力拓 (RIO) 2005 Q2 法說會逐字稿

Good day, everyone. Welcome to the Rio Tinto conference call to discuss the half year 2005 earnings results. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Paul Skinner. Please go ahead, sir.

Good morning and welcome, everyone, to this Rio Tinto call. I'm Paul Skinner, Chairman of the company, and together with me on this call are Leigh Clifford, our Chief Executive, and Guy Elliott, CFO. I hope you've received slides, which we've distributed in advance. Our plan is to make a short presentation then open up the call to questions. I'll make a few opening remarks and then hand over to Leigh and Guy, who will cover the results in more detail.

I just ask you to note the slides we're talking to are numbered in the bottom right hand corner.

So, turning to slide 1. Underlying earnings of $2.1b for the first half of 2005 were more than double those of the first half of 2004. And note, please, we're talking on an IFRS basis, at least as far as the '04/'05 comparison's concerned.

This is our best half-year result by a very wide margin, and it reflects consistently good operational performance by our businesses and continuing strong markets. It also reflects the investments we've made over recent years to grow the business. In that regard, it's good to see recently commissioned projects, such as the Comalco Alumina refinery and the Hail Creek coking coal mine, now contributing to growth in production.

In the first half of the year, we've continued to invest in growth, with capital expenditure of approximately $1.1b. This is likely to be higher in the second half. We've also created a platform for future growth through the approval of new projects such as the Ilmenite project in Madagascar, which we announced today, and through focused portfolio transactions such as the Hope Downs Iron Ore joint venture we announced recently.

Moving to slide 2, net earnings for the first half were $2.16b, which is 34% above the comparable period last year. For this year we had fewer excluded items. Limited asset sales compared with 2004, where you may recall we sold our share holding in Freeport. We completed a $774m off-market buyback of shares in Rio Tinto Limited in May, at a significant discount to the prevailing market price, and this buyback is part of our intended capital return of $1.5b over two years, which we announced at the 2004 full year results in February.

Cash flow was $3.4b over the period, and the Group's net debt position fell from $3.8b to $3.5b at the end of the first half, which equates to a gearing of 21%.

So our balance sheet remains strong, puts us in a good position to pursue further investment opportunities and additional capital management initiatives, if we judge this appropriate. The dividend for the first half is $0.385 and that's fully in line with our policy of paying an interim which equates to half the full-year dividend in the previous year.

Slide 3, outlook. Well, the markets for Rio Tinto's products remained strong in the first half of 2005. There was a robust U.S. and Chinese growth. Low commodity stocks and capacity constraints contributed to rising prices.

Looking forward, economic indicators imply some moderation of economic growth in the United States and continuing weakness in Europe, but Japan appears to be benefiting from increased domestic consumption and investment.

In China, the fundamental supporting growth remains strong. Rural to urban migration and the rising wealth of urban dwellers are fuelling demand for new infrastructure and rates of investment in fixed assets remain high. We believe these conditions are likely to persist.

There are macroeconomic risks to consider. In the United States, public and private debt levels may constrain future growth, and the rising cost of energy will be a drag on economic activity in all those countries which are net importers. That's an effect we feel ourselves.

Imbalances in China's economy may lead to cycles of strong inflationary growth followed by periods of consolidation. The recent currency revaluation may go some way towards creating a more sustainable growth path for the Chinese economy, and we think this is a positive development.

Rio Tinto has a broad portfolio and we should be careful not to generalize. The outlook for each of our products is different, both on the demand and on the supply side, but not all will benefit from Chinese demand to the same extent. We'll also have investment in capacity expansions, which will allow the fundamental cost drivers in each case to reassert themselves more rapidly. It will be more rapid in some commodities than others.

On balance, we remain positive about the economic outlook and, as we see it today, demand for our products remains strong.

So with that introduction, Leigh, if I can pass to you.

Thank you Paul and good morning everyone. Perhaps you could turn to slide 4.

I'm pleased to say that all our product groups had very substantial earnings increases in the first half of 2005, and our result underlines the diversity, depth and quality of our assets.

Copper was the biggest contributor to earnings, with an increase of 112%, and this involved a particularly strong contribution from Kennecott Utah Copper. Iron ore Group earnings rose 165% on the back of rising prices and volumes. Energy was the third biggest earner, as the coal business in Australia took advantage of strong export prices for thermal and coking coal.

Aluminum benefited from rising alumina volumes in a strong market and good operational performance at the smelters. Also pleasing was the increased contribution from industrial minerals, which enjoyed strong markets for iron, steel, and zircon co-products in particular. Finally, diamonds saw a 10% improvement in earnings.

Now let's look at the operational performance in detail, turning to slide 5. I'd like to make some general points about the Group's operational performance. On a number of occasions recently, I've stressed that the Group's focus is on operational delivery in this period of strong metal and mineral prices. The prices we are currently enjoying for many of our products, such as iron ore, copper and molybdenum, are very favorable and it's important that we reap the full benefit of them.

This involves stretching our operations so that we can maximize production, sometimes even at the expense of rising costs. In a period such as this, when prices are well above marginal costs, this makes good business sense. As a result, we are delivering record volumes from many of our business units.

Of course, like all producers of this kind, we are experiencing industry-wide cost pressures. These are particularly prevalent in hot spots like Western Australia. But with our global and regional procurement systems, which have been in place for many years, we are better placed than most to manage these cost pressures. These pressures reinforce the need to drive operational improvement across all our businesses.

Now let's look at the individual product groups. Slide 6, Iron Ore. The first half of 2005 was good for our iron ore business. And at Pilbara we achieved record volumes of production, whilst at the same time undertaking a substantial capacity expansion program. In the market from April we benefited from a price rise of 71.5%, reflecting continued very strong demand for iron ore, particularly from China.

Although achieved in one step, this rise is not out of line with the rise in price of other commodities over the cycle. Additionally, during iron ore negotiations, we also enhanced our customer portfolio mix. At the Iron Ore Company of Canada, improved working practices following last year's labor negotiations have contributed to better performance and a series of production records, predominantly in the pellet plant.

Slide 7. In our aluminum product group, the smelting business performed consistently and efficiently. We also benefited from rising sales into the aluminum market, from the initial stage of production at the Comalco Alumina refinery. Our alumina production rose 45% year-on-year in the first half. We continued to examine the potential for further expansion of our alumina capacity, building on our excellent Weipa bauxite reserves.

Turning to slide 8, energy. In the energy product group, prices were good, especially for coking coal, which benefited the Hail Creek mine. Our mines performed well, but we were affected by port and rail constraints, which adversely affected our ability to make deliveries. The infrastructure situation in Newcastle in Australia is gradually improving and at Dalrymple Bay there should be some improvement in 2006, due to the introduction of a queue management system.

Investments are being made to increase capacity at both locations and a significant increase in capacity at Dalrymple Bay will come into effect in 2008. The Powder River Basin railroad maintenance is likely to have a continuing effect on PRB production, including chemical energy, through the summer and possibly later into the year. While these infrastructures do impact our operations, they're benefiting from an improved pricing environment for our coal businesses in both Australia and the United States.

Turning to slide 9, industrial minerals. In industrial minerals, Richards Bay Minerals returned to full capacity, as demand for chloride feedstock strengthened. The upgraded slag plant in Quebec is now approaching its expanded capacity rate of 325,000 tons per year. The market for co-products, particularly zircon, was very good in the first half.

Turning to slide 10, diamonds. Our diamond business enjoyed firm market conditions, which benefited both Diavik and Argyle. At Argyle we continue to evaluate the feasibility of the underground and that study should be complete around the end of this year.

Diavik continues to achieve production well in excess of original design capacity and is forecast to produce approximately 8.5m tons of carats this year -- sorry, 8.5m carats, not the other. The optimization work being undertaken at Diavik currently will maximize the value of the business by establishing the optimal sequence to mine the various kimberlites in future. Diavik remains one of Rio Tinto's highest mines in operation.

Turning to slide 11, copper. The very strong copper price benefited all our operations, with significant earnings contributions from our investments in Escondida and Grasberg. Operationally, I was pleased to see the Palabora mine consistently exceeding its target production rate of 30,000 tons per day in recent months. Northparkes, too, continues to operate at target levels.

The single biggest contributor to copper group earnings was Kennecott Utah Copper, where, apart from copper, a focus on increasing molybdenum production in a very tight market enhanced the results significantly. The impact of Kennecott Utah Copper is that the mine enjoys negative cash costs for copper, when moly and gold are taken as by-products first.

There were additional costs incurred in maximizing moly output but, as I pointed out previously, from a value perspective it was well worth pursuing exceptionally high margin production.

Turning to slide 12. In summary, then, I believe that the Company is performing well and that our focus on operational delivery is bringing results. Our plan is to lift performance even further. Our operations are stretched, but in many cases are delivering record volumes in the tight markets. We are not immune to industry-wide cost pressures, but we believe that we are managing those effectively.

And finally, these excellent first-half results illustrate the world-class quality of our asset base, which allows us to benefit from buoyant market conditions now, while building options for the future. We are by no means complacent, and want to use today's strong environment to build an even more robust business in the future.

Now over to Guy.

Thank you, Leigh, and good morning. Before I look at the results in detail, I'd like to point out that these results are the first to be presented under the new International Financial Reporting Standards. We have restated the 2004 results under IFRS, but the charts showing a sequence of numbers for years prior to that are based on U.K. GAAP. There is therefore a discontinuity between the numbers preceding 2004 and those following 2004, although the overall trend remains meaningful.

Now in slide 13, let's look at the results in our normal waterfall chart format. Strongly rising prices for our products in the first half of 2005 boosted earnings by over $1b, compared with the first half of 2004. In contrast, there was relative currency stability over the period, so the offsetting effect of U.S. dollar volatility was only $85m. When combined with inflation, these factors increased earnings by $846m.

Moving to slide 14, and looking at individual prices, we can see that they were stronger across the board. The 2005 price increase of 71.5%, which Leigh referred to earlier, meant that iron ore was the main contributor to the positive price variance. Continuing strong demand for thermal and coking coal in Asia fed through into rising prices, so that energy prices were the second biggest contributor to the variance at $202m.

The copper price, which averaged $1.51 per pound over the period compared with $1.25 in the first half of 2004, lifted earnings in the copper group by $151m.

Perhaps the most striking effect is the $100m contribution made by the molybdenum price, which maintained its upward trajectory over the period. The moly price peaked around the end of the first half, and has since eased.

Aluminum and alumina contributed $89m jointly, while Rio Tinto Iron and Titanium co-product prices for zircon, iron and steel added $43m. Finally, Rio Tinto Diamonds implemented a number of price rises in the first half, which contributed an additional $34m in earnings.

Slide 15 shows that rising volumes over the period contributed $460m to earnings. Each product group increased volumes to some degree, but if you turn to slide 16, you'll see that the increase in production of molybdenum at Kennecott and the recovery at Grasberg meant that the copper group was by far the biggest volume contributor to earnings, adding $300m. Moly and gold contributed all of this effect, with moly alone adding nearly $240m.

Iron ore contributed an additional $87m, with Hamersley's record sales accounting for $76m of that total. Rising alumina production accounted for all of the contribution made by the aluminum group, and the Australian coal operation accounted for nearly all of the energy increase. Volumes increased at QIT and RBM, but the other industrial minerals were flat.

On an annualized basis, at constant prices, overall Group volumes grew by 8% in the first half of 2005.

Turning to slide 17, industry-wide cost pressures continued for many of our inputs, including labor, energy, mining equipment and consumables, particularly in regions such as Western Australia. The effect of cost increases on earnings was $185m, with energy accounting for approximately one-third of that total. The Group was in general able to mitigate rising input costs through volume efficiencies. The effect of non-energy cost increases on earnings was $125m.

In addition to the factors mentioned earlier, cash costs were impacted by maintenance scheduling and raw material costs in our aluminum business. Higher demurrage also affected some of our business.

The other variant is primarily related to the exclusion of earnings from operations divested in 2004. These were partly offset by favorable tax effects and reduced interest charges on lower net debt. The overall effect of other items is not material.

Slide 18. In the first half of 2005, the Group sold fewer assets than in the first half of 2004, so the 'Excluded Items' category is much smaller this time. The Group made an after-tax gain of $89m on asset sales, including our holding in the Labrador Iron Ore Royalty Income Fund. There were some offsetting losses in Excluded Items, including losses on derivatives and U.S. dollar debt not qualifying as hedging. The Excluded Items total of $78m gives us net earnings of $2.16b for the first half.

Slide 19. Cash flow for the half-year was a record $3.4b, an increase of 69% over the comparable period last year. To put this into context, the Group generated cash flow over the first six months of the year equivalent to the whole year's cash flow in each of 2000 and 2001. The Group's focus on reducing working capital has continued. As measured in days, the Group's working capital fell by nearly a quarter from the end of June 2004 to the end of June 2005.

Turning to slide 20 and the balance sheet, net debt reduced by over $350m to $303.45b over the six-month period. This reduction was achieved notwithstanding our capital investment of $1.1b in the business in the first half, our buyback of $774m, which Paul mentioned earlier, and the increase in the Group dividend. Our gearing ratio is now at 21%, so that the Group's balance sheet therefore remains strong.

We will continue to monitor the capital structure of the Group to ensure that balance sheet strength, which is a source of competitive advantage in this industry, is not achieved at the expense of balance sheet efficiency. We will review our capital management options going forward.

Now, let me hand you back to Leigh.

Thank you, Guy. I would now like to update you on some of the Group's ongoing projects.

Please turn to slide 21, iron ore. The Group's current investment program of $1.6b in the expansion of our iron ore capacity in the Pilbara is proceeding well. Port and rail expansion will be complete in the fourth quarter of this year. The project therefore remains on schedule and will be completed within the approved budget. The port and rail infrastructure will be capable of handling an additional approximately 40m tons per year by the end of 2005.

I think the management team of Rio Tinto Iron Ore has done a great job in managing a project of this scale and complexity, while at the same time continuing to maximize production from their existing operation.

Slide 22. We have said before that the Group's opportunities for organic growth are the best they've ever been. We have a good number of projects in the conceptual stage, as well as in the stage of more advanced study. These include potential investments in all six of our product groups.

However, today I'd like to talk about three of these investment opportunities in particular, and these are the expansion options we have in our iron ore business in the Pilbara in Western Australia, which should be enhanced by our joint venture with Hope Downs, the Potasio Rio Colorado potash project in Argentina, which is in pre-feasibility study, and the QMM, our ilmenite project in Madagascar.

As Paul mentioned earlier, we announced this morning that the QMM project has received Board approval to proceed.

Turning to slide 23, firstly in iron ore. I have often said that in a strong market it's difficult to find value in M&A, unless you have a particular synergy. We believe the Hope Downs joint venture is a good example of what I meant. This is an excellent deal for Rio Tinto and for the Hancock Group. It allows the rapid development and optimization of a great high-grade resource, while using existing infrastructure in an economically rational way. The Hope Downs 1 deposit is 25 kilometers from Yandicoogina and 45 kilometers from West Angelas. While from Hope Downs 1 to the coast, the distance is over 400 kilometers.

Rio Tinto gains access to an additional 15m tons per year for its share, while Hancock can be reassured that its share of output will be officially produced and expertly marketed. Rio Tinto's position in the traded iron ore market is greatly enhanced.

Turning, secondly, to the Rio Potasio -- the Potasio Rio Colorado in Argentina, on slide 24, the Rio Tinto Group has recently exercised its option to take full ownership of the project. We are currently undertaking trials of solution mining, and the pre-feasibility study is expected to be completed by year-end.

The resources are world-scale and high quality, and the market environment is encouraging. The nearest major market is Brazil, which is one of the world's largest markets for potash in fertilizer application, and which is currently supplied, to a great extent, from more distant sources. Overall, the project would bring a new product to Rio Tinto, but one that would sit very comfortably with our existing portfolio of industrial minerals. If development continues to progress well, this project could be in production around mid-2009.

Finally, on slide 25, I would now like to update you on the Group's ilmenite project in Madagascar, the approval of which I said has been announced today. This is a large-scale mineral sands project, which seeks to develop the world's largest known undeveloped resource of high-quality ilmenite. It will reinforce Rio Tinto's leadership position in the titanium mineral sands industry.

Total capital expenditure will be $775m, though approximately $200m of this will be spent at QIT in Canada on upgrading smelting capacity and the logistics required to handle additional volumes. Expenditure in Madagascar will therefore be well in excess of $500m. Starting up around the end of 2008, we anticipate the project will produce 750,000 tons of ilmenite annually by 2012. This will be processed at QIT, to produce around 475,000 tons per year of high-grade slag.

The project will allow us to increase our share of the growing market for higher-grade chloride feedstock for the pigment industry, and will give us options for further expansion post-2012. It's an excellent addition to our industrial minerals business.

Slide 26. Rio Tinto's commitment to exploration is another source of competitive advantage for the Group. All bodies deplete, and there's a constant need to find new resources. This map shows the five major projects which our exploration group has handed over to the product groups for ongoing feasibility studies. It also shows our vast exploration projects. Some of these will be familiar to you, such as the diamond discovery in India, where we are currently evaluating a number of diamond-bearing mines.

Our [header] exploration in copper - Tom Albanese will provide a more detailed update of our exploration activity at a seminar later in the year. The Group also undertakes brownfield exploration at a number of Rio Tinto businesses, with notable efforts to expand resources being seen in the Pilbara and at Kennecott Utah Copper, as well as on the Freeport and Cortez joint ventures. This is another important means of ensuring the future growth of the Group's resource position.

In summary, then, on slide 27, we have our best ever portfolio of projects, which will ensure the continued growth of the businesses in future. We will continue to seek out M&A opportunities where we can identify real value, and ideally synergies, but of course we will always maintain our rigor in evaluation. Our exploration division is delivering additional resources to the Group for the longer term, through both greenfield and brownfield activity.

The Rio Tinto Group is performing well, with existing operations delivering and new products -- new projects under development proceeding according to plan. On that note, we'd like to take your questions.

Thank you. [OPERATOR INSTRUCTIONS]. And, gentlemen, we do have a question. It comes from John Tumazos at Prudential Equity Group.

Congratulations on all the earnings and the very prudent projects. How much is your flexibility to increase moly output even more at Kennecott?

Question for Leigh.

John, somewhat limited. We have the capability to produce 35m pounds per annum at the moment. That's as the result of a recent enhancement to our processing plant, and we've had to reorient our mine plan a little to take advantage of those strong prices. So I would expect that, going forward, it will be at that sort of level. Now obviously, if the prices were to continue, that's something we keep under constant review. But that's where we are at the moment.

Is your moly sold as oxide to steel mills at spot prices or do you have other refined value-added forms at long-term contract prices?

John, what we do is, we sell -- we have arrangements with roasters in Belgium, Mexico and elsewhere, and we basically sell the oxide to steel mills. We have sold some concentrate, because at the moment roasting capacity's in short supply, but primarily our sales are oxide.

Thank you.

[OPERATOR INSTRUCTIONS]. We do have another question in the queue. This is Daniel Roling, I believe it is, of Merrill Lynch.

Thank you. Leigh, looking forward at an increase in the supply of alumina on a global basis, what would you expect the alumina -- would you expect to see the alumina price maintain at these premiums to contract pricing, and do you think that we will see increased aluminum production from China as the price of alumina comes -- if the price of alumina comes down, that they become more competitive?

Dan, I think historically you'd have to say that spot prices of $400 a ton, which is where we are, about $400 [indiscernible] Australia is a very, very strong price. I know there have been a lot of announcements about projected alumina capacity. Announcements are one thing; actual construction on the ground is another. And bear in mind, we are selling -- we're talking about a metal for which there is growing demand, long term.

I have to say that how we take account of that is in our contractual arrangements. We have a combination of types of contractual arrangements, but we do -- are prepared to have some of our alumina sold on a spot basis, and that's proving prudent at the moment. A lot of that is to China.

As regards aluminum production out of China, I think the aluminum smelters which were constructed in recent years were very -- the capital efficiency was very good, and the technology was quite satisfactory. But power is in short supply in China and I would expect that over time you'll see a drop off in some of the Soderberg capacity. So whilst I expect increasing demand for the metal going forward, I'm not sure you'll see increasing aluminum metal produced in China, necessarily.

Okay. So, basically, looking for China to flatten out at these current levels, or maybe a bit more net net in the next two to three years?

I wouldn't want to be so precise -- that precise about it, Dan, but I think what you will see over time, the movement in China is the government is trying to discourage, if you like, wanton aluminum smelting capacity, given the power shortages. And power is not cheap in China. So what I would say is some of the expansion we've seen in recent years, I wouldn't expect to continue at that pace.

Okay, thank you. And if I could, just a quick question. What do you see in the Powder River Basin as far as the railroads getting their act together and do you see a significant step up in your ability to ship coal in '06 versus '05 if --?

The last advice I got, which was only yesterday or so, that they anticipated being able to improve the rail system really later in summer, into autumn, if you like, and that was an improvement over what I would have heard a couple of weeks ago. So I definitely anticipate greater capability of shipment during 2006.

Thank you.

[OPERATOR INSTRUCTIONS]. We'll go to a Terence Ortslan at TSO & Associates.

Thank you, good afternoon. Three projects or the growth opportunities that you have, if you may review those. One, the Resolution Copper, the critical date for that and how you do it [indiscernible] underground. What are the critical elements that you're looking at, and the direct optimization that you put into the [communal] projects, how they're progressing along? Thank you.

At Resolution Copper, we are building up our capability there to examine -- it's really much -- very much in the pre-feasibility stage of examining our options. We are embarking upon the land exchange process there, but I think you've got to see Resolution as a medium-term opportunity.

The -- and part of that will be examining the rehabilitation of the shaft at Resolution, because ultimately we need to get access to the ore body at depth to test stress conditions, temperature issues, and better understand the ore body.

At Argyle, the critical issue there really is our view of diamond prices going forward and our discussions with the Western Australian government about the level of royalties that are applied to the open cut. I think the West Australian government is recognizing the importance of addressing that, and that's something that we'll be probably reviewing towards the end of the year, because we've now got access to a decline into the kimberlite [pile] and we're evaluating the properties of that preparatory to finalizing the economics of the underground.

As regards the Diavik optimization, we are about to embark upon the building of a dyke at the next part we envisage extracting, and we're also commencing a decline into the underground, which will evaluate the underground options.

Okay. Thanks for that. Conflict Resolution - if you make a decision at the x point in time, given the complexity, how long would it take before the property became ready for production - three, four years?

How many years did you say, sorry?

If you were to make a decision on Resolution, how long would it take you for a convenient production scale - three or four years, with the shaft and all?

No, it would take more than that, because we're talking about full development, not only of the access and ventilation shafts, but full development of the extraction level for a blockade. And it'd certainly be -- I would envisage five to eight years, but I wouldn't want to be held to the precision of that. But consider it that sort of timeframe.

Fair enough. Thank you very much.

And we have another question. This is Douglas Upton at Capital Research.

Thank you. You mentioned in the comments something about an enhanced product mix in iron ore and I wondered if you could just give us a bit more color on that, please.

I think I said enhanced customer mix, Doug. What we've done in the past year is improve the proportion of our contract and iron ore sales to the major mills in Asia. In other words, the mills that we've traditionally had long association with, the most competitive mills, we've improved our contracted sales to them. In addition, we've improved some of our commercial terms in the last negotiations, which also enhanced our revenue.

Could you expand on the commercial terms, what you mean by that?

Let's say it impacts on revenue, Doug. It's a pretty competitive world and I wouldn't want to go into the detail of it.

I understand. I have just one more question for clarification. On the Madagascar project, is all of the ilmenite going through QIT?

At stage one, all will go through QIT. We've got the ability for further -- two further stages at Madagascar, and the options would be to enhance our smelting capacity, either at Richards Bay or at QIT, but we'll also have the ability to sell that ilmenite, given that it's very high quality, direct to consumers. Maybe even sell to some of the synthetic retail producers. So -- but stage one will be smelted at QIT and Quebec.

Great. Thanks, Leigh.

[OPERATOR INSTRUCTIONS]. We do have some follow-up questions. We're going to go to John Tumazos at Prudential.

If I could pose two. I understand, on the call six hours ago, there was a question about Bouganville Copper. And it's unclear whether you expressed optimism concerning the feasibility of a restart there, maybe in a shorter timeframe than Resolution in Arizona.

Second question -- if you could clarify that.

Second question; the growth in the first half in Chinese steel output appears to be almost three times the growth rates in copper or aluminum consumption, significantly higher. What's your best guess as to whether the steel is being used?

John, on Bouganville, I think we ought to temper any optimism there. Bouganville was closed in 1989 and I realize the last year or so has seen some encouraging signs of peace breaking out in Bouganville, but it's still a pretty tenuous situation. And I think we ought to -- certainly, from our perspective, we are very cautious about the prospects there. As far as resumption or in some way embarking upon copper mining, we don't even know the state of the situation there. Undoubtedly, all the infrastructure would need replacement.

As regards steel output growth, I'd have to say that certainly we're seeing strong steel production in China and I perceive that that is as a result of strong infrastructure spending in China in construction. But I haven't got the specific details compared to aluminum or copper. What I can say to you, though, is that demand for iron ore out of China, certainly from our perspective, has not abated. I know spot prices have come off a bit but they're still above term prices.

Thank you.

[OPERATOR INSTRUCTIONS]. We do have another follow-up. This is Daniel Roling again at Merrill Lynch.

Yes. Now that you've moved to the International Financial Reporting Standards, question - is there going to be any impact on the frequency of your reporting? Will it require quarterly, and if it doesn't is there still consideration of that in the European Community?

At the moment, Dan, we've got no plans to move to quarterly reporting. Of course, we do produce our quarterly operations report, which I think gives you a pretty good update as to where we are, although of course it doesn't go into financial detail. I think that the European Union has for some time been talking about whether it will make quarterly reporting obligatory. It's deferred that obligation at least once, and certainly at the moment it's not in prospect. So for the moment we think we're going to stick with quarterly operating reports and more detailed half-yearly financial reports, for the time being.

Okay, thank you. And the quarterly reports are helpful.

Good.

Gentlemen, we have no other questions in the queue at this time, so I'll turn it back to you for any closing comments.

Paul Skinner again. Well, I'd just like to thank all of you who have joined the call. As always, some very good questions and I hope the answers that Leigh, primarily, has given, have given you some additional insight into where we are. We think we had a pretty strong half-year and are moving forward with strong momentum into the second half. Thank you for joining us.

Thank you. That does conclude our call. Again, we do appreciate your participation. At this time, you may disconnect. Thank you.