力拓 (RIO) 2010 Q4 法說會逐字稿

Let's start then.

Good morning everyone here in London and good evening to those of you joining us from Melbourne and Australia.

Welcome also to those participating via the website.

Tom Albanese is with me here in London and Guy Elliott is hosting our presentation in Melbourne.

We have today reported outstanding financial results, reflecting a combination of strong commodity markets and excellent operational performance at our managed operations.

In addition to record earnings, we are also pleased to have reported impressive cash flow numbers and a further significant reduction in the level of net debt.

Our strategy of focusing on long-life cost-competitive mines and business is unchanged.

And we are in a major growth phase.

Disciplined investment in value-adding growth to meet the significant forecast increases in long-term demand remains at the top of our agenda.

We have many excellent opportunities to pursue.

Our confidence in the quality of our business has led us to announce an increase in the dividend of 20% compared to our previously stated annual commitment, setting a baseline for a progressive dividend policy.

I also want to emphasize that we continue to be committed to maintaining an efficient capital structure.

In particular, we believe that the creation of shareholder value over the long term requires a balanced approach to investing in growth and returning excess capital to shareholders.

As part of such a balanced approach, we've also announced today our intention to return $5b of excess capital to shareholders through a share buyback program.

Notwithstanding the significant cash return to shareholders, I am satisfied that we continue to have sufficient flexibility to selectively take advantage of future growth opportunities as and when they arise.

That's all from me.

Thank you very much and I hand you over to Tom.

Thank you Jan.

Good morning ladies and gentlemen.

Good evening for those of you joining us from Australia.

Let's start, as usual, with safety.

Safety remains the highest priority for Rio Tinto and I was pleased that we've continued to reduce the frequency of lost time injuries and also the rate of all injuries.

Unfortunately, I'm very sorry to report that there were three fatalities in 2010 at our managed operations.

And as we've said, any fatality is tragic and an unacceptable event.

So attaining zero harm remains our goal and my goal.

While I'm on this slide, let me add a few words on the effects of recent severe weather conditions.

About 80 of our employees in Queensland saw their homes flooded and several of our office locations in Brisbane were closed for a period of time.

We've reacted rapidly.

We established a formal volunteer program for employees to opt to help with their local communities.

And we continue to support the community and other efforts to recover from the damages caused by these devastating floods.

We're seeing continued very tough weather throughout Australia and we're keeping a very close eye on these weather patterns.

And we'll take the necessary actions and protect our employees, their families and our assets.

So with that, let's now turn to the financial results.

We've more than doubled our underlying earnings, setting a new record at $14b for 2010.

And we grew our cash flows by 70%, generating on average just under $2b of operating cash flow each month.

And this has enabled us to reduce our net debt to $4.3b by the end of the year.

Strong prices of course were the main driver.

But our consistently strong operating performance allowed us to take full advantage of these favorable market conditions.

In particular, we set new production records at our world-class Pilbara iron ore businesses.

Our record cash flows and our confidence in the business have allowed us to increase our dividend commitment and return $5b of excess cash to shareholders.

Our priority remains disciplined investment and value-adding growth and since the start of 2010 we've announced another of over $12b of major capital project approvals.

Of this amount, $8b is being invested in our Pilbara iron ore businesses.

Our project to increase iron ore volume by over 50% by the end of 2015 is the lowest-risk, highest-return major iron ore project in Australia today.

And certainly we have a range of evaluating options for growth across the diverse portfolio, including the modernization and expansion of our aluminum smelters in Canada.

In December, we reached a new agreement with Ivanhoe under which we now manage the Oyu Tolgoi project in Mongolia and have an agreed pathway to increase our stake in Ivanhoe to 49%.

At the end of last year, we also announced a recommended AUD16 per share cash offer for Riversdale mining.

And if successful, this acquisition would provide Rio Tinto with a coking coal development pipeline in the emerging Moatize basing in Mosambique in line with our established strategy.

So with that, let's turn to the economic outlook.

On average, commodity prices in 2010 were significantly higher than they were in 2009.

And prices for some have continued to rise to record levels so far this year in 2011.

A number of factors have been driven to this improvement.

Demand from developing countries, particularly China, have exceeded expectation.

Moving over to the OECD countries, low interest rates and sovereign debt concerns have encouraged investment in emerging nations and commodities.

Moving to the supply side, weather disruptions have caused some shortages and expectations for the supply side response in a number of commodities have been downgraded as others' expansion projects have proven to be more difficult.

So a look forward over 2011, global growth is expected to exceed 4% this year.

The Chinese GDP is set to grow by more than 9% and this is likely to lead to continued elevated average commodity prices.

Economic conditions remain heavily influenced by the stimulus packages put in place by governments following the global financial crisis.

Increased inflationary pressure will at some point lead governments to reduce or remove some of these stimulus packages.

And as I've said before, the speed with which this occurs has the potential to generate volatility and substantial swings in commodity prices.

In addition, we still have significant global imbalances and they continue to persist.

It is likely that OECD economies will retain stimulus measures for longer than most developing countries.

But as OECD countries do begin to normalize their monetary policy and increase their interest rates, we may see some of these hot money flows leaving the emerging economies, leading to a risk in the reduction of growth rates and commodity demand.

Given the range of risks that did exist, it does seem likely that any news or any speculation effecting financial policy, especially in China or the United States, could lead to higher ongoing volatility in commodity markets, albeit around an elevated trend.

So let's now look at the product groups, starting with Iron Ore.

We took advantage of strong markets throughout the year from growing demand and some industry supply constraints.

Rio Tinto produced an above-nameplate capacity in the Pilbara, setting new volume records.

Shipments to major markets increased as economic conditions improved earlier than expected.

We successfully brought three new mines onstream during 2010, and we were on time and we were on budget.

By the end of the first quarter this year, we will have expanded our Pilbara capacity to 225m tonnes per year.

At our operations center in Perth we're using next-generation technologies to drive even greater efficiencies across our network of 14 mines, 1,400 kilometers of track and three ports.

We already started to see the benefits from what I believe is a significant competitive advantage.

Guy will cover some of the costs off in more detail.

But I was very pleased that we were able to hold cost at close to normal inflation in the Pilbara, which as most of you know is no mean feat in today's heated operating climate.

In December, Rio Tinto and Sinosteel announced the extension of the historic Channar mining joint venture in the Pilbara and this will lead to a further 50m tonnes of iron ore being produced from this operation.

Earlier this week, we announced the approval of $933m to extend the Marandoo operation in the Pilbara by another 16 years.

And this high-quality ore is used to maintain the Pilbara product blend and maximize the value of our wider resource base.

This extension will play an important role in sustaining the production capacity of the Pilbara operations.

Also in 2010, we approved the expansion of our operation in Canada to 22m tonnes per year.

And over the past few days, we announced a further $277m investment to grow this business even further as part of a second part of a three-stage expansion to 26m tonnes per year.

We have considerable reserves and resource position in Canada with possible expansions to expand the capacity of IOC to 50m tonnes per year.

And it does make an interesting comparison with recent Canadian transactions in the iron ore space, which should demonstrate the significant value of our Canadian iron ore businesses.

In Guinea, the transition to a democratically elected President has now occurred and has now been appointed its government.

I did visit Guinea in December when I met with President Alpha Conde when he was President Elect.

At the meeting, I underscored the Rio Tinto's commitment to rapid development of Simandou and the economic development of Guinea.

We are now engaged in an ongoing discussion with the government of Guinea in order to establish a clear pathway for development.

The binding agreement to establish a joint venture with Chinalco will further allow us to develop and rapidly develop the Simandou iron ore project for the benefit of shareholders and all stakeholders.

Of course, our largest and most valuable growth project is in the Pilbara, where we have plans to increase capacity by over 50%.

During 2010, we've approved $5.6b of capital expenditures toward expanding our operations and infrastructure in the Pilbara to 283m tonnes per year by 2013.

We are in advanced stages of feasibility study for the phase-two expansion to 333m tonnes per year by 2015.

So importantly, the new production capacity that we are building is 100% Rio Tinto owned.

However, the cost to Rio Tinto to expand the Cape Lambert port is in line with our 50% equity share of the Robe River joint venture.

The new expansion will be delivered on time, on budget, and with minimal impact to existing operations.

We have proved time and time again that we're able to achieve this in the Pilbara.

Let's remind ourselves this is a huge undertaking.

But it's not something that's new to Rio Tinto.

We believe this is the lowest-risk, highest-return, major iron ore project in Australia.

Our Aluminum business returned to profit in 2010 with a year-on-year improvement of over $1.3b.

This was primarily driven by an improvement in pricing but also noticeably higher value-added product servicing.

Cost pressures are returning to the industry, including the effect of strong currencies and higher coke and caustic prices.

We've had to contend with other external and abnormal factors during the year, such as low rainfall in the Saguenay and heavy rains in Australia.

These have had the effect of pushing up our cost base during 2010, but our EBITDA breakeven was still a credible $1,570 per tonne.

Our transformation of the Aluminum group continues with further progress toward our objective of EBITDA margins of 40% or more.

And this objective will be achieved through focusing on three priorities, including incremental EBITDA of $1b through cost efficiencies and capacity creep, a step-change improvement through capital investment, and further enhancement of our asset portfolio, which Guy will discuss.

In 2010 we did achieve an EBITDA margin of 21% when excluding currency translation effects and trading activities.

More than $300m of operational improvements was achieved in 2010, building upon the $1b realized in 2009.

And this was the result in our focus on value-added activities, further operating efficiencies, and better procurement.

We continue to modernize and expand our aluminum portfolio through capital investment to leverage our strong bauxite, our strong energy, and our strong technology positions.

This will move our operations even further down the cost curve from an already competitive position.

The Yarwun alumina refinery is progressing well and the expected completion date has now been accelerated to August 2012, three months ahead of the previous schedule.

The cogeneration plant was commissioned in September and the ship loader in November of 2010.

This project is a key component of our drive to move our aluminum refining capacity into the second quartile of the cost curve.

In the last half of 2010 we announced three major smelter modernization projects.

Firstly, $487m to increase capacity of the ISAL smelter in Iceland by 40,000 tonnes and building a new leading-edge casting facility.

Second, $758m for the first phase of AP60 in Quebec.

And finally, a further $300m toward the modernization of the Kitimat smelter in British Colombia.

Final approval for this $2.5b project is expected later this year.

I firmly believe that our portfolio of mining, refining and smelting capacity will continue to move down their respective cost curves and in time deliver returns that are commensurate with the investments that we've put on the balance sheet.

Moving into Copper, prices have continued to be high as demand across the OECD and developing markets increase.

The sector has struggled to maintain supply, challenged by declining grades, delays to expansion programs and disruptions from strikes or other events.

We ourselves have not been immune to the industry-wide phenomena of a lower grade.

In 2010, we moved forward with our capital projects with the approval of the Eagle nickel and copper project in Michigan and the moly autoclave at Kennecott Utah Copper.

These are relatively small in the context of Rio Tinto.

But they offer very high returns, a quick payback and create future options for growth.

Our Copper evaluation projects are also progressing well and we've increased their budgets for the next few years.

At Kennecott Utah Copper, the cornerstone project's expected to extend the life of Bingham Canyon to 2028, while maintaining further options beyond that point.

This plan calls for pushing back the south wall of the mine to access about 650m tonnes of additional mineral resources.

As outlined in our November seminar, we've also had options for the expansion at Grasberg and Northparkes and we're supportive of a range of growth options that do exist at Escondida.

At our greenfield projects, we continue with the shaft sinking at the Resolution project in Arizona.

And we are currently evaluating a higher-grade target at the La Granja project in Peru.

During 2010, we progressively increased our interest in Ivanhoe mines and actively supported the development of Oyu Tolgoi.

In December, Rio Tinto signed the agreement with Ivanhoe, under which we assumed management of the development and operations of Oyu Tolgoi.

In Mongolia, mine development continues at a rapid pace.

And we have transition teams in place and critical project roles now being filled by Rio Tinto employees.

We are looking forward to bringing Rio Tinto's world-class operating and technical capabilities to the development of one of the world's greatest copper-gold mines of tomorrow.

And this will provide the opportunity to ensure that Oyu Tolgoi is developed in a way that delivers sustainable value.

Moving on to Energy, 2010 saw ongoing strength in the seaborne market for Australian coal.

Demand for thermal and coking coal remains strong from key Asian markets and underlying earnings were a similar level to 2009.

Higher prices and volumes and a gain on disposal of two undeveloped coal properties were matched by the adverse impact of stronger Australian dollar and higher cash costs.

Hard coking coal production increased by 20%, benefiting form the recent investment in Hail Creek and strong operational performance at the Kestrel underground mine.

During the year, our Clermont thermal coal mine commenced production and is steadily ramping up to its 12m tonne capacity by 2013.

The current very severe wet season at Queensland, which has already caused major flooding, had a slight impact on 2010 production levels and will continue to impact production rates in 2011.

Force majeure continues to remain in place at our four Queensland coal mines due to the impact of mining operations as well as road and rail access.

January coal production from our Queensland operations was about 25% lower than normalized rates.

And let's not forget we're still in the middle of the wet season.

At our New South Wales coal operations we've invested in overburden removal, which is critical to realizing future growth plans.

Our operations are running well and now selling into strong markets.

The Northern Territory in Australia has not been immune from this bad weather.

Just a few weeks ago, ERA announced a temporary suspension of its processing plant for 12 weeks to assist in water management through the wet season.

So now let's take a look at our Diamonds and Minerals product group.

Sustained demand from emerging markets was reflected in higher prices and increased sales volumes, leading to a significant turnabout in the operational profitability of the business.

Rough diamond prices in particular demonstrated a robust recovery through 2010 as demand from India and China accelerated.

And markets for titanium dioxide feedstocks, talc, and borates all continued to recover, in line with improving global economic conditions.

During the year, we saw some important developments in our diamond operations with first production from the Diavik underground mine and approval given to restart the Argyle underground project.

At QMM in Madagascar, the product is being well received by the market and production is now increasing as technical start-up issues are being progressively resolved.

Dry mining from this month will almost double existing throughput and other options are being evaluated.

Now I'll hand it over to Guy, who'll take you through the financials.

Thank you Tom.

Good afternoon, good evening to those of you here in Australia.

Good morning to those of you in London.

Now let's take a look at how our record underlying earnings were achieved.

It almost goes without saying that the main impetus in 2010 has been price, driving earnings $9.5b higher.

We provided a breakdown of the price variance by commodity at the back of your handout, in which you'll see that by far the largest benefit came from the strong iron ore markets we've been enjoying.

And the impact of higher copper and aluminum prices was also significant, increasing earnings by over $1b apiece.

But we shouldn't forget the impact of currency movements, notably the stronger Australian and Canadian dollars, which collectively reduced our earnings by $1.2b compared with 2009.

I'm not going to go through every reconciling item in this chart.

And I will come on to costs in a minute.

I would, however, just like to highlight that increased sales volumes were an important factor in our earnings improvement.

This was mainly from iron ore, in line with our capacity expansion and operational excellence, but also from aluminum following an improvement in mix due to increased sales of value-added products.

Lower profit from sales of evaluation properties led to a reduction in earnings of $568m.

This was largely due to the gain on sale of two potash properties in 2009.

The effect of higher exploration and evaluation costs reflects a greater level of investment in the business and it's what I consider to be a good cost.

But we did see some pressure on our operating cost, which I'd like to explain more thoroughly.

As you can see from this chart, our total cash costs, as included in our profit and loss account, increased by around $3b.

The vast majority of this was due to factors beyond our control, which added $2.8b to our cash cost base.

You may recall that last year uncontrollable factors reduced our cash cost base by $3b.

Non-controllable effects on costs include the impact of a weaker US dollar on average against 2009 and other price-driven costs outside our control, such as royalties and LME-linked impacts.

It also includes a substantial benefit to us from lower average freight rates in 2010.

Setting these uncontrollable items aside and excluding the impact on costs of changes in production levels between the two years, our pre-tax cash operating costs were broadly held flat.

Again, you should recall that we achieved reductions of $2.6b in 2009.

We've held on to these savings during a period of significant output cost pressure.

As Tom mentioned earlier, the Aluminum group achieved further controllable cost savings in 2010 of at least $300m in addition to the $1b realized in 2009.

This demonstrates the transformation which is underway in our aluminum business.

These cost improvements have been achieved through the cumulative effect of many different initiatives.

Our continued focus on procurement has supported further caustic soda and coke cost savings.

We continue to focus on identifying further sustainable and significant operating cost improvements in the business.

Elsewhere, we did see some upward pressure on costs.

Adverse weather, higher strip ratios and lower yields led to higher costs at our Australian coal operations.

In New South Wales, part of this increase in waste removal is in order to prepare for a ramp up of production over the next two years to utilize latent capacity.

It's likely that strip ratios will increase slightly in 2011 before falling modestly in 2012.

In Iron Ore, higher labor and contractor costs reflect the high level of demand for skilled employees in Western Australia.

Cost and productivity management continues to be a strong focus in the Pilbara and controllable cost movements are broadly aligned with our view of localized inflation.

A planned smelter shot at Kennecott Utah Copper and the ramp up of the QMM operation in Madagascar led to higher costs at those operations.

Finally, some good costs have returned to the business, as we invest in exploration, evaluation of a number of undeveloped properties.

Looking forward, the cost inflation faced by the mining industry is not yet as widespread as before the financial crisis.

But we should expect to see some inflation in production costs ahead, in particular labor cost in locations such as Australia and certain critical raw materials.

Our leadership in operational excellence places us well to identify further productivity improvements and ensure that our cost base continues to be well controlled.

Of course, our strong earnings led to strong cash flows, demonstrating the exceptional cash-generating abilities of our tier-one assets.

Cash flow from operations, including dividends received from equity-accounted units, increased by 70% to $23.5b in 2010.

This cash from operations was supplemented by proceeds from the completion of a number of divestments to which I will return.

We invested $4.6b of this cash inflow in capital expenditure.

Momentum is returning and this rate of spend is increasing into 2011.

We also invested around $900m to increase our ownership of Ivanhoe with a further investment of $750m made this year.

During 2010, there was a great deal of attention on tax policy in Australia and elsewhere.

Of course, we pay taxes all over the world.

In 2010, we paid corporate taxes of over $4b and had an effective tax rate on underlying earnings of 27.9%.

But that's not the whole story.

We also paid significant levels of state taxes, royalties, and other forms of taxation.

For example, in 2010, we paid state taxes and royalties of approximately $1.4b in Australia alone.

Overall, we were able to reduce net debt by $14.6b during 2010 to a level of $4.3b at the end of December.

Now returning to divestments, we've recently announced the completion of the sale of 61% of Alcan Engineered Products and the successful secondary public offering of our remaining 48% of Cloud Peak.

This means that we can effectively draw a line under the program that we launched in 2007.

We've now completed divestments in excess of $11b, achieving good values for large businesses during some of the most challenging financial conditions encountered in recent times.

But the process of renewal and improvement is never complete.

We're constantly reviewing our portfolio in all our product groups to ensure that our suite of assets fits with our strategy.

That is large, long-life, expandable assets that are low cost or at least which have the potential to be transformed through investment, expansion or other means.

In some cases the assets concerned are not insignificant businesses.

Our Aluminum business is a case in point.

We started to reshape the portfolio almost immediately after the Alcan acquisition.

Already we've sold a high-cost smelter in China and closed two older smelters in the UK and Canada.

Other smaller non-core businesses in the group have been divested, such as a small bauxite deposit in Ghana and a specialty alumina plant in Canada.

We have a clear objective to continue to transform our Aluminum group and to continue to improve margins.

This is being achieved by three areas of focus, as Tom's just described.

You'll recall that the third of these was portfolio improvement.

Now there are some assets in the Aluminum portfolio which are not aligned with our strategy.

These are the ones that we'd like to find another owner for if it makes sense.

Of course, we want to achieve good value if we do divest them, but we're not in any hurry.

Rio Tinto's balance sheet is very strong and we're generating record cash flows.

So at this point it's premature to discuss specific assets, but we will keep you informed of our progress in this area.

As I've just described, our record cash flows in 2010 have allowed us to reduce debt substantially to $4.3b.

This has led to a renewed focus on our cash-allocation priorities for the future.

As we've outlined many times, our first priority is to increase shareholder value by a focus on high-quality growth.

Value is the key.

We've many attractive opportunities to pursue, as has been demonstrated by the $12b of major project approvals made since the start of 2010.

As I've said before, a stable investment climate is critical to allow commitments of this size.

We've worked in consultation with the Australian government's Policy Transition Group on the proposed mineral resources rent tax.

We acknowledge that the PTG's recommendations are an important step towards ensuring that the design and principles of the heads of agreement entered into with the government are carried through to the final MRRT legislation.

Rio Tinto has announced the investment of almost $9b in Australia since the MRRT was proposed.

This includes our iron ore expansion plans in the Pilbara, which is the largest mining project ever undertaken in Australia.

This investment underlines our confidence that the MRRT deal will be honored.

We will work constructively with the government and the proposed implementation group in 2011.

In November I indicated that capital expenditure in 2011 would be around $11b with comparable levels of annual capital investment likely over the medium term.

In December we announced an agreement with Ivanhoe mines, following which Rio Tinto now manages the Oyu Tolgoi project.

As a consequence of this agreement we will now fully consolidate Oyu Tolgoi LLC, although we will continue to account, equity account Ivanhoe mines itself.

Following this change in accounting treatment, the capital expenditure incurred to develop the mine is now consolidated in Rio Tinto's cash flow statement.

This accounting change has led us to revise our guidance for 2011 capital expenditure to $13b.

Now importantly, this change in guidance does not have a direct cash impact, as the funding for Oyu Tolgoi will still be provided by Ivanhoe.

Through 2010, Ivanhoe has invested $1.4b for phase one of the development of Oyu Tolgoi.

Prior to Rio Tinto becoming the development and operating manager of Oyu Tolgoi, Ivanhoe announced a capital estimate of $4.5b from 2011 to 2013 to complete this first phase of the project.

This brings the total estimated capital cost for phase one to $5.9b.

The focus of this phase will be on completing the open pit concentrator and associated infrastructure together with some initial development of the Hugo North underground mine.

As I said, the capital expenditure required to complete phase one of Oyu Tolgoi will be funded by Ivanhoe.

Rio Tinto has committed to support the funding of Oyu Tolgoi through a number of mechanisms that will provide approximately $2.8b of funds to Ivanhoe from the beginning of this year.

Also in December we announced a recommended cash offer for Riversdale.

This is an example of the small- to medium-sized acquisitions that we're currently focused on.

We continue to evaluate other opportunities for similar sized acquisitions or combinations, which may or may not come to fruition.

Some of these, including Riversdale, are focused on undeveloped tier-one assets that will require significant capital investment.

At the same time as invigorating our growth program, we continue to target a single-A credit rating.

Moody's upgraded Rio Tinto to an A3/P2 rating with a stable outlook in October last year.

Our rating from Standard & Poor's is BBB-plus, which was put on a positive outlook in June 2010.

While our view of demand outlook for our products is strong, we also recognize the imbalances that have persisted in the global economy since the global financial crisis.

These global imbalances could lead to significant volatility with unpredictable consequences for our cash flows.

Therefore, we will retain a prudent balance sheet that would allow us to continue to invest as appropriate through the cycle in our first-class growth project and in any other opportunities that may arise.

So we will manage our balance sheet to weather sudden large shocks, not just a central case outlook.

The difference between a central and a downside scenario can be very significant in the commodities space.

The third pillar of our financial strategy is capital management.

I'm committed to ensuring that the capital structure of Rio Tinto is efficient and well balanced within the parameters of a single-A credit rating and a progressive dividend policy.

In 2009, at the time of the rights issues, we committed to pay a dividend of at least EUR0.90 per share in respect of 2010 and that this would form the basis for a progressive dividend policy.

Today, our balance sheet is transformed and we're confident in the sustainable returns that our growth programs will deliver in the future.

We're therefore able to exceed this commitment by 20%.

The final dividend in respect of 2010 will be $0.63, making a total dividend of $1.08 per share for the year.

This amount will form the basis of a progressive dividend going forward.

We'll also return to our previous practice of declaring an interim dividend that is set at one-half of the total ordinary dividend for the previous year.

Therefore, we expect that the interim dividend for 2011 will be $0.54 per share.

As I said in November, we also recognize that during times of high cash generation a progressive dividend policy will not return excess cash to shareholders.

So we've announced today a return of $5b of excess capital to shareholders over 2011 and 2012, subject to market conditions.

The decision regarding the mechanism used to return capital will be determined as and when each return is made.

Given the current relative market prices for Rio Tinto plc and Rio Tinto Limited shares, the most logical choice right now is to buyback plc shares.

Our very strong cash flows are allowing us to invest at record levels in the growth of the business.

At the same time, we're able to maintain a strong balance sheet to increase substantially the level of our ordinary dividend commitment and to return excess capital to shareholders.

Now back to you, Tom.

Thank you Guy.

I would now like to look further ahead.

We continue to hold the view that the longer-term drivers of industrialization and urbanization driven by increasing prosperity in developing countries remains in tact.

As I've said before, we expect that over the next 15 to 20 years consumption trends will lead to a doubling in demand for iron ore, copper, aluminum and other commodities.

But it's also clear that substantial global economic imbalances continue to persist, and these will need to be resolved and that process will take time.

In particular, developed countries will be under increased pressure to reduce debt, while China and then India are expected to begin to move toward a consumer-led economy.

These two themes suggest a higher average demand growth setting for our markets but also one that we characterize by elevated volatility.

On the supply side, volatility of the capital markets could reduce the availability of finance for some new projects, placing some constraints on future commodity supply expansion.

We've therefore not changed our view that real long-term prices and margins for almost all the metals and minerals will continue at elevated levels but with heightened price volatility, a patter we've dubbed the saw tooth economy.

Within this context, as always, our first priority is to use our cash flows to invest in value-adding growth, as Guy said.

We have a very strong pipeline of organic projects and a resource and mineralization position which allows sustained long-term growth.

This map demonstrates the strength of that pipeline, shows not only our major growth products, including those which are currently in development, as well as projects that are still in a study phase.

As can be seen, we have projects across the whole of the portfolio that will generate growth across our product mix.

Many of our largest projects are in operating heartlands of Australia and North America.

We also have major projects in new countries, including Mongolia, Guinea and India.

The Group's strategic commitment to sustainable development is I believe a crucial factor in maintaining and extending our ability to do business.

We do have a proven track record of developing operations in new countries in a responsible and sustainable manner.

Moving to Riversdale, in December we announced the recommended AUD16 per share cash offer for Riversdale mining.

Riversdale does fit with Rio Tinto's strategy of focusing on small- to medium-sized M&A.

Its main assets are in early stage of development and will require a significant capital investment.

In time they have the potential of developing into large, long-life cost-competitive operations.

There's two primary projects in differing phase of evaluation and development and the key features of these properties based upon Riversdale reports are set out in the table below.

Both projects will produce about 60% hard coking coal and 40% thermal coal.

If successful, this acquisition would provide Rio Tinto with a substantial development pipeline in the emerging Moatize Basin in Mozambique in line with our established strategy.

Beyond organic growth and M&A, we continue to focus on exploration, technology, and innovation.

We've had a success and a history of success from our in-house exploration team spanning over the decades.

We've made 23 first-tier ore discoveries over the last 50 years, many of which underpin the record financial results we've announced today.

We are continuing to build on this competitive advantage.

In December, we announced a non-binding MOU with Chinalco to establish a landmark exploration joint venture in China.

And this will complement our existing in-house program, where we've a number of exciting opportunities all over the world.

I'm a great supporter of investment in new innovative technologies through our Mine of the Future program.

We now advance programs in a number of areas.

Our focus ranges from exploration to rapid underground mine development, advanced mineral sorting and autonomous equipment.

We are now moving these technologies from proof of concept to pilot to implementation across our product groups.

In Iron Ore, as I've said, the operations center has been a resounding success.

We've also been trialing automated equipment in the Pilbara at West Angelas.

We're also seeing greater efficiency and lower production costs as well as improved health, safety, and environmental performance.

In Copper, we're actively responding to the challenges of deeper and lower-grade ore bodies.

Technologies for rapid underground mine construction will allow us to develop future mines more quickly, more safely and at lower costs.

Advanced mineral recovery techniques will enable us to turn low-grade deposits into future tier-one assets.

And as competition for tier-one resources increase, competitive advantage in exploration and technology will continue to deliver great value.

So if I can conclude, 2010 was a record year for Rio Tinto.

We took full advantage of strong markets by running our operations at or close to full capacity.

We are investing across the portfolio with $12b of major projects approved since the start of 2010.

As a part of the balanced approach to long-term value, we're able to increase our dividend commitment and return $5b of excess cash to shareholders.

So I look forward, our core skills of operational excellence and major project delivery means that we're able to further optimize and expand our operations.

We have an exceptional range of opportunities for growth.

And our expertise in exploration, innovation and technology gives us a competitive advantage in accessing future tier-one ore businesses.

We're entering 2011 in a position of strength.

Our strong balance sheet, high-quality assets and positive long-term outlook enable us to undertake the largest ever growth program at the same time as returning capital to our shareholders.

Our long-established strategy of focusing on long-life, cost-competitive, expandable assets together with increased investment in technology positions us well to enhance shareholder value over the long term.

With that, we're happy to take any questions, starting with the audience here in London.

Let's get on the desk.

Yes, hi.

Thanks.

I'm Rob Clifford, Deutsche Bank.

Two questions, firstly, the confidence you've got despite the buyback, how's that changing your view on risk and how you enter various parts of the world that you haven't been in before?

So your risk profile, how's that changing with your confidence levels increasing?

And the second question is around the significant increase to $11b or $13b with the consolidation of Oyu Tolgoi of capital spend.

How are you managing the risk around blowouts of capital there and how you're locking in that CapEx for this year?

Okay.

Thank you.

I will start talking about our risk profile and then I'll cover the CapEx and how we plan to manage that CapEx, but I'd like maybe if Guy can supplement that with a few words about our sort of corporate approach from a financial perspective of risk and risk management.

As we've said, with the capital expansions that we've announced over the past year we have actually put the bulk of that capital spending in the Pilbara and in OECD countries.

But at the same time we're mindful that our strategy is for having the best resources globally, not just having the best resources in Australia.

So we do want to be in a position where if there is a future, emerging first-tier opportunity in a country that we can foreshadow, at least as well as we can, the ability to develop but also operate for decades to come, then we will build that into our strategy, but I think on a risk-managed approach.

So if we look at the history of Rio Tinto over the years, we've been in Africa for over 50 years.

We entered into Escondida in a difficult period in Chile's history.

We have been in Asia for a long time.

We have had a history of balancing an OECD-dominant asset profile with a broad global suite of assets.

85% of our asset base would be in OECD countries.

And I would expect, if anything, particularly with the expansions we're putting in Australia and the modernizations in Canada, if anything that percentage may increase over time.

But we can't be mindful of the fact that -- we could see a future Escondida in Mongolia so we have to look at a balanced approach in terms of how do we put in the right processes, the right management teams, the right sustainable development footprint so that can actually have the ability to potentially fit that potential suite.

We've done that in Madagascar with quite a bit of success and I think we have the potential for doing that in Guinea.

Again, some countries are more challenging than others, but again we look at it on a balanced risk approach.

But overall I do want to be seen as a global business.

I think looking ahead I want to see a more globalized team so we can actually put professionals that are from those countries leading those countries operations.

That's a very clear mandate that I'm putting before myself and my management team in the years to come.

In terms of the specifics of the 2011 capital program, and particularly recognizing that we're ramping it up substantially from 2009 but we also ramped it down back considerably from where we were in 2007 and 2008, we actually have a strong set of systems which have been borne out by our continued progress and meeting expectations, not only in the Pilbara but also in projects such as Yarwun and projects such as our coal operations in Queensland.

What we have done over the past several years I would say is to do a better job about sharing learnings between product groups so we're not just setting up competencies on a business-by-business basis.

Because what we've found is that construction on a business-by-business basis can be lumpy.

You add expertise and then you draw it down when projects complete and you don't necessarily retain that institutional skills.

So within Preston Chiaro's group in Technology and Innovation, we've actually, over the past three years progressively built that group up to be essentially a global owners team that can be deployed anywhere in the world.

And that they will work closely with the businesses and progress those businesses on a transition al -- when they're in operations.

We do have I think a healthy mix in terms of in-house expertise and OECD -- or EPCM contract work.

I do believe that an owners team should be strong.

It should have quite a good complement of Rio Tinto people on that.

Now we do have capable and skilled individuals in that area and they will then supplement the efforts by the engineering firms.

As we look ahead in our capital projects, we spend quite a bit of management time before we make capital approvals making sure that not only have we assessed the technical aspects of the project, but just as importantly we've assessed the organizational requirements to not only build that project on time and on budget, as we've got a good track record of doing so, but also delivering them to the operations and having as seamless a transition to operating performance as we can.

But if, Guy, if can maybe talk about the broader element of risk management, and particularly on some of the work we've done in 2011.

Look, risk analysis and management has been with us for a very long time in Rio Tinto.

We've been accustomed to very volatile markets, currencies, inflation, political risk etc.

But I would -- what we have done in recent times is be much more sophisticated about joining up the work that we've been doing.

And I think that the global financial crisis, Macondo and other factors have reinforced the absolute need to do this.

So I think we're getting much better at it.

By the way, the focus is not just on downside risk.

It's also a focus on upside risk.

We don't want to be risk averse in all this.

We want, and I've said this for a long time, we want to be risk aware.

And having been risk aware we need to consider mitigation of risks that might damage us.

I think that one reason apart from anything else that we want to do this is that insurance markets have not grown in terms of their capacity at anything like the same rate that Rio Tinto has grown.

And so it's important that we, through engineering measures, ensure that our projects are secure against most of the risks that they face.

And another example of the same thing really we've already discussed, which is the balance sheet.

The risk of volatility which we've touched on is the most important reason why we want to have a strong, prudent balance sheet with a single-A rating.

So that's another example of the approach to risk that we have.

It's a very thoughtful approach, a very organized approach and one which I think will stand the Company in good stead.

Thank you Guy.

I move to to take one another question from London.

Thanks.

Jason Fairclough, Bank of America - Merrill Lynch.

I guess just a bit of a divergence from a lot of the normal discussion we're having here.

So there's a lot of focus on this idea of capital allocation.

Is it going to be a buyback?

How much is going into growth?

How much is going into M&A?

I guess what I'm thinking about here is that this issue of capital deployment and if I actually look at your CapEx, unless I'm mistaken, I think it's actually down year on year and yet you've announced this huge ramp up, $13b in CapEx.

What's your confidence that you can actually spend that money?

And I guess, with that, what's the implication in terms of potential slippage on these project timings that you're talking about?

The 2015 targets in the Pilbara seem pretty aggressive.

Thank you Jason.

I think you were correct that year on year 2009 versus 2010 there has been a drop in capital spending, but again I think it reflects the fact that you're turning a large ship slowly when you're moving capital up or down.

There is a lag effect and certainly as we, as you know, as we severely had to look at our capital budget during difficult times during the financial crisis, we had to do that in a way that didn't destroy value.

So we found that you can't just turn spending off, but you've got to wind it down.

So we had some costs in 2009 that were residual from projects from 2008.

And then again in 2010 as we began to approve projects we had the same type of wind up time and lag time in winding things up.

And part of it is the fact that naturally when you make the approval, the first port of call would not necessarily be pouring concrete in the ground, but the first port of call would be meeting with the engineers, lining up ECPM and contractors, getting the final, engineering final through the permitting stage, doing the procurement contracts.

So you have a couple of months of low spend rate and it's like a bit of an S curve.

And then after that it tends to work up.

As I look at, say, the profile of the capital spend in 2010 I would say we would have seen lower than what would normally be expected spending given the announcements we were making in the middle part of the year.

But as we were going into the fourth quarter we were beginning to see the expected ramp up so that by December it was actually moving up to where we would expect to be, what would be a spend rate that would be within what we're expecting in 2011.

I think we do think about those ramp ups and those ramp downs in our spending.

We do build that within our timelines.

Of course there are components of our timelines that are based upon externality, particularly government approvals.

So a key part of this has been getting the necessary and requisite Government approvals so we can enable that spending to get on the ground, but we've done that.

We have a lot of history in going through the permitting processes, the approval processes, the contract development and the spending.

And again, the history of the Pilbara basically bears that out.

We were, even during the financial crisis, we were continuing to bring new mines into production.

And that momentum, I'm pretty comfortable that we can continue on that pace and continue to hold the operating teams to those forecasts of time and budget that they've given us.

One more from here then we go over to Melbourne.

Hi Tom.

It's Chris LaFemina from Barclays.

Just a question about the iron ore market and potential sustainability of high prices.

So if we look at what's happening in the Pilbara, there's 10 of billions of dollars to be spent there over the next few years and we're already hearing about things like labor shortages and potentially equipment and hire shortages.

And I'm wondering first if there may be some physical constraints to actually developing projects due to lack of resources that you need.

And I guess the second question would be, if we look at the global iron ore growth outlook, historically we've been led to believe that there are only three companies who really have ability to bring capacity on line consistently and you're obviously one of those three.

Yet there are a lot of projects coming on line potentially from smaller companies.

Do you think there is a high risk those smaller companies and smaller projects will face significant delays and maybe even never be brought on line due to some of those physical constraints?

And I guess that the key question is, will the current iron ore price environment potentially be sustainable for a lot longer than you might have thought a year or two years ago as your supply constraints are intensifying?

Thanks.

Thanks.

I think that about a year ago we got the same question, what do you think about a long-term price of $100?

And I said, it's going to be probably south of that; anyone thinking of $100 has a bullish approach.

I would hold to a view of what I would have said a year ago.

What we've seen over 2010 would be that demand has actually continued to surprise on the upside of the global steel markets, particularly from China but other emerging nations.

And we haven't necessarily seen the supply coming in, particularly from those emerging producers that in some cases great promises but not necessarily deliver on those promises.

I would expect some of these trends to be continuing, although realistically prices as we have now and the longer we have prices like that, will, that will by its definition induce new supply.

And possibly the longer that we have higher prices, the more new supply that we may have coming on and the greater the risk that we have of an over-supply situation.

What we have seen as we want to do is focus not necessarily on calling that long term price right, make sure that under what I call a reasonably conservative approach to that long term price that we have robust projects that we can stay there in the first quartile and really deliver through thick and thin.

And that's exactly what we have done within the Pilbara.

Even IOC.

Again, IOC is, you can say it's a reasonable-cost competitor -- producer into the European market.

But I've said to the IOC team actually what you've got to be is a low-cost producer into that Asian market because that's where the growth is going to be.

So before we approve any capital for IOC, I ask them what is the incremental cost of those tonnes into the Asian market not the European market.

So I'd say we will focus on low-cost, new supply into those markets that can sustain prices well under where they are today.

I don't frankly see a lot of new supply coming in in 2011 and I'm not sure how much new supply we're going to see coming in 2012.

But if you move past 2012, I would agree with you there is a lot of new supply coming in, including from ourselves, including from some other big competitors, and also including from a number of these emerging players, which they will get tonnes into the boats at some point.

Thank you.

Melbourne please?

Yes, Craig.

Good morning to you Tom and good evening Guy.

Craig Campbell, Morgan Stanley.

A couple of questions for you.

With the Riversdale bid, it's an all cash offer, just like to explore if there's potential to add a scrip component to that given that when we've made acquisitions in the past for Australian companies you have done that and it would help increase liquidity in this market.

Next question is with regard to the alumina assets, just wondering if there's any progress being made on Gove and moving that thing on the cost curve.

And finally with the buyback, given $5b very strong cash flow, is that going to be reviewed say at mid year or is it an end-of-year review, if that does get reviewed up?

Thank you.

Guy, while you're there, why don't you take the Riversdale and the buyback question and then I'll follow up with a comment on alumina?

Look, as regards Riversdale I mean we have an offer out there.

It's been extended.

It's been recommended by the Board.

A number of directors have promised their shares to us and that's really all I'm going to say about Riversdale.

There's no plans to put a scrip component in at this point.

You're right that if we ever were to issue more shares for whatever reason, it would increase liquidity in this market, and all things being equal, we would like to increase liquidity in the Australian market.

But remember that we only just issued some shares, only 18 months ago, and so at the moment we're buying back shares.

So in a kind of way it doesn't make that much sense to issue more.

On the question of buybacks, we've only just announced the $5b and you're already asking us to look at another version.

We really have got no plans to do that.

We think this $5b is very carefully judged.

It's a balance between debt reduction, the whole question of the single-A rating, all the capital investments that we've got that you know about, some that you don't know about.

And this is what we felt was the appropriate number to return to shareholders as a genuine surplus.

So please don't suddenly expect that we're going to be back with further increases in that.

But nevertheless we are committed to having an appropriate balance in the future and so that's the statement as far as I can make it.

But now over to you Tom on alumina.

Yes, thank you.

Craig, I know you joined us in Brisbane and also Gladstone.

I saw you in Gladstone when we talked about what we were doing with our alumina assets, particularly those in Queensland, Northern Territory.

A key part of getting down the alumina cost curve again is, and we have a very clear timeline for, is bringing Yarwun 2 into commissioning and that will certainly add economies of scale to the overall Yarwun complex and be a big part of it.

As you correctly noticed, the second part of it will be to have --- continuing the operational performance at Gove.

And I think it is fair to say, as we've said, that the expansion in Gove before we acquired Alcan in 2007 was problematic.

And we've been really dealing with a whole series of technical problems over the past several years.

But as I hope you saw last year, we were progressively tackling them, not only at Gove, but we also had done some really good work at Yarwun through some technical excellence in tackling some of the quality issues that might have had two or three years ago at Yarwun.

So I think that work continues to be a high priority for the RTA organization, the Brisbane team.

That has not been held back in any way.

It is kind of work that requires a lot of technical excellence, a lot of engineering and re-engineering.

It does take some time but we at Rio Tinto have always been good at that.

You may remember 10 years ago we were talking about the problems we had at the Kennecott Utah Copper smelter.

You remember a couple of years ago we were talking about the operational issues that were in Palabora and around IOC.

And again we put the resources in them.

We have some great technical capabilities.

You don't necessarily expect a 90-day wonder turnaround.

What you've got to do is you've got to create the right people.

You've got to have the right leadership on the ground.

And then what you do is you focus on basically going through the punch list of all the things that need to be taken care of, and that's exactly what we're continuing to do at Gove.

Can we have one more question from Melbourne please?

Anybody else?

No?

I think we're, for the moment --- no, Tim, yes.

Tim Gerrard from Investec.

Just further on Gove, it must have made substantial losses both in 2009, Tom, and also 2010.

And bearing in mind that you're already well through some of the initiatives and you have said it'll take some time to get right, but are we going to expect those same sorts of losses of $300m or $400m for the next two or three years or can they be markedly reduced?

That's the first question.

And the second question is Guy was talking about portfolios and some deletions, if you like, to the assets, but also additions.

And with that in mind, bearing in mind where you are in the Aluminum and it's not really firing yet, but would you be looking at aluminum smelters to purchase if they were low on the cost curve and well situated?

Thanks.

Tim, I'll try to take both of those and Guy, if you want to say anything more about the portfolio, feel free to dive in.

But, Tim, I just want to say on Gove, as I look at 2011 and 2012, I would expect from Jacynthe and the team, continued performance improvement.

We are working in an environment of rising alumina prices so that would be a wind in our back, which is a good bit of news, but we're also going to be facing specifically at Gove the challenges of the Australian currency.

And also because Gove does rely on fuel oil as its --- as boiler fuel, rising fuel prices will have a negative headwind on that too.

So operational improvement, rising alumina price will benefit Gove, but we will be working in a higher Australian currency environment and higher fuel price.

On a portfolio basis, I think to be true to strategy you'd have to say, Tim, that we have to look at all assets if they are what I'd call low-cost, long-life and large.

But I would put a caveat on that with Aluminum, saying that I think our focus and our priority in Aluminum right now will be to bed down the modernizations in Canada, increase our alumina capacity with both Yarwun and with Gove, and take the time to focus on getting a 40% EBITDA margin.

At the moment I think that's the appropriate and prudent thing to do in the Aluminum space.

Guy?

I've got nothing to add to that, Tom, and I think that dealt with, for the moment at least, the questions in Melbourne so maybe we want to go to the phones now.

Do we have anything on the phone?

Yes sir.

The first question comes from the line of Paul McTaggart of Credit Suisse.

Please ask your question.

Hi gentlemen.

Look, I just wanted to come back to Riversdale.

You talked earlier, Guy, about the strategy's unchanged, large low-cost assets, expandable, all that stuff, which we know well.

All of that would be true for certainly the Moatize assets within Riversdale.

But I'm just kind of wondering where Benga sits within that because, for my sins, I cover Riversdale so I know a bit about it.

Because Benga is really a smallish asset with an option to barge down the Zambezi river, which I've never really got my mind around.

So I wanted to get a sense of where that's at and what the real aim was with Riversdale.

Is it just Moatize or do you see the two working together?

And really if I can ask a quick second question, copper pricing, provisional pricing, I think you said in the release that it contributed about $1.4b to profit compared to 2009.

So if you could just tell me what 2009 was, was it a negative or a positive, so I can get a sense of what 2010 contribution was?

Okay.

I'll make a quick response on the Riversdale point.

Guy, if you want to say anything more about that and if, Guy, you can manage to dig up the answer on copper pricing, 2008 to 2009 I guess is what you're asking.

We've been pretty clear, Paul, to say that for Riversdale we are under bid conditions and that very much constrains what we can say from a regulatory and legal perspective.

We've said what we would expect to say in the bidder's statement.

We certainly have the public information that Riversdale has published and I think we probably should leave the answer to that to what we would have already put into our bidder's statement and what Riversdale would have put in.

Obviously we've made some representations in the bidder's statement about the South African coal assets, but we haven't said anything about the Mozambique assets, beyond what's probably in the Riversdale public domain.

But Guy, if you want to say anything about copper prices?

Yes.

The variance in copper performance between 2009 and 2010 in terms of price was $1,399m, so just $1.4b.

When we look at provisional pricing, the number, the provisional pricing effect in 2009 was a total of $213m.

In the first half of 2010 it was negative $38m and in the second half it was positive $181m.

So I hope that deals with your question, Paul.

Great.

I think I misunderstood what was written in the release.

It was --- yes, anyway, thanks.

That clears it up.

If I've got the phone, just quickly one other question on ERA, cover that one too for my sins and it's obviously going through a rough patch at the minute.

In terms of the broader uranium strategy, if you get to --- where do we go with this?

With Rossing and with potentially ERA, maybe not going ahead with Ranger Deeps, where does that leave you in a uranium strategy sense?

Where to from here if you can't deliver on Ranger Deeps?

Paul, if I just want to say on ERA first of all, the 12-week suspensions related to water management issues, we did get quite a bit of rain in the fourth quarter of 2010.

As a precautionary measure going into the wet in the first half of 2011 we felt we needed to keep enough [free bored] in there, so that if we continued to see extraordinary rains, we didn't run into a water management problem.

So again we're very, very sensitive to stakeholder management issues and water management at ERA, and I think it was the prudent thing to do.

But again, I wouldn't necessarily say that that is anything more than a temporal effect of quite an odd or extraordinary weather season that we've seen all through northern Australia.

I look at the uranium business, Paul, as something that has continued positive aspects as I look out over the next five or 10 years.

I do see more and more interest particularly in China but also in other markets in recognizing that the effects of eventual carbon price signals will lead to continued incentivization of the nuclear power sector.

But that being said, it does take some time to build these new nuclear power plants even in China so you actually have a sort of anticipatory ramp-up time.

Our long history of production both at ERA and at Rossing stretching for more than 40 years puts us in a good position in the market.

But I would accept your point that these are both very mature assets and in both cases they went through a patch between the late 1980s, the 1990s and the first half of the last decade where people really were ruling uranium out of investment plans, and they had been starved of capital.

We've spent the past five years really spending time upgrading the plants and really trying to play catch up from 20 years of under investment in that uranium sector.

Watch this space, I guess

Again I've said, I think Guy has said the same thing, we like uranium.

We've got to have the best businesses there and watch this space.

Thank you.

Thank you.

We have one more from the air I think.

Paul Young, are you on the line from Sydney?

Good evening everyone or rather good morning.

A couple of questions about CapEx.

First of all just on Iron Ore, you've outlined a total expansion CapEx for Pilbara of $12b for your share, but over the past six months you have announced an additional $1.9b of sustained business CapEx just to extend Hope Downs and Marandoo.

But my question is can we expect more mine extension announcements in the near future?

And also can you provide some guidance on sustaining CapEx across the Pilbara at the expanded rate of 330m tonnes.

So that's the first component.

The second component's just on Group CapEx.

I understand that further projects will likely be approved this year, but can you provide some broad guidance for CapEx in 2012?

Yes.

I'll maybe take a general stab at sustaining versus growth capital in the Pilbara and then maybe, Guy, if you can just provide more.

And Paul, I will focus and feed off of the comments we would have given and Sam would have provided at the November investment seminar last year.

I would anticipate that as we continue to expand the business, by the nature of expanding the business, we will increase the extraction rate from individual mines and that would have the effect of accelerating the mine lives and bringing further projects just as what we've done this week, which is the second phase of Marandoo.

But we've also got new mines that are coming in place.

So I would expect that over the next several years you will see a continued addition of new mines coming in, as we've foreshadowed in the November plan.

I wouldn't necessarily say the guidance needs to be adjusted from what we said in November, but as we do so we will see some projects.

Brockman 4 is a good example where that's actually a lead on from the previous Brockman developments.

And of course, as you know, Tom Price is a maturing asset and so we've had the new mine coming in just outside of Tom Price that will be supplementing that production on a going-forward basis.

So, yes, it gets a bit complex distinguishing which of these are growth projects and which of them are sustaining projects.

Because what we will need to be doing as we continue to expand our rail and port capacity is refreshing our existing mines with either expanded mine developments and in some cases new mine operations, like we would have done last year.

Guy, anything you want to add to that?

Yes, looking forward I do understand that this is going to be a source of some difficulty for analysts, trying to understand the sustaining capital level, given the definition that we use in the Pilbara, which is the mines are now sustaining capital in order to feed the infrastructure.

And we'll give you some guidance about that as the year goes on.

As to 2012, which you also asked about, I'm not going to change the position that we stated back in November.

And what we said then was, we gave guidance of $11b for 2011 and we said that in subsequent few years that the amounts would be comparable.

Now, to that, you have to remember though that we're now going to be consolidating Oyu Tolgoi so what was comparable is now going to be a little bit more than that to allow for Oyu Tolgoi.

So I think that we're not going to give a figure.

We won't give it until later this year.

We're not going to change the practice that we've had of giving guidance late in the year for the subsequent year.

But that's as far as I can go at this point.

Thank you.

And ---

Thank you Guy.

If I can stay for the moment on the phone lines, maybe move on to Peter O'Connor, also calling from Sydney.

Peter, you get your last chance here, moving on to the next one.

Do we have any others on the phone line?

The next question comes from the line of Peter O'Connor of Merrill Lynch.

Please ask your question.

Tom, my question relates to Madagascar.

I'm just interested in what is the current production rate at Madagascar?

When would you expect to achieve capacity?

And what other performance criteria should we be looking at there with the performance of that asset?

Yes.

Peter, on Madagascar, first of all, I'll just reflect on what we had talked about last year where we had some unfortunate, but recognized, start-up problems.

And these had to do with the fact that we were seeing a layer of clay that hadn't been anticipated in the resource that was harder -- creating harder digging conditions for the dredgers than we would have anticipated.

Over the course of 2010 we've progressively worked on that and progressively ramped up the production.

So each month was a new record, but it was still not at the design levels.

You may also remember, Peter, that we had I think when we first commissioned the operation expected about a two-year ramp up, largely because we expected it would take two years for the market to accept that material.

What's actually taken place is that the markets are probably more receptive to, particularly in the elevated TiO2 market conditions that we've been seeing.

We have put in place dry mining.

I think we got that dry mining started in January and I think what we would expect to see over the course of 2011 is that we would be able to double production through that dry mining.

Essentially what we're doing there is we are supplementing the existing dredge cutter with a dozer pit, where we're feeding sand into sump-pumps which will then be sending that sand into the existing concentrator.

Because the concentrator is still not the capacity bottleneck and that will supplement the harder conditions on the cutter wheel.

Thanks Tom.

I'm going to go over to London now and we have a question in the third row in London.

Nick Moore of RBS.

Tom, I'd like to just ask for your feelings about the new breed of these physically-backed ETFs.

Where I'm coming from is a number of producers who've signed up to actually supply these ETFs from production and Vivek in his piece here I note comments on the JP Morgan BlackRock potential copper ones, where he mentions 'these investment vehicles could have a significant impact on copper prices in the coming year by adding to investment demand'.

And I think we spoke about demand but of course the pinstriped financial investor is also very important now.

Firstly, have you been approached to provide metal for any of these ETFs?

And secondly, how do your consumers feel that we could have this environment of highly elevated prices which is somewhat divorced from, if you like, the normal supply demand?

And the final question then, if we get silly prices in the coming year or so, would Rio Tinto reverse and actually take advantage of those prices to put in place prudent hedging, something that you haven't in the past?

I will talk about the ETFs and what it means for physical flows of Rio Tinto product and then maybe -- and just from a general supply and demand perspective what the impact that speculative demand would have on underlying price formation.

But then I think, Guy, if you could then comment on the hedging component of the question.

Now first of all I think we've all been just from the pinstriped banker perspective astounded with the growth of the ETFs.

And people talking about another billion of market growth the next year or two.

They're still coming in the full range of exchange-traded funds, and certainly I think the commodity sector is playing a part in that.

I think from our perspective when we are selling product directly into consumers, we will get the benefit of whatever the value-added premiums would be.

And as I mentioned for 2010, a big part of our aluminum profit growth was because of the up-tick in LME pricing.

But actually an important part was also related to moving more product into the value-added pricing space.

And I think if we can get value-added pricing either for aluminum or for copper, which doesn't have the same value-added premium, that that actually has an attraction to putting it into an exchange warehouse.

And a question becomes probably which is better, an exchange warehouse or an ETF.

And possibly we could be incentivized to move from an exchange warehouse to an ETF.

But if we've got a customer premium coming in on a value-added product, I suspect that's probably the better value equation for Rio Tinto, especially in our Aluminum business.

In terms of the speculative piece, I think there's long been a concern raised, particularly by the user side, the customer side, that speculative demand has the effect of elevating prices and could have the negative consequence on reducing demand.

I think what we've seen over time is that the overall effect in my mind of speculative demand is to not necessarily change long-term price formation, but it certainly affects volatility.

Because I think that right now there's a mad rush to get into these vehicles.

I can guarantee at some point in time the pinstriped suit will be in the same mad rush to get out of these vehicles and it will send the volatility up as a direction.

I think unless someone's going to say, I'm going to hold this for the next 100 years, which I doubt there are many speculators that would do that, it just means more volatility.

But in that environment, it could lead to price, strong price increases, and I think that leads probably to your next question on hedging.

So Guy, over to you.

Nick, I mean you know our policy on this thus far.

That is, for the benefit of those who haven't followed it, is that we don't hedge anything.

We let our prices run, we let our interest rates run and we let the foreign exchange rates run.

And the reason that we do that is that we think that there are natural hedges in these various markets, which offset each other.

And we face very little demand normally from our investors to take away the upside when it comes to price, the point you mention.

But at the same time, while we don't have any plan to do this today, I suppose there are circumstances in which we'd break our own rules.

And we did that recently with respect to interest rates.

So, for example, at the end of last year, we issued some bonds and we achieved record low coupons for the mining industry over 10-, 20- and 30-year periods.

And we elected not to swap them into floating rate, which is what we would normally do when we issue fixed-rate bonds.

So there's an example of us, in effect, taking a position on interest rates over the 30-year period, which for the moment we're going to keep fixed.

Now I suppose there are circumstances under which, in a certain market at a certain time, we might want to take that position, but I just want to assure you that we have no such activity going on at present and we, indeed, see upside in a few areas.

So, that would be my answer to you, Nick.

Thank you.

One more question in London, then we will move on to Melbourne.

Hi.

It's Olivia Ker from UBS.

Firstly, going back to Aluminum.

Increasing in power price in the second half of the year, strengthening of the RMB.

Can you just tell us a little bit what you believe the marginal costs of production in Aluminum has moved during the year?

And then secondly, your goal of attaining 40% EBITDA margin is impressive.

Could you just -- is that also contingent on a step up in the aluminum price as well?

And then just secondly, or my next question, just in relation to Guinea and Simandou, there's been some recent press reports that the Guinea government is looking to increase their stakes in mining projects from 15% to 33%.

A, your comments on that?

And then B, if that is the case, what does that make you think in terms of Simandou?

What sort of assurances do you need to get in terms of royalty, future taxes, to proceed with the project?

Thank you Olivia.

I'll try to tackle each of these points.

First of all, we have definitely seen the marginal cost of aluminum increasing.

Even over the past six months.

I think that part of it is related to the renminbi.

Part of it is the broader trend of higher power prices.

But I think there has been sort of a temporal effect that probably is more seasonal, associated with probably winter conditions in China, leading to power shortages and probably pulling some, market-driven force pulling power away from smelting.

So you've actually seen an increase in cost, but also a reduction in smelting capacity.

It certainly had the positive effect of bringing the LME price into this plus $2,500 per tonne environment.

I would guess the marginal cost is less than $2,500 per tonne.

I would say that it's just gone over probably $2,000 or $2,100 per tonne right now.

I think that, as we continue to see the gradual increase in the renminbi, it's just going to have the effect of elevating that further.

There are some -- I think there are also some swings and roundabouts.

Again, renminbi is going to be so important for us because they are, the Chinese are the marginal producer.

But we've seen cyclic moves that I think could go both plus and minuses in coke prices.

They've gone quite elevated but I think that you can see that inducing new supply and that having some negative effect, or some negative effect of bringing down the marginal costs.

But we've been saying for quite a while that the general trend of things is for aluminum at marginal cost to be increasing.

And that's exactly what we've been seeing.

Again, I, six months ago, would somewhat have said $2,500 is the price they would have seen in February and probably nobody would have raised a hand up to offer $2,500 a tonne.

In terms of the 40% EBITDA margin, what we've done -- all I've done is I've presented that as the objective for Jacynthe and her team to develop that with these three stages, which don't all happen in one year because a key part of it is the modernization in Canada.

But I look at that across a cycle.

So we can't necessarily pick a single point in time, but if I look at other product groups, they would tend across the cycle to deliver at least a 40% EBITDA margin.

So my message to RTA has been, if you want to competitively seek the capital that Rio Tinto has available to it under the balancing that Guy nicely articulated, you've got to be seen over the long term, through the normal cycle activities, to be delivering a commensurate EBITDA margin to attract that capital.

I think it's been a very strong, longer term motivator for the team.

And by the way, if I look at the individual components and as the RTA team have basically come to me with what their sub, the sub plans to meet that, it is achievable and it's achievable over the next few years.

In terms of Guinea and Simandou I think it's important to emphasize that after 54 years of non-demographic -- democratic governments in Guinea, following French independence, you've had the first democratic elections.

And I was actually quite proud to be there at the inauguration of President Conde just the week before Christmas.

I met him just before his inauguration and we talked about what we can do together to bring Simandou to production quicker.

Now there's some tremendous issues around logistics, around infrastructure.

There are a number of outstanding questions that all need to be addressed before we can actually create that pathway for that development.

And what we have to do, and we have been working with the new government in a constructive way to create that pathway.

The recent press reports about the government stake is just one of many things that need to be addressed.

Thank you.

I'll now turn it over, Guy, into Melbourne again.

Neil?

Yes, it's Neil Goodwill from Goldman Sachs.

There's been a fair bit of discussion recently about the merits of a progressive dividend policy.

Given you've talked a lot about volatile markets and that volatility increasing, and the need to maintain sort of a prudent balance sheet, do you think the idea of a progressive dividend policy is actually adding to your cost of capital?

Guy, I think that one's a good one for you.

Alright.

Look, I think that we promised to resume the approach of a progressive dividend policy when we did our rights issue.

It's true that we consider volatility to be increasing although the underlying trend, we consider to be very, very strong, as we said in the presentation earlier.

If you have a prudent balance sheet then I think you can afford to carry out this progressive dividend if it's set at a sensible level, and that's what we've tried to do.

Is it adding to our costs of capital?

We could look at that question, but I really think it's probably not.

And I think that the volatility of dividends that would be implied by a non-progressive policy, in other words, a pay-out ratio policy, would, first of all, not differentiate this mining company from many others.

There are many others that follow that policy.

There are a few that don't.

And we think that for those who want to hold these shares through the cycle for long periods of time, they should be rewarded by a progressive and reliable source of return, supplemented, as is currently the case, by a return of capital.

But that's not always going to be the case of course.

Thank you Guy.

I think we have time for one more question and I think we'll take it from the operator.

So operator, do we have one more question?

Certainly.

The next question comes from the line of [Abi Shukla] of Societe Generale.

Please ask your question.

Hi, good morning.

I have a couple of questions.

One on your iron ore operations in Pilbara.

In fourth quarter you were producing at annualized rate of 243m tonnes when your nameplate capacity is only 220m tonnes.

So my question is, is there any hidden capacity there?

And when you say that in the long run you will take production up to 330m tonnes, should we actually assume that 330m tonnes will become 250m tonnes or 260m tonnes?

So this is my first question.

Second, how do you feel that any shortages of coking coal because of flooding in Australia will affect iron ore prices?

Is it correct that high coking coal prices or shortages of coking coal can result in more demand for high-grade, high-quality iron ore such as yours and actually benefit you?

Thank you.

Thank you [Alisha].

I actually wanted to say that your first question about whether we've upped the capacity at the Pilbara was my first question to Sam Walsh.

After I gave him New Year's Day on January 2, I said what's our capacity now.

Yes, I think it is a fair point.

We've had very exceptional performance.

The operations center has certainly been delivering better than had been expected.

But Sam actually answered correctly and said, 'whoa, hold down a bit because we are right in the middle of a rainy season, and we should remind ourselves that it doesn't take much of an extreme weather event to really knock around capacity'.

So I'd say let's get through this wet season and then we can have that conversation again.

And then I think what that would mean in terms of it's the overall capacity, it's going to be driven by how much effectiveness and efficiency we can get out of the operations center to essentially make the assets work even harder than they would have been originally designed for.

And that's all about the individual detailed components which Sam would have articulated in the November seminar.

I think in terms of shortage of coking coal, certainly we've seen coking coal and semi salts and high-quality thermal coal being redeployed to make up the gap.

And I think there are a series of positive and negative effects, one being it may be biasing toward higher-quality iron ores, which certainly benefit the Rio Tinto product versus, say, some of the domestic ores, particularly in, say, the Chinese market.

But we also recognize if you don't have any coking coal, then you basically can't run a furnace at all.

So there are positives and negatives.

I think it's probably, on balance, it's in our best interest to get that coking coal capacity back up in Queensland, certainly in our own equity production, as quickly as possible.

So that's -- I want to close at 10.00, as I've said, so thank you for that last question.

Thank you very much.

I'm very pleased with today's results.