion lower capital cost than previously planned. This is a clear example of our disciplined approach to capital allocation. I am confident we have stronger, stricter processes in place for how we allocate capital. As we move forward with reinforced systems embedded at the core of our investment approach, you have my absolute commitment that each and every dollar we are investing on your behalf is being rigorously scrutinised.

Our focus for the year ahead will be to continue to pay down debt and further strengthen the balance sheet. Our aim is to provide the board with options for how best to deliver value to you, whether this is through value-accretive growth, or returning cash, or a combination of both.

3. Delivering results

In keeping with our strategy, 2013 saw the completion of five major capital projects that have already started delivering results: the Oyu Tolgoi copper-gold mine; the first phase of our Pilbara iron ore expansion; the Argyle underground diamond mine; the Kestrel coal mine extension; and the AP60 aluminium smelter. We expect to deliver strong returns from these key assets in our portfolio over the coming years.

Ongoing commitment

In 2013 we rose to the challenge and navigated difficult times to emerge as a leaner and much stronger company. 2014 will be about locking in the gains achieved last year and continuing to strengthen the business.

I would like to close by paying tribute to all of our employees across the world. Without their efforts we would not have been able to turn around the performance of the business and I am energised by the effort, enthusiasm and passion for improvement which I have seen first-hand in every part of our organisation. Over the next 12 months and beyond we will remain focused on safety and upholding our values wherever we operate in the world. Above all, we will continue our single-minded focus on delivering greater value for you, our shareholders.

External pressures

The mining industry is cyclical and, following a decade-long growth phase, it is now experiencing a period of lower prices and compressed margins. Meanwhile, volatility – a characteristic of the macroeconomic environment since the global financial crisis – has been ongoing and is expected to continue, bringing with it further short-term risk.

Our response to this has been to focus on costs, cash flow and capital discipline. Others in the sector have embarked upon similar paths. Inefficiencies are also being exposed, and so reductions in costs and capital expenditure, productivity improvements, and project deferrals and cancellations have become a prominent part of mining industry strategy.

Despite the uncertain conditions that we currently face, the long-term outlook for our sector remains positive.

The world’s population is forecast to increase by 30 per cent in the next 40 years. Seventy million people enter the middle classes every year. In China alone, around 170 million people are expected to move to an urban environment by 2025. These factors are driving demand for the minerals and metals we produce, as essential ingredients of modern life. They make our business a good and valuable one to be in.

Consistent strategy, sharper focus

Rio Tinto’s vision is to be a company that is admired and respected for delivering superior value as the industry’s most trusted partner.

The world we operate in today, and the future we are preparing for, require us to have a clear and consistent strategy. In 2013, we reaffirmed our direction of

travel and recommitted to the strategy that has worked for us for many years: to invest in and operate long-life, low-cost, expandable operations in the most attractive industry sectors. This strategy will allow us to take advantage of the opportunities ahead, and we are confident that it is the right one for Rio Tinto.

In 2013 we reset our focus on executing the strategy by becoming a leaner, more cash-oriented and tightly-run business. We refocused our Group on improving performance, strengthening our balance sheet, and delivering results – to deliver greater value for shareholders.

We are doing what we said we would: reliably and relentlessly executing our strategy. We are making every dollar count, looking for ways to do things safer, smarter and better, and ensuring that we only invest in activities that add value.

2013 marked our 140th year in business. We have been around this long by being very good at what we do. Looking to the future, disciplined execution of our strategy is vital to building on our recent successes, and our industry-leading capabilities will equip us to do this.

We have world-class people and assets, and have developed pioneering and industry-leading systems and technologies. We pride ourselves on being innovative – finding solutions that help us operate more efficiently, sustainably and responsibly. We are recognised and respected for our exploration and operations expertise, for our values and our commitment to safety, and for creating benefits for our diverse stakeholders.

While these things will not change, our sharpened focus aims to transform us into the highest performer in our sector and will make sure we are fighting fit for the next 140 years and beyond.

How we create value

We create and preserve value by investing in and operating long-life, low-cost, expandable operations in the most attractive industry sectors. From the earliest stages of exploration, during our assets’ productive lives, and throughout the closure and restoration phase beyond, we commit to high standards of sustainable development. Read more on pages 18 to 25.

Explore and evaluate

Our experienced in-house exploration team has a proven track record of discovering Tier 1 orebodies: the highest-value deposits that are profitable throughout the commodity cycle.

We maximise opportunities by exploring for and evaluating deposits in new geographies (such as the La Granja copper project in Peru). We also explore the orbits of our current operations (like the Caliwingina iron ore deposit in the Pilbara), which sustains the value of our existing businesses. We operate the majority of exploration programmes ourselves rather than outsourcing, so we can keep focus on targets that are important to Rio Tinto. We will, however, partner with others if it gives us access to attractive opportunities, or skills, that we do not possess in-house.

Our orebody knowledge allows us to find value-enhancing ways of developing our resources and positioning our products in the market. Our geological expertise gives us the confidence to keep hunting for the most elusive discoveries. And we have a strong tradition of developing and applying innovative technologies to resolve specific exploration challenges.

Develop

We develop orebodies for long-term value delivery. We aim to deliver projects on time and on budget – such as commissioning the first major expansion phase of our Pilbara iron ore operations and the Oyu Tolgoi concentrator in 2013. Through our reinforced capital allocation process, we approve investment only in assets that, after prudent assessment, offer attractive returns that are well above our cost of capital.

During this phase, we plan the most efficient configuration for developing the orebody and for getting the products to market. We work closely and strategically with our customers, to create demand for the optimal suite of products, thus maximising value over the deposit’s lifetime. Once the value of the orebody is confirmed, and internal and external approvals are received, the project moves into implementation and construction.

Mine and process

We create value by safely and efficiently operating assets that fit with our Group strategy. Our global operating model allows us to implement standard processes and systems across the Group, for instance in procurement, operations and maintenance. This globally-consistent approach reduces our use of consumables, increases the life of our equipment and optimises the extraction of ore. In turn, we enjoy higher production and reduced costs, and we maximise value.

We use world-class technologies during mining and processing to increase our efficiency and productivity, and to produce material that is tailored to our customers’ needs. Through networked partnering with academia, technology suppliers and other experts, we gain access to knowledge and technical prowess that augment our own capabilities.

Market and deliver

Our diverse portfolio of metals and minerals allows us to respond to demand across the development cycle: we supply basic raw materials and refined products that are the building blocks of added-value goods. Most of our

customers are industrial companies that process our products further and supply numerous sectors – including construction and infrastructure, automotive, machinery, energy and consumer goods.

We innovate and improve our products and services to maximise value to customers. We are constantly adding to our market knowledge, allowing us to improve our investment decision-making process. In many cases, we are responsible for delivering product to our customers, and do so efficiently, reliably and cost-effectively. We have significant in-house logistical capability, including through our own networks of rail, ports and ships.

Close down and rehabilitate

We integrate closure planning throughout an asset’s life cycle, from the earliest stages of project development. When a resource reaches the end of its life, we seek sustainable and beneficial future land uses, to minimise financial, social and environmental risks. By partnering with external conservation organisations, we access expertise that helps us improve our rehabilitation performance. Our approach helps us to maintain a positive reputation for sustainable development and ensures we meet the expectations of our current and future stakeholders.

Delivering value for our stakeholders

Rio Tinto’s primary focus is on the delivery of value for our shareholders. We balance disciplined investment with prudent management of our balance sheet and cash returns to shareholders. We offer a long-term investment opportunity, and commit to sustainable growth in cash returns to shareholders through our progressive dividend policy. As we work, fixed on this core aim, our activities also give us the opportunity to create value for our other stakeholders, in a variety of ways.

Customers

We supply our customers with the right products at the right time. They then add further value, by turning them into the end products that society needs to make modern life work.

Communities

Our operations create employment and career development opportunities for our local communities, as well as business opportunities for local suppliers. Communities often benefit from the infrastructure we put in place to serve our facilities and, once our operations are closed, we restore the sites – often for community use, new industry, or back to native vegetation.

Our people

We invest in our people throughout their careers, offering diverse employment prospects, opportunities for development, and competitive rewards and benefits that have a clear link to performance. As employees spend their wages, the value we share with them is spread more widely.

Governments

We are often a major economic contributor to the local, state and national jurisdictions in which we operate. Our tax and sovereign equity contributions enable governments to develop and maintain public works, services and institutions. We work together to facilitate growth of diverse and sustainable economies that endure far beyond the active life of our operations.

Suppliers

By seeking a balance of global, national and local supply capability we drive value for our shareholders and deliver economic benefits for the communities in which we operate.

Development projects

Rio Tinto Alcan’s primary focus is on delivering key existing brownfield and modernisation projects – investments that will enable it to leverage the group’s strong bauxite and low-cost hydropower positions.

The new Arvida Smelter and AP60 Technology Centre in Quebec’s Saguenay–Lac-Saint-Jean region is complete and has ramped up successfully. With an initial capacity of 60,000 tonnes per year, the smelter provides an industrial-scale research and development platform for commercialising Rio Tinto Alcan’s latest-generation AP Technology™. AP60 is designed to deliver significantly lower full economic costs of production once at full capacity, including 40 per cent higher metal output per pot and 15 per cent higher labour productivity. This new facility, which will eventually replace the existing Arvida smelter, has the potential for two additional phases that would boost annual capacity of the new facility from 60,000 to 450,000 tonnes.

In British Columbia, the modernisation of the Kitimat smelter will enable the Aluminium group to fully leverage its wholly-owned Kemano hydropower resource. A project cost overrun has been identified, and a process to validate the extent of the overrun is currently under way. Any additional capital required to complete the project will be subject to board approval. Subject to that approval, the Kitimat Modernisation Project is now expected to be commissioned and produce first metal during the first half of 2015. This project will increase Kitimat’s annual capacity by some 48 per cent to approximately 420,000 tonnes, while moving production into the first decile of the cost curve and achieving a reduction of more than 50 per cent in the smelter’s emissions intensity.

Ramp-up at the expanded Yarwun alumina refinery in Australia, a project known as Yarwun 2, is now complete and contributing to reduced alumina operating costs. Production capacity at Yarwun has more than doubled, to 3.4 million tonnes per year: an initiative that strengthens Rio Tinto Alcan’s second-quartile position on the industry cost curve for alumina production.

Bauxite growth projects include the South of the Embley expansion project in Queensland, which, subject to approval, will extend the life of the Weipa bauxite mine by about 40 years (depending on production rates). This will ensure continuity of supply for Rio Tinto Alcan’s Gladstone refineries, while also facilitating exports to meet rapidly increasing demand from China and the developing Middle East market. This project can be developed at the appropriate time.

Due to current market conditions, it is unlikely that Rio Tinto Alcan will make further significant investments in aluminium and alumina growth projects for the foreseeable future.

Outlook

Looking to the near term, bauxite should continue to be the healthiest segment of the industry, driven largely by strong demand in China. Rio Tinto Alcan is well positioned to take advantage of this strong demand through its industry-leading bauxite assets, especially against the backdrop of the supply uncertainty created by Indonesia’s export ban, which was implemented in January 2014. Global demand for alumina and aluminium is also strong, however these segments face continued challenges going forward.

At the end of 2013, the aluminium market was nearly balanced following recent curtailments and production disruptions. Aluminium inventories are likely to remain high as warehouse deals are driven by the attractiveness of low interest rates and a strong contango (ie indicative of expected higher prices).

The market for alumina, currently trading at or around the marginal cost of production, is expected to remain near balanced for the near term.

Metal prices remain under pressure – as do many marginal producers. Nonetheless, market premiums have reached unprecedented levels. Despite markedly-increasing premiums, a good portion of the industry remains in a loss-making position. This could intensify pressure for more curtailments, which over the longer term could put upward pressure on the LME base price.

Recent proposals by the LME regarding warehousing rules could soften regional premiums from their recent record levels to a more historic range, but this will take time to unfold.

Despite the short-term challenges, the longer-term outlook for aluminium remains robust and Rio Tinto Alcan believes that strong margins will be available for the well-positioned, low-cost operator. Medium to long-term compound annual demand growth rates (from a 2013 base) are forecast to average five per cent until 2020 and to be near four per cent until 2030. Transportation will be the stand-out growth end-use sector supported by substitution of other materials by aluminium.

Northparkes (formerly Rio Tinto: 80 per cent)

Located in New South Wales, Australia, Northparkes was a joint venture with the Sumitomo Group. Northparkes produced 51 thousand tonnes of copper and 62 thousand ounces of gold up to December 2013 (100 per cent basis). In July 2013, Rio Tinto announced an agreement to sell its 80 per cent interest in Northparkes to China Molybdenum Co., Ltd. (CMOC) for US$820 million. The transaction closed on 1 December 2013.

Palabora (formerly Rio Tinto: 57.7 per cent)

Palabora Mining Company is a South African company formerly listed on the Johannesburg Stock Exchange. The mine produced 26 thousand tonnes of refined copper up to July 2013 (100 per cent basis). In December 2012, Rio Tinto announced an agreement to sell its interest in Palabora for consideration totalling US$373 million. The transaction closed on 31 July 2013.

Development projects

The Copper group’s investment focus is on improving productivity and mine life at key operating assets and retaining development optionality on high quality projects, with production to come online when the market dictates. It employs a phased approach to development to maximise the value of a project to shareholders and to manage project risks and capital exposure.

Productivity and mine life extension

Kennecott

Rio Tinto is investing US$660 million to extend the life of Kennecott’s Bingham Canyon Mine from 2018 to 2030. The project, known as Cornerstone, involves pushing back the south wall of Bingham Canyon to gain access to 515 million tonnes of 0.79 per cent copper equivalent ore, with first ore expected to be accessed in 2017.

Escondida

At Escondida, production was approximately seven per cent higher in 2013, primarily as a result of higher ore grades and improved throughout rates. In addition, Escondida will construct a new dynamic leach pad to maintain current levels of oxide leaching. The project should be complete in mid-2014, when the existing heap leach is exhausted.

Grasberg

PT Freeport Indonesia continues to develop the large-scale, high-grade underground orebodies located beneath and nearby the Grasberg open pit. In aggregate, these underground orebodies are expected to ramp up over several years to approximately 240,000 tonnes of ore per day following the anticipated transition from the Grasberg open pit in 2017.

Oyu Tolgoi

On 29 July 2013, Rio Tinto announced that all funding and work on underground development of Oyu Tolgoi would be delayed. Since then, Rio Tinto has continued to engage with the Government of Mongolia with the aim of resolving a number of outstanding shareholder issues and to progress project finance. An option to restart underground development, subject to certain conditions being met, has been proposed, but further delays may occur if these conditions are not met before lender commitments on existing project finance arrangements expire. Such delays could lead to further impairments.

Greenfield projects

La Granja (Rio Tinto: 100 per cent)

The La Granja project, located in northern Peru, has the potential to be a Tier 1 asset and one of Rio Tinto’s highest-value opportunities.

The project strategy is focused on delivering a risk-managed and staged entry to a world-class mining district. The mine development strategy is designed to manage social, environmental and technical challenges by starting at a small scale and preserving options to grow the project over time.

Resolution Copper (Rio Tinto: 55 per cent)

The Resolution Copper project, located in Arizona, US, is among the top ten largest undeveloped copper assets in the world, and could eventually become the largest copper producer in North America.

In November 2013, the company submitted a Mine Plan of Operations to initiate Federal permitting on the project. Approval of the plan would allow mining to occur on lands where the company currently holds mineral title. Resolution is also seeking approval in the US Congress to acquire full legal title to 671 hectares of public land held under its mineral claim and to revoke a mineral withdrawal on 307 hectares of adjacent land. In exchange, the project would give the public more than 2,400 hectares of high-quality Arizona conservation lands. While exchange legislation faces opposition from special-interest groups, it is moving through the US Congress with bi-partisan support.

Technology and innovation

The Copper group recently established a Growth and Innovation organisation responsible for developing a focused, attractive portfolio of value-producing growth and innovation opportunities. The group invests in value-creating, leading-edge technology to drive the efficiency and safety of its mining processes and reduce environmental impact, above and below ground.

Taking in real-time data, the new Excellence Centre uses the latest in modelling and simulation tools to significantly improve copper processing performance across the globe.

Rio Tinto is evaluating a range of incremental and step-change technologies to improve the safety and productivity of current mines and expansions, with a particular focus on mineral processing and block cave mining. This has included large-scale copper sulphide leach testwork on the La Granja mineralisation and a successful pilot sulphide leach facility using ore at Kennecott.

Outlook

While Rio Tinto expects volatility in the near term, long-term fundamentals for the copper industry remain positive. The continued urbanisation, industrialisation and electrification of China and other large markets such as India and South East Asia, combined with greater energy-efficiency requirements and the move toward more renewable energy sources, will continue to drive long-term copper demand. Against those demand dynamics, the supply picture will remain constrained, with continued cost escalation in some jurisdictions, falling grades, technical challenges from increasing depth at existing operations and new discoveries, water and power constraints, and continued political and social risks, especially for new projects.

Rio Tinto Copper is well positioned to benefit from of these strong market dynamics. It is currently the industry’s sixth largest copper producer, with existing Tier 1 assets. In addition, the group is pursuing high-value growth opportunities, using a phased and structured approach to development investment while maintaining optionality. The group is carefully managing costs and capital exposure, and its leadership in technological innovations allows it to safely and efficiently access lower grade ores and deposits, at greater depths. This strategy will generate significant and sustainable value for shareholders and all partners, as it is expected to reposition the group from the third quartile of the copper cost curve into a low-cost, first quartile producer.

Rio Tinto Minerals (RTM)

RTM (Rio Tinto: 100 per cent) supplies over 30 per cent of the world’s refined borates from its world-class deposit in Boron, California. RTM also has borates refineries and shipping facilities in China, France, Malaysia, the Netherlands, Spain and the US.

Borates production of 495,000 tonnes boric oxide equivalent was seven per cent higher than in 2012, following cuts to production in 2012 in response to market conditions. Global demand for RTM refined borates improved slightly with revenue remaining flat on lower prices. Earnings of US$131 million were six per cent lower than 2012 due to the decrease in product prices.

Rio Tinto Minerals is delivering the modified direct dissolving of kernite (MDDK) project, which allows for more efficient orebody utilisation. The project is on track for completion in 2014.

Dampier Salt (DSL)

Dampier Salt Limited, the world’s largest solar salt exporter, produces industrial salt by solar evaporation of seawater at Dampier and Port Hedland, and from underground brine at Lake MacLeod, all in Western Australia. Salt is sold principally to the base chemical industry markets in Asia. Salt production of 6.7 million tonnes (Rio Tinto share) was two per cent lower than 2012. During 2013, gypsum mining operations and sales were resumed.

Development projects

In 2011, Diamonds & Minerals re-entered the potash business through an exploration joint venture with North Atlantic Potash Inc., a subsidiary of JSC Acron. Acron is a world leader in fertiliser production and holds multiple potash exploration permits in Saskatchewan, Canada. Drilling results indicate encouraging potash grade and thickness. Higher nutritional standards, population growth and limited arable land make potash a critical factor in maintaining global food security, and a natural complement to RTM’s existing borate fertiliser business.

Progress continued at the group’s Jadar lithium-borate deposit in Serbia. A pilot plant for processing Jadar material was commissioned at Boron and core samples processed at the plant yielded encouraging and positive results. If developed, the deposit has the potential to supply a significant proportion of global lithium demand. Lithium carbonate’s fastest-growing application is in batteries that provide clean power to industrial systems and electric and hybrid vehicles.

In January 2013, against a backdrop of weaker market conditions for its products and the need to manage and reduce its costs, RTIT reviewed the economic viability of the TiO4 project and cancelled prefeasibility studies for the project in Canada and Madagascar. The Zulti South mine expansion at RBM, the mineral sands exploration programme in Mozambique and other brownfield studies at the group’s operations continue.

The Bunder diamond project is progressing its prefeasibility study, which began in July 2010. These studies have confirmed the economic potential of the orebody and work is under way to define the best development option. Mine plan approval was received during the year and environmental approvals are under way.

The Simandou iron ore project in Guinea is one of the largest-known undeveloped high-grade iron ore resources in the world. The concession will enable the development of the largest mine and infrastructure project ever undertaken in Africa. This will include the progressive development of a 100 million tonne per annum mine, a 650-kilometre trans-Guinean railway and a new deep-water port.

The project is adopting a “stage gate” approach for investment to be made in line with Government of Guinea approvals and funding processes.

In February 2013, the Government of Guinea approved the Social and Environmental Impact Assessment (SEIA) conducted on the Simandou project. The SEIA is the result of a consultation programme involving more than 10,000 members of the local communities and ensures the project is developed in a way that maximises long-term benefits for the people of Guinea and minimises impact on the communities and the environment. Also during the year, the project sponsors – the Government of Guinea, Rio Tinto, Chinalco and the International Finance Corporation signed a letter of mutual intent setting out the key principles that will serve as the basis of the Investment Framework that the partners intend to finalise in the first half of 2014. The Investment Framework is instrumental in governing the Simandou project successfully, and in setting a stable and durable operating model and environment for all partners and investors.

In parallel, the partners are seeking funding for the project infrastructure. This may include outsourcing to a third-party consortium in a strategy to embed a broad partnership approach to developing the multi-user infrastructure, and to reduce the risk and capital commitments of the Simandou project sponsors.

Outlook

The group serves a range of different industries, but are linked through their track record of creating and defining new and profitable markets for their products. Demand softened in these markets in 2013 in response to broader economic trends, and the outlook for 2014 remains uncertain, although there is some sense that developed economies are on the path to a more robust recovery, which is a driver for industrial mineral demand. However, the medium to long-term outlook continues to be positive across all products as urbanisation and rising standards of living drive higher levels of demand.

RTM will continue to seek to capture profitable growth in emerging economies and maintain its position in its established markets. Ongoing supply chain improvements will facilitate speed and flexibility in shifting supply to promising sectors and regions. Demand for borates is expected to remain stable in the near term, and the long-term industry fundamentals remain attractive. RTM will focus on increasing refined borates capacity to meet higher-than-GDP demand growth while achieving world-class safety performance and improving its cost position.

Demand for titanium dioxide feedstock is expected to continue to grow in the medium to long term, in line with improving global economic conditions, urbanisation and demand growth in emerging markets supported by rising per capita incomes. In response to weak demand and excess inventory in the feedstock supply chain, and in order to reduce operating costs and inventory, RTIT has taken action at a number of its operations, including temporary closures of the UGS plant and deferral of a planned furnace rebuild at RTFT.

Pigment inventory has returned to historical levels and it is expected that feedstock inventories within the supply chain will return to historical levels over the course of 2014.

The medium to long-term fundamentals for the diamond industry are positive and expected to support sustainable future price growth. The global resource base is steadily declining, compounded by limited exploration investment and success, and expected reductions in supply over the medium to longer term. Demand in India and China is expected to continue to grow, and to represent nearly 50 per cent of global diamond consumption by 2020. Demand in mature markets is expected to continue to grow in line with GDP.

and there was no impact to the surrounding environment or to Kakadu National Park. The incident is being fully investigated.

In September 2013, ERA’s A$220 million brine concentrator was officially opened. Managing water is central to ERA’s operations and the brine concentrator will help improve its ability to treat water and progressively rehabilitate the site.

Since 2011 ERA has achieved total cumulative cash savings of A$127 million of its A$150 million in targeted reductions. This has been delivered through a number of initiatives, including merging management roles, reducing the use of contractors, reducing support and services roles, improvement in procurement and maintenance practices, and rationalisation of corporate costs.

Rio Tinto Coal Mozambique (Rio Tinto: 100 per cent)

Rio Tinto Coal Mozambique (RTCM) manages the Zambeze Project (100 per cent), Tete East Project (100 per cent), and Benga Mine (65 per cent) in Mozambique, and the Zululand Anthracite Colliery (74 per cent) in South Africa.

The Energy product group is working to secure a new pathway for its coal business in Mozambique. Its Benga mine has established itself as a hard coking coal producer and has been working to improve performance by reducing operating costs and increasing productivity.

A post-tax impairment charge of US$470 million relating to RTCM was recognised. This impairment follows a review of RTCM’s development plan, discount rate and associated country risk premium and brings the total impairments relating to RTCM to US$3.3 billion.

In 2013, RTCM delivered an operating cost reduction of US$20 per tonne, a 129 per cent increase in total coal production to 1.6 million tonnes (100 per cent basis) compared with 2012, a hard coking coal yield increase of five per cent and a reduction in overall headcount in excess of 25 per cent.

Notwithstanding these improvements, challenges remain due to infrastructure constraints and difficult market conditions combined with instances of civil unrest and ongoing political tensions. While the families of expatriate workers were temporarily moved home in November, business operations were not impacted. Separate to this, from mid-December 2013 to mid-January 2014, RTCM suspended mining operations at the Benga mine to reduce stockpiled coal. Customer commitments continued to be met during the suspension.

Rössing Uranium (Rio Tinto: 68.58 per cent)

Rössing Uranium Mine is located near Arandis in Namibia’s Erongo region. Like the rest of the Energy product group, in 2013 Rössing focused on business improvement strategies to reduce unit costs and achieved its target of US$30 million in savings for 2013. Rössing’s overall strip ratios dropped from almost 4:1 in 2011 to 2:1 during 2013. Uranium production in 2013 was 5,312 thousand pounds (100 per cent basis) compared with 5,950 thousand pounds in 2012. Production was impacted by lower-than-planned throughput and a leach tank failure in December which halted production. Some processing operations were restarted on 11 January 2014 and operations will continue to be progressively restored during the first quarter.

Rio Tinto acquired its interest in Namibia-based Rössing Uranium Limited (Rössing) in 1970. The Iranian Foreign Investments Company (IFIC) acquired its original minority shareholding in Rössing in 1975. IFIC’s interest predates the establishment of the Islamic Republic of Iran and the U.S. economic sanctions targeting Iran’s nuclear, energy and ballistic missile programs. IFIC acquired and continues to own a minority shareholding in Rössing in accordance with Namibian law.

Rössing is neither a business partnership nor joint venture between Rio Tinto and IFIC. Rössing is a Namibian limited liability company with a large number of shareholders, including Rio Tinto with 68.7 per cent, IFIC with 15.3 per cent, the Industrial Development Corporation of South Africa with 10 per cent, local individual shareholders with a combined interest of 3 per cent and the Government of the Republic of Namibia with 3 per cent but with an additional 51 per cent vote at a general meeting of Rössing on matters of national interest.

As a shareholder in Rössing, Rio Tinto has no power or authority to divest IFIC’s holding in Rössing. However, Rössing and the Namibian Government have taken several recent steps to limit IFIC’s future involvement in Rössing.

On 1 October 2010, Namibia reported to the United Nations, pursuant to Article 31 of the United Nations Security Council Resolution 1929 (UN SCR 1929), that it had reached an agreement with the Islamic Republic of Iran that IFIC will not participate in any future investments nor will it acquire any further shares in Rössing. It was also agreed that the Government of Iran will not acquire interests in any commercial activity in Namibia involving uranium mining, production, or use of nuclear materials and technology, as required under UN SCR1929, until such time as the United Nations Security Council determines that the objectives of the Resolution have been met.

The Rössing board also took steps in 2012 to terminate IFIC’s involvement in the governance of Rössing. As a shareholder in Rössing, IFIC was entitled under Namibian law to attend general meetings of Rössing. IFIC was previously represented on the board of Rössing by two directors. While this level of board representation did not provide IFIC with the ability to influence the conduct of Rössing’s business on its own, the Rössing board nonetheless determined that, in light of international economic sanctions, it would be in the best interest of Rössing to terminate IFIC’s involvement in board activity. Therefore, on 4 June 2012, at the annual general meeting of Rössing, the shareholders of the company, including Rio Tinto, voted not to re-elect the two IFIC board members. This ended IFIC’s participation in Rössing board activities. IFIC accordingly is not represented on the Rössing board, nor does it have the right to attend board meetings or receive any board information

Dividends:

While IFIC is entitled to its pro rata share of any dividend that the majority of the board may declare for all shareholders in Rössing, IFIC has not received such monies since early 2008. Simply by

maintaining its own shareholding in Rössing, Rio Tinto is not engaging in any activity intended or designed to confer any direct or indirect financial support for IFIC. Further, the Rössing board determined no dividends will be paid for the year 2013.

Uranium off-take and technology:

Rössing is the world’s third largest uranium mine. It sells approximately 40 percent of its uranium to U.S. power companies and most of the remainder to Canada and other key U.S. trading partners in Europe and Asia. As a minority shareholder, IFIC has no uranium product off-take rights. Neither IFIC nor other Government of Iran entities have any supply contracts in place with Rössing and receive no uranium from Rössing. IFIC also does not have access to any technology through its investment in Rössing or rights to such technology.

While Rio Tinto does not view itself as actively transacting or entering into business dealings with an instrumentality of the Government of Iran, this information has been provided to ensure transparency regarding the passive, minority shareholding in Rössing currently held by the IFIC. Rio Tinto has disclosed the IFIC shareholding matter to the United States Government and has periodically updated the U.S. Department of State as to the same.

Rio Tinto Canada Uranium (Rio Tinto: 100 per cent)

Rio Tinto Canada Uranium’s Roughrider project is an exploration site located in North-Eastern Saskatchewan’s Athabasca Basin, which supplies approximately 20 per cent of the world’s uranium. An exploration programme is under way that is focused on obtaining orebody knowledge and a better appreciation of geotechnical, hydrological and hydrogeological conditions. Roughrider is near competitor deposits and existing uranium mills in the same geological terrain as all of Canada’s currently-producing uranium mines.

In 2013, the Canadian Government agreed to enter into an Agreement in Principle with the European Union on the Comprehensive Economic Trade Agreement. The Agreement provides an exemption to eligible companies from the Non-Resident Ownership Policy as it applies to foreign ownership of uranium mines. Once enacted, this change means Rio Tinto could, if economical to do so, develop a uranium operation without the requirement of first finding a Canadian majority partner.

Development projects

The Energy product group continues to review the optimal growth profile for all business units in light of market conditions for coal and uranium, the high-cost operating environment in Queensland and New South Wales, and infrastructure constraints in Mozambique. The Energy product group’s resource base in Australia’s Hunter Valley is unique due to its premium quality coal, and proximity to existing infrastructure. The resources based in this region are large, adjacent and option-rich orebodies that have the potential to support substantial open cut or underground mines for many decades to come and are difficult to replicate. With Energy’s ability to operate its New South Wales operations as a network, and a range of development options not yet realised, there is further potential for these assets to deliver material, long-term value to shareholders.

Work continues to determine the optimum pathway for the potential development of the Mount Pleasant project, a greenfield coal site in the Hunter Valley. In Queensland, the Energy product group is progressing a pre-feasibility study and government approvals to provide options for ongoing open-cut operations as well as underground development at Hail Creek Mine.

Evaluation and exploration of the Ranger 3 Deeps uranium deposit in ERA, which is estimated to contain over 33,000 tonnes of uranium oxide, progressed in 2013. Construction of an exploration decline, to conduct underground close-spaced drilling to further define and evaluate the deposit, began in May 2012 and underground drilling commenced a year later. In addition, ERA began a pre-feasibility study on the proposed Ranger 3 Deeps underground mine in July 2012. The study is on schedule and a decision on the viability and design of an operational mine is expected by 2015. ERA has also formally commenced the statutory approval process for the proposed underground mine with the Northern Territory and Commonwealth Governments.

Outlook

In the short term, the coal and uranium mining industries are expected to continue to suffer from increased costs, and weak commodity prices. The medium and long-term outlook, though, is positive. Energy demand continues to rise steadily driven by economic growth in emerging markets and further urbanisation and industrialisation in China and India. Much of this new demand is expected to be met by coal as it is the most secure, affordable, and readily-available source of energy, particularly in the Asia Pacific region.

After two decades of remarkable development and transformation, China is only now reaching world average levels of electricity and energy consumption. Previously a major net exporter of coal, China is now the world’s largest net importer of both thermal and coking coal. It is estimated that China will have imported over 300 million tonnes of coal in 2013. China will also need to import uranium to meet the requirements of its fourth-generation nuclear power programme. India, with low per capita electricity consumption and 300 million people still without access to electricity, requires substantial investment in energy infrastructure to sustain the country’s growth and development.

Asia remains the dominant market for Australian seaborne coal. Japan, South Korea and Taiwan remain important customers for Rio Tinto and growth from other South East Asian countries is expected. Coking coal is experiencing downward pricing pressure in the current market. However, fundamentals for this product remain strong over the long term, due to continued steel demand growth in China, India and other emerging Asian economies, as well as underlying global resource scarcity of premium coking coal. Rio Tinto’s Australian coal, due to its quality, supply reliability and location, is well positioned to supply the growth in demand in these Asian countries. Uranium production will need to grow in the long term to meet China’s large future requirements, but in the medium term the market remains under considerable price pressure.

30 operational AHS trucks driving 2.4 million kilometres and moving more than 130 million tonnes of material at three mine sites – West Angelas, Yandicoogina and Nammuldi.

Hope Downs 4, Iron Ore’s newest mine site, successfully and safely delivered its one millionth tonne of ore in the third quarter – an important milestone leading to the ramp-up of mining operations in 2014.

Iron Ore’s automated train programme, AutoHaul™, made progress during the year with the upgrade of numerous level crossings, hardware and software development of the system. The Iron Ore group purchased 1,100 ore cars and commissioned ten new fully-fitted locomotives in 2013. Ore cars and existing locomotives were also fitted with Electronically Controlled Pneumatic (ECP) brakes, which has resulted in a decrease in train cycle times.

Iron Ore progressed key participation agreements with Traditional Owners in the Pilbara, allowing the group to secure land access for the life of mining operations. New agreements with the Yinhawangka and Yindjibarndi people were finalised during the year. Aligned with previous agreements, these recognise a strong commitment to regional standards, and incorporate mutual obligations to deliver outcomes relating to employment, financial compensation, education and training, heritage surveys and practices, environmental care and land use.

In 2013, the group continued to be one of the largest private employers of Indigenous people in Western Australia employing over 1,700 employees and contractors. Over A$1.8 billion in contracts for Pilbara expansion were awarded to Aboriginal businesses both individually and through joint ventures between January 2010 and end of 2013. Rio Tinto Iron Ore continues to be an industry leader in regional FIFO programmes across Australia, with eight regional FIFO centres in Western Australia alone. A three-year memorandum of understanding was signed with the Shire of Broome in 2013 and a new regional office was opened in Busselton. Community initiatives stemming from the programme focused on education, skills development and support for regional families, including workshops and online support resources.

The Wickham town expansion continued to support the growing Cape Lambert rail and port operations workforce. Developments in 2013 included the opening of Cajuput Village, a 155 room FIFO accommodation and community facility, and the completion of phase one of the Wickham South sub-division, comprising of 212 new residential homes. The Wickham project also delivered upgrades to town services and local park redevelopments to accompany the recreational precinct finalised in 2012.

In 2013, Rio Tinto Marine shipped 191 million tonnes of dry bulk cargo, an increase of 7.7 per cent on 2012. The final vessel in the current new build programme was delivered during December and completed the suite of eight new vessels for the year. Average freight rates rose year-on-year in 2013 and forward markets suggest stronger freight market conditions in the future, given slower growth in the industry’s fleet and increased cargo tonnages of bulk commodities entering the market from mine expansions.

IOC (Rio Tinto share 58.7 per cent) made good progress in 2013. The company capitalised on the benefits derived from commissioning the first stage of the Concentrate Expansion Project (CEP1), and produced 8.6 million tonnes of pellets and 6.8 million tonnes of concentrate for sale, which is an annual production record for concentrate. Despite severe weather disruptions, the final commissioning of CEP1 during the first half of the year provided the capacity to deliver a step change in production performance, efficiency gains and overall operational improvement.

Development projects

The Iron Ore group reached a major milestone in the second half of 2013, with the commissioning of the 290Mt/a port and rail capacity expansion. With this achievement, Iron Ore has delivered the first phase of the major expansion of its integrated iron ore operations in the Pilbara.

The successful commissioning of this expansion at a capital intensity of less than US$140 per tonne (100 per cent) added an extra annual capacity of

70 million tonnes to the 220Mt/a Pilbara nameplate capacity. The port and rail project was constructed four months ahead of the original schedule, and delivered US$400 million below the approved budget. In addition to the new port, all major coastal and rail infrastructure for the 290Mt/a capacity is now constructed and includes:

Development of mining operations at Hope Downs 4, Marandoo and Western Turner Syncline (stage 1), which includes an overland conveyor to the Tom Price processing plant, are currently in the commissioning and ramp-up phase. Construction of the Nammuldi Below Water Table Project continues on schedule for commissioning later this year, and the West Angelas Power Station is currently in commissioning.

While completing the 290Mt/a port and rail expansion, the group made significant progress with the infrastructure to support further expansion towards 360Mt/a capacity. All marine piling activity for 360Mt/a was completed at the start of the third quarter. Two major structural, mechanical and piping packages, valued at approximately US$390 million, were awarded for the same project during August.

In December 2013, the US$310 million Bungaroo water facility and associated 87 kilometre pipeline was commissioned, providing water for Pilbara coastal operations and domestic requirements in the towns of Dampier and Wickham.

In November, the business unveiled a breakthrough pathway to match the upgraded port and rail capacity, which will see mine production capacity increase towards 360Mt/a through a series of low-cost brownfield expansions at a targeted all-in capital intensity of US$120-130 per tonne. Combined with low-cost productivity gains, the expansion is now forecast to be delivered at US$3 billion below previous expectations.

In conjunction with the announcement, US$400 million of capital expenditure was approved for plant equipment and modification, and additional heavy machinery for use at various mine sites in the Pilbara. This will enable a targeted production of more than 330Mt/a in 2015 and support the expected delivery of over 350Mt/a in 2017. Iron Ore’s Pilbara expansion programme remains the largest integrated mining project in Australian history and has a proven record of delivering project stages on time and budget.

The ramp-up of CEP stage two at IOC in the second half of the year delivered an additional 700,000 tonnes of spiral capacity, allowing the operation to increase volumes of Concentrate For Sinter (CFS) processed by gravity separation. The project remains on track to commission an additional ball mill and mining equipment, and to make upgrades to power distribution infrastructure during the second quarter of 2014.

Outlook

In line with the overall global economic outlook, the long-term fundamentals for iron ore remain sound, with demand growth tightly linked to rapid urbanisation and rising incomes in China and the developing world. However, iron ore prices are expected to moderate over the coming years as growth in low-cost seaborne supply outpaces growth in demand. Seaborne suppliers are estimated to have added more than 100Mt/a of iron ore supply capacity in 2013, and exports are expected to continue gaining momentum in the short to medium term. The majority of seaborne supply growth is expected to go into China, and supply-side exits from Chinese domestic suppliers and some high-cost seaborne suppliers are likely. With its low-cost position and proximity to China, Rio Tinto is well placed to take advantage of demand growth for seaborne iron ore through its expansions.

Rio Tinto’s Technology & Innovation group (T&I) collectively seeks to maximise total shareholder returns by partnering with, supporting, and constructively challenging product groups and functions in productivity improvement, technical assurance, project delivery, and innovation. T&I focuses on creating sustainable value and competitive advantage by making improvements to the way Rio Tinto operates. T&I also provides technical insights and support to review and mitigate critical risk factors across Rio Tinto.

T&I’s gross costs in 2013 were US$370 million, compared with US$415 million in 2012 and US$343 million in 2011. 2013 costs decreased compared with 2012 due to reductions in headcount, innovation spend and travel.

The total number of employees in T&I decreased from 1,031 at year-end 2012 to 730 at year-end 2013.

Strategy and strategic priorities

T&I is focused on four strategic pillars of work to support the broader Rio Tinto Group: Productivity Improvement, Innovation, Technical Assurance and Project Development and Implementation. Each of these four pillars is underpinned by a centralised team of industry experts and professionals, leveraging their collective technical capability across Rio Tinto’s businesses to deliver enhanced value for shareholders.

Safety

T&I is committed to the safe operation of its facilities and to the safe deployment of its personnel. The all injury frequency rate for T&I in 2013 was 0.63 compared to 1.57 in 2012. The improvement of this measure was primarily attributed to a tighter focus on existing safety efforts, particularly across Rio Tinto’s capital projects.

Performance

Innovation

Innovation is the research and development group within T&I. Its focus is on developing step-change technologies, including the Mine of the Future^TM programme, which addresses the significant challenges facing the mining industry. In 2013, Innovation continued to support the Iron Ore product group in its drive to capture safety and productivity benefits, by way of ongoing deployment of what will be amongst the world’s largest fleet of autonomous haulage vehicles, in its Pilbara mining operations. The Rio Tinto Mine Automation System and advanced visualisation technology were deployed to selected Group operations with further deployments scheduled.

Encouraging progress continues in the area of advanced mineral recovery. Innovation’s copper recovery technology, Peak Air Recovery, progressed through initial trials and is now undergoing final trials prior to commercial deployment. Building upon experience gained from the Iron Ore Operations Centre in Perth, Australia, a new range of systems for remote production process monitoring and optimisation have been commissioned. This next generation “Excellence Centre” (EC) technology platform allows for near real-time monitoring and optimisation of remote operating facilities. It utilises advanced data management, integrated with human systems. The EC provides Rio Tinto with the capability for continuous global coverage of managed business unit production facilities. The first processing EC was successfully operated throughout 2013, delivering technical support and measurable value to operating business units. Connections to remote copper concentrators and, most recently, coal washing facilities have been successfully established. The EC platform will be further deployed across the Group and will encompass the next generation of advanced remote technical support to operations.

Innovation uses a network of partnerships with organisations and institutions around the world, which provides a vast and interconnected group of world-class experts to generate solutions. The University of Nottingham, UK was added to this network in 2013, with the Rio Tinto Centre for Emergent Technologies inaugurated on 3 December. Also in 2013, Rio Tinto and Chinalco agreed to explore a partnership to bring forward the next era of mining technology aimed at delivering significant value and re-shaping industry best practice.

Productivity Improvement

With the organisational focus on improving productivity across Rio Tinto, the Mineral Technology Services and the Mining and Asset Management Centre were combined to form Productivity Improvement. The focus of this team is to help the business identify and implement significant productivity improvements by aligning performance with clear productivity metrics; improving productivity diagnostics; establishing internal and external benchmarking; and by constructively challenging and testing proposed plans for productivity improvements. This team also provides technical insights into risk mitigation, with expertise in the areas of geology, geotechnics, mining, mineral processing, dams and tailings, process control and hydrogeology.

T&I also includes a Strategic Production Planning (SPP) team that works with business units to develop comprehensive plans and valuations of strategic development options. Results from SPP provide a logical resource development framework for detailed studies and investment decision-making.

Project Development & Implementation

During 2013, Project Development & Implementation (PDI) reshaped its operating structure to align with the completion of existing capital projects, the general streamlining of organisational hierarchies, and the reduction in capital spending across Rio Tinto over the next few years. Under the revised structure, Rio Tinto is committed to an independent project management office (PMO) and two regionally-based Project Delivery Hubs, one for Australasia and the other for the Americas & Africa.

In line with Rio Tinto’s commitment to pursue greater value for shareholders, PDI is now delivering capital projects within a recently-developed Capital Projects framework. The framework provides Rio Tinto with a disciplined approach to managing its projects, and provides processes and tools, governance, reporting, and assurance to those who are responsible for capital.

Throughout this past year of change, PDI remained focused on the safe transition and handover of US$7 billion of capital projects, including: Kestrel Mine Extension, Argyle Underground Project, Energy Resources of Australia’s brine concentrator, Port Waratah Kooragang, Kemano Power Stage 1, and the AP60 aluminium smelter.

Technical Assurance

Technical Assurance is a team of internal professionals responsible for rigorously reviewing all major project proposals. Their role is to ensure that Rio Tinto’s Investment Committee and board are provided with independent technical assessments to support their decision-making. Throughout 2013, Technical Assurance focused its attention on strengthening the Group’s due diligence and Investment Committee processes. Technical Assurance also provides support to the business for a range of other technical compliance and governance activities such as post-investment reviews, due diligence, management of the Group’s reserves and mineralised material, and general technical reviews.

Outlook

T&I will continue to add value to the Group by working with the business units on productivity improvements. In addition, T&I will look for alternative approaches for funding of Innovation projects to react to changes in the Group’s cash position and capital spend constraints. Despite these changes and challenges, T&I will continue to maintain a culture that places a high priority on safety and safety improvement. In 2014, T&I will focus on four main areas: partnering with product groups and functions on productivity improvement; the safe and efficient development and implementation of capital projects; the pursuit of the Mine of the Future™ programme as well as the development of innovative alliances and relationships; and technical assurance. All of these will create competitive advantage for the Group. This will position T&I to support the business where commercial and technical expertise and external networks will have the largest benefit to Rio Tinto and its shareholders.