力拓 (RIO) 2013 Q2 法說會逐字稿

Well, good morning, everybody, and I'm pleased to see you all here, and good afternoon to those of you in Australia, and welcome to our 2013 interim results presentation.

For those of you that don't know me, I'm Sam Walsh, Chief Executive of Rio Tinto, and I'm delighted to introduce my Chief Financial Officer, Chris Lynch, who'll be presenting from Melbourne.

He'll come on the big screen at the appropriate moment.

Chris joined my team in April and, since then, he's been making a real difference, particularly by bringing sharp focus to our capital allocation and cost-reduction programs; it's great to have him on board.

Safety is one of our key core values and it brought me great sadness to learn of the two fatalities we had at our managed operations this year; one at La Granja in Peru in February, and one at our Alma smelter in Canada in April.

I would also like to express my sympathy for all those impacted by the tragic incident at Grasberg in May.

My goal is to make sure that all of our employees and contractors return home safely to their families, loved ones and friends at the end of every day.

So I have challenged my team to deliver year-on-year improvements in safety performance.

Doing so will remain a priority for the Group for the remainder of this year and beyond.

So let me make some comments about our performance this half.

Overall, I'm pleased with our progress, and we're seeing seriously good results from our business improvement initiatives.

We've delivered solid underlying earnings of $4.2 billion and strong cash flow from operations of $8 billion.

Cash flows were actually in line with last year, despite the fact we've seen weaker commodity prices, and it reflects the total cost improvements of $1.5 billion before tax across our operations and our evaluation and exploration projects.

Our businesses are performing well.

In particular, we recorded record first-half production and shipments of iron ore in the Pilbara.

We reduced our capital expenditure by 9% during the first half of the year, when compared to 2012, and we're making good progress in divesting non-core assets.

Our interim dividend has been increased by 15%, compared to last year, in line with the increase we made to our full-year dividend six months ago.

I believe that we've set ourselves firmly on the path towards becoming a leaner, more tightly run business, in pursuit of greater value for shareholders.

So back in February, I set out my initial views of our immediate priorities.

I made it clear that our focus would be on disciplined execution of our strategy.

I set a clear direction for the business to bring greater focus, greater discipline and greater accountability to the way we all work.

I set the expectation that our leaders and employees should act as business women and men, running their part of their business as if they own it.

My Executive Committee is now in place and they're clear about my vision for the Group.

In recent months, we've taken an in-depth look at the outlook for our markets, how we're traveling, the risks, the opportunities that we face, the best plan to get the business back on track.

We're seeing slightly slower growth in China, but it is off a much bigger base.

We're seeing continuing underlying structural issues in Europe, and increasing uncertainty over the unwinding of the quantitative easing programs, particularly in the USA.

In China, the economy will evolve as it transforms to a consumption-led growth.

Sentiment will continue to be influenced by these global, structural shifts, creating volatility in our markets.

This is likely to persist, making it harder to predict overall growth.

But importantly, our long-term view of the Chinese economy remains unchanged.

We expect to see continued robust growth in absolute demand for commodities.

In terms of what does this mean for us, well, we need to build a stronger and more resilient business.

Since February, we've implemented significant restructuring and transformation across the Group, and you'll hear more about our cost reduction when Chris shares some of the details with you shortly.

We're taking the right decisions to improve performance, to strengthen our balance sheet, and to deliver results.

These efforts will continue.

Our results are gathering pace and momentum and we can demonstrate solid progress.

Now, those of you that know me, and that's quite a number of you, I am single-minded in delivering results, not just talking about what we intend to do.

So let me share with you our progress against the priorities that I've set.

We're showing good momentum to improve performance at all of our businesses by reducing cost and improving productivity.

The cost reductions that we've realized in the first half across our operations and evaluation projects is clear evidence of the success that we're achieving.

In Aluminum, we've been focused on improvements for quite some time, as you know.

We have simplified and improved the portfolio by divesting or curtailing of 15 assets, 15 over the past five years.

It's now clear we can't sell Pacific Aluminum for value in the current market, so therefore, we're bringing these assets back into our aluminum product group.

We do have a way to go to improving the performance in the Aluminum business and its returns.

Let me be clear, there is no straightforward easy solution here, but we are making progress in Aluminum, including continuing success in reducing our cost base where we've achieved a cost improvement of around $200 million so far this year.

In our Iron Ore business, well, it continues to go from strength to strength.

As we complete our 290 million tonne a year expansion, I've particularly asked the team to aggressively pursue opportunities for productivity enhancements.

This will allow us to maximize our return of investment on this world-class automated system.

Productivity is at the top of my agenda.

We've achieved a great deal to improve performance at all of our businesses, and a greater focus on productivity across the entire Group should lead to even better results.

Strengthening our balance sheet continues to be a focal point of our efforts.

Overall, as you would have seen, our net debt actually increased during the first half to $22.1 billion.

This is, quite frankly, higher than Chris and I would like.

We will reverse this trend and reduce net debt, over time, ensuring that our balance sheet is robust and allowing us to continue to deliver shareholder value, whatever the economic environment.

In the course of the last six months, we've instilled greater discipline in our capital allocation processes, as I promised, and enhanced the systems and controls that govern our business.

As a result, we are prioritizing our projects.

We're only investing in those projects that have got the highest return.

In the first half, we reduced our capital by $668 million compared to last year.

For the full year 2013, we expect our capital to be around $14 billion.

This will be 20% less than last year's peak capital.

And finally, we're delivering results by completing our major projects, and divesting of non-core assets.

So far this year, we've started the commissioning of four major projects, including the open pit mine and concentrator at Oyu Tolgoi.

And we're about to commission the major expansion of our Pilbara Iron Ore business to 290 million tonnes a year of annual capacity.

These are significant milestones.

And we've made good progress on our divestments with $1.9 billion of transactions announced, or completed, during the first half of this year.

Simplifying our portfolio by divesting of non-core assets will bring greater focus to our business, and allow us to realize value now.

So in summary, before I pass to Chris, we're making solid progress against our priorities to improve our business, to strengthen our balance sheet, and to deliver results.

I'm confident that we'll achieve our commitment to you, pursuing and delivering greater value to shareholders.

Chris will now take over, and he'll take you through some of the detail of our performance this half, before I'll return to update you on our major projects, and to handle questions and answers.

So over to you, Chris.

Thanks, Sam.

Let me start by saying I'm completely aligned with Sam's vision to deliver greater value for our shareholders.

We understand what we need to do, and I'll be working closely with Sam and my colleagues on the Executive Committee to deliver results.

As Chief Financial Officer, my focus is particularly on strengthening the balance sheet.

This will be achieved by three key actions.

First, we need to improve business performance through our cost reductions.

And I think we can demonstrate results in this area.

Second, we have to improve our discipline in the way we allocate capital.

We've been taking a hard look at the projects in our pipeline, and I can assure you that only the projects of the highest quality will proceed.

The third action we need to address is delivering real results from our divestment program.

I'll return to each of these, but let me start off by reviewing how the business has performed in the first half.

It's worth remembering that our underlying earnings in the first half of 2012 included some $246 million of one-off benefits.

These were mainly from the disposal of various exploration properties, including interests in Extract Resources and Kalahari Minerals.

These benefits don't repeat this year.

Turning to prices, so far this year the iron ore spot price has ranged between $110 per tonne and $160 per tonne delivered to China.

On average, our achieved prices were $137 per tonne in the first half, $5 per tonne lower than in the same period last year.

Coking coal prices weakened substantially, due to strong supply growth from major seaborne producers and ongoing weakness in import demand.

And the copper market has been in modest surplus, resulting in a 7% price decline.

Overall, lower average prices led to a $1.3 billion drop in underlying earnings compared with 2012.

Volumes, though, were strong.

Our volume increases enhanced earnings by $359 million.

Just under one-third of this came from record, first-half, iron ore sales, following the rerating of our operations in the Pilbara to 237 million tonnes of annual capacity.

We achieved this by progressive debottlenecking and incremental productivity gains.

And we'll be seeking more of the same, going forward.

Aluminum volumes increased, primarily as a result of production resuming at Alma following resolution of the lockout that occurred in 2012.

Volume declines mainly came from lower sales of gold and industrial minerals.

The net volume variance increased earnings by $228 million.

We also delivered good cost reductions, with $1.5 billion in total pre-tax cost reductions, leading to a $978 million boost to underlying earnings.

These improvements are across both our operations and our exploration and evaluation spend.

We're pleased with the momentum on our cost reductions, and I'll come back to these a little later.

The effective corporate tax rate on underlying earnings, excluding equity accounted units, was 38% for the half.

This is higher than the rate last year due to utilization of the MRRT deferred tax asset, and the other first-half tax provisions.

We expect the effective tax rate to be between 33% and 35% this year as a whole, with a cash tax rate of around 30%.

Finally, a number of 2013 one-off items, including an iron ore royalty payment to joint venture partners, led to the other variance.

So overall, our underlying earnings were just over $4.2 billion.

These results show the resilience of our business in the face of a weaker price environment.

They also show the very tangible savings we've realized from our cost reduction program, which is flowing through to the bottom line.

As Sam has said, we can expect the market volatility to continue and we will be planning for a broad range of economic scenarios as we look ahead.

Our net earnings of $1.7 billion were lower than underlying earnings.

This was mainly due to non-cash exchange losses on US dollar debt held in Australian dollar functional currency companies.

These losses are largely offset by currency translation gains recognized through the equity section of the balance sheet.

However, all US dollar debt is not affected by these exchange movements.

However, if these rates stay where they are, our reported costs will be lower in the future.

Other items affecting net earnings included the $340 million write off of historical costs at Kennecott Utah Copper, following the pit wall slide in April, primarily deferred stripping costs, and some damaged equipment.

Let's now focus on the cost savings.

In the first half of this year, we achieved overall pre-tax cost improvements of $1.5 billion against 2012.

As you can see from the chart, $977 million of this amount was due to improvements in our operating costs, where we have a full-year target of $2 billion.

Our exploration and evaluation expense on projects was $483 million lower on a pre-tax basis, tracking well against our full-year reduction target of $750 million.

These results demonstrate the work we're doing to address this cost base.

Let me give you some more detail.

Firstly, on our operational costs.

I should point out these cost improvements are measured using our established variance analysis methodology, and so can include some unit cost efficiency from increased volumes.

But our focus is on reducing our dollar spend, regardless of changes in volume.

We currently have over 1,500 discrete projects being implemented across the Group.

Clearly, we don't have time today to go into each and every one of these, but we've prepared some case studies showing the work being done across the Group to save money.

For those of you in the room in London, these can be seen outside the current room, and they're also available on our website.

Let me make just a few comments about some of the good efforts, starting with our Aluminum division.

A major cost driver for this business is raw materials, where we've achieved cost reductions well ahead of market prices by renegotiating pricing mechanisms, securing new sources of supply, and standardizing our product qualities.

This has led to cost savings of $37 million across our raw material spend in the first half, compared to last year.

Another example comes from our Energy group, where we're targeting a reduction of over 60% in the number of contractor companies we engage, in addition to negotiating reduced rates in order to drive the material reduction in contractor spend levels.

This is forecast to deliver over $100 million of cost savings for the full year of 2013.

Across the business as a whole, we've reduced total headcount by a net 2,200 people in the last 12 months.

We've achieved a gross reduction of 4,000 roles, but this was offset in part by an additional 1,800 roles needed to support our expansion program in iron ore.

The work we are doing is leading to real improvement, driving costs lower, and flowing straight into our P&L.

We've also seen a number of adverse influences on our costs.

The major flood in the Gladstone area in Queensland, Australia, severely disrupted operations at QAL and Yarwun, and we continue to incur additional operational readiness and ramp up costs in the Pilbara as part of our growth plans.

Despite these headwinds, we've delivered solid operating cost reductions of $977 million.

Our exploration and evaluation spend was $483 million lower than the first half of last year.

We're concentrating our efforts on projects which have the most potential to deliver value in the medium term.

Longer-term growth options are being maintained, if they're on strategy, but we're taking a much more disciplined approach about the value of each project.

We've retained our high quality in-house exploration team.

Whilst we've reduced our central exploration spend from $111 million to $85 million compared with the same period last year, we still view this as a vital activity for us throughout the cycle.

This approach has been well rewarded.

Over the past decade, our geologists have discovered nine Tier 1 resources, which is an excellent achievement.

Our investment in exploration will ensure that we continue to have an industry-leading pipeline of tier one growth options that we may choose to develop over the years to come.

Turning now to cash flow.

Cash flows from our operations of $8 billion are actually slightly higher than this time last year, despite lower prices.

We achieved this result through our focus on exploration efforts, cost reductions, and productivity improvements.

Other cash inflows included $130 million of proceeds from divestments.

So far this year, we've announced or completed $1.9 billion of divestments through eight different transactions.

The majority of these are expected to complete in the second half.

Eagle and Palabora both closed in July, and the cash proceeds of these are now both in the bank.

We plan to pay down debt with these proceeds, which will help strengthen our balance sheet.

Our capital expenditure in the first half was $6.9 billion with much of this invested in our large projects in the Pilbara.

Other large outflows included tax and dividends, with the 2012 final dividend paid in April of this year.

Overall, our net debt increased during the half by $2.9 billion to $22.1 billion as anticipated.

Returning to capital expenditure, which peaked in 2012 at $17.6 billion.

This year, we expect it to reduce to around $14 billion as we complete a number of major projects.

So far, we've started commissioning four major projects, and Pilbara 290 million tonnes is due to ship first ore in September.

To bring greater discipline to our capital allocation, we are changing the way we assess projects.

Only the best will attract future investment.

They'll need to show that they are the best use of cash rather than just a good use of cash, delivering the highest risk adjusted returns.

This must be demonstrated, not only when compared with other investment opportunities, but also when compared with other competing uses of cash, including returning it to shareholders, or paying down debt.

A positive NPV alone is not enough to attract investment.

We will also consider a range of other metrics, some of which include speed of payback, internal rate of return, and return on capital employed, as well as the overall risk profile of both the project and the company including that project.

But to be clear, a more disciplined capital allocation process does not mean that we lack growth options in the short, medium, or long term.

As CFO, I'm keen to see us reduce our net debt, over time.

A stronger balance sheet will ensure we're well placed to prosper in a much broader range of potential futures.

We improved our liquidity in June when we issued $3 billion of short-dated US dollar bonds.

As you can see, we have a sensible debt maturity profile with no more than $3.2 billion of debt maturing in any calendar year.

At the end of June, we have cash on hand of $7.3 billion, and undrawn committed credit facilities of $8 billion.

So we're taking a pragmatic approach to managing our balance sheet consistent with the settings to support an A rating.

Let me finish by saying again, we understand what we need to do to deliver greater value for our shareholders.

We're improving the business, and our performance in the first half was strong, benefiting from $1.5 billion of total cost improvements across our operations and evaluations projects.

We're driving greater discipline in our capital allocation, prioritizing our projects, and reducing our overall CapEx.

We're delivering results from our investment programs, where we've already announced or completed $1.9 billion of transactions this year.

Getting our business in shape takes focus, discipline, hard work, and some time.

We're on the right path, and are making good progress.

Now I'd like to hand you back over to Sam in London.

Thanks for that, Chris.

It's great to have Chris on board.

I'd now like to give you an update on our major projects, starting with our recovery plan at Bingham Canyon.

This is well underway, and quite frankly, it's proceeding better than we'd originally expected.

That said, a significant amount of work still remains to be done.

This find was a defining moment in the 110 year history of the Bingham Canyon mine, and the employees of Kennecott have rallied as part of the recovery efforts.

We're delivering approximately 100,000 tonnes of ore per day to the concentrator from the pit, and this is being supplemented by ore from the low grade stock piles.

Concentrator throughput has recently been close to full capacity, which is a solid achievement after such a significant event.

Cleanup of the site has begun; a major piece of work here is to reestablish the heavy equipment access road, which we expect to have completed by the first quarter of 2014.

This will enable additional ore production, along with the remediation and waste removal.

There does remain a significant amount of slide material to move, which we expect to continue until the end of 2015.

Replacement equipment importantly is already operating, and 4 of the 13 damaged ore trucks have been recovered and they're back in service.

As you'd expect, our operating costs will also be affected in the second half of 2013, driven by recovery costs, the purchase of concentrate to meet customer commitments.

However, the team continues to pull costs out of the business and align to the changed environment, including the removal of a number of roles.

The business interruption and equipment loss insurance process is also on underway.

Near and medium-term production is being limited by being able to physically access the ore.

In 2013, we expect to produce around 150,000 tonnes of copper, with further improvements, as per the slide, in 2014 and 2015.

At Oyu Tolgoi, we've reached a major milestone in July making the first delivery of concentrate to our customers.

The completion of this $6 billion Greenfield project, the largest ever private investment in Mongolia, is a truly remarkable feat.

The thousands of people who have contributed to our success here should all be proud of what's been achieved.

Production from the concentrator continues to ramp up with throughput rates now averaging over 80,000 tonnes of ore per day.

We expect to be running at full capacity in the second half of this year.

We continue to discuss a range of matters with the Government of Mongolia, but progress has been made on several fronts, including receiving all permits to export concentrate, increasing Mongolian management numbers, and resolving the concerns about the use of international bank accounts.

There's still a number of substantive matters that remain unresolved, including uncertainty around project finance approval, and other aspects of the investment agreement.

So we recently announced that we would suspend further funding and work on the development of the underground mine, until these matters are concluded and a new timeframe agreed.

However, I strongly believe that both sides are committed to working through this.

It is in everyone's interest that there is certainty, that there is stability, and that we and others can continue to invest, with confidence, in Mongolia, bringing benefits to the country as well as our shareholders.

In the meantime, of course, the open pit mine and concentrator will continue to ramp up production.

Now back to Australia, and our Pilbara iron ore expansion program.

We're making great progress towards the commissioning of the next stage of growth which will see us add 53 million tonnes, to reach 290 million tonnes a year of annual capacity.

We remain on track to deliver first ore from the expansion in September, in line with the accelerated schedule that we announced in February.

In April, we achieved a key milestone with the delivery of the shiploader, which is now installed at Cape Lambert.

All of the coastal infrastructure for 290 million tonnes is now in place, and the first train was unloaded by new car dumper on July 20.

Also, between July and October of this year, four new trains will be delivered which will help us to steadily ramp up shipments over the next 12 months.

This highly valuable project will deliver excellent returns for years to come.

The Phase 2 expansion of the port, rail and power infrastructure to 360 million tonnes a year as you know was approved in June last year, and as I previously mentioned, there are multiple pathways for bringing on new mine capacity.

We could choose to develop new mines, to ramp up quickly and deliver tonnes, or we could fill some capacity with incremental tonnes from existing mines at lower capital intensity before we bring the new mines on.

But I can assure you that we'll always be focused on getting the most out of our existing and newly-expanded business, and we've already demonstrated our ability to grow production through low cost, incremental productivity improvements.

Our Pilbara expansion project, as you know, has grown from 320 million tonnes to 360 million tonnes a year as we've progressively found debottlenecking opportunities.

So we have options to grow from 290 million tonnes to 360 million tonnes with flexibility around the timescale and capital intensity.

The decision on which path we'll actually choose will be made, as we've previously said, at the end of the year.

So in closing, let me sum up the key points from today.

We have delivered solid results, and we're making clear progress against our objectives.

We're improving performance by reducing costs, and improving productivity.

We've reduced our capital expenditure, and we are taking a much more disciplined approach to capital allocation, and we're delivering results by completing approved projects while divesting of non-core assets for value.

This will lead to a stronger balance sheet.

We're on a journey here, but I'm absolutely confident that we're moving in the right direction.

Our efforts are, and will continue to be, driven by our relentless pursuit of greater value for you, our shareholders.

So it's now time to take your questions.

I'll start here in London and take three calls, and then I'll move to the telephones.

Rob Clifford, Deutsche Bank.

Two questions; firstly, given your net debt is increasing and you've identified you're pulling back on a couple of sales, how are your discussions with the ratings agencies going on your position with regard to your credit rating?

And the second question is on your rate of cost savings, so close to $1 billion saved in the first half.

Is it true to say that those things that you put into save that $1 billion will carry on in the second half and, therefore, another $1 billion in the second half is already in the bag, so you almost have to do nothing to achieve the $2 billion savings?

(laughter) I wish that were the case.

Let me answer the cost saving, and then I'll ask Chris if he can handle the ratings because he has the detailed discussions there.

Look in relation to the cost reduction, we promised that we would deliver $2 billion of cost savings; at the halfway mark we're at $977 million pre-tax with a further $483 million of exploration and evaluation.

And I put that together because, well, it makes sense for us to look at it as $1.5 billion of costs out of the business in the first six months of this year.

Now it's true that some of the savings will be one-off, that's not a large percentage of it, and some of the savings have been there for the full six months, some have only actually been there for one month, or two months, or three months.

So there is a momentum there; there's momentum there that's gathering.

Importantly, we've got the organization focused on it; we've got an organization that gets it, they understand what we're doing, and this will lead to further developments.

I wouldn't say that the second half we can all relax on our oars and let momentum just carry us, because I am focused on the fact that, next year, we're expecting to deliver a further $1 billion.

That will make a [accum] of $3 billion the next year, over the two years $5 billion.

It's important that I keep the organization focused, that we don't relax.

Remember that our costs did increase by $2 billion a year over the last three years, so there is a lot of opportunity there.

It is hard work, it is difficult work, but I've got the organization focused on it.

Chris, why don't you comment on net debt and the rating agencies?

Okay, thanks, Sam, and thanks Rob for your question.

The increase in net debt at the half was pretty much fully expected internally and in our briefings with the rating agencies.

Just for completeness, I think everyone's aware that we're currently A; we're working toward maintaining that; we've got actions in place that we believe will maintain that.

The issue for S&P who have a sort of negative outlook is a longer-term view about where do we think the cash will come from.

And in simple terms, the proceeds from divestments will be used to pay down debt; we are making some changes to out CapEx profile in future years, and we are taking costs out of the business.

But all I can point to as fact is the achievements in the first half, and as we said, the net debt increased pretty much in line with expectations internally, and in our conversations with the rating agencies.

With regard to Moody's, the conversation there is that they've got us on a stable outlook and I believe we'll be able to retain that.

The progress on the divestments, we've talked about the $1.9 billion of proceeds.

We haven't yet received the bulk of that money actually, so that, the high likelihood is that the bulk of the difference of that will come through in the second half, and we're still proceeding on some other opportunities in that area.

So I'm pretty comfortable that we've got the right settings in place, we've launched the right actions, but ultimately, the actual rating, obviously, is outside of our hands; that's in the judgment of other people.

So we think we're doing the right things for the Company, we think we're doing the right things on behalf of our shareholders and we think we're doing things that would sustain and support our A, but ultimately, the judgment's for others.

Yes, thanks, Chris, and thanks, Rob, for the question.

Myles Allsop, UBS.

Just a couple of questions as well; maybe on 360 million tonnes first of all.

You're talking about the flexibility there and the focus on maximizing shareholder value across the Group.

Could we read into that that, if the market conditions are not as strong as you expect them to be today, that it may not be 360 million tonnes, it may be 340 million tonnes, or it may be 360 million tonnes by 2017, not 2015?

And just following up on the rating agency question with Chris, is there a target net debt level that is set that, after which, you'll start considering returning cash to shareholders?

Okay, well, let me answer 360 million tonnes, and Chris, if I can call on you on the rating question?

The beauty about 360 million tonnes, is we do have a lot of flexibility in terms of how we bring it on.

I mentioned that the organization, I Chris, the organization is very focused on productivity improvements and what we can physically do there to squeeze more tonnes through the system.

We did, last year, announce a rerating of our nameplate capacity in the Pilbara from 230 million to 237 million tonnes.

Look, there's going to be more there, and part of the work that's underway in the Iron Ore Group now is looking to see, well, what are the productivity improvements.

Likewise, with the 14 existing mines that we've got, well, what are the opportunities for low capital investment there to get additional tonnes out?

And then of course, the new mines.

So there's a lot of work going on behind the scenes.

Importantly, it's not impacting on the timing of the project, because the mines have got a shorter lead time than rail and port infrastructure.

You're right to say that we've got endless flexibility, because we do, and we can play that accordingly as to how we see the market.

But importantly, the fundamentals in China, continue to be strong.

It is slightly slower growth, but a much larger base.

India there's been commentary there that they're going to have to start importing iron ore.

Well, that's going to add to the pot, as will developments in the rest of Southeast Asia.

Those assets are extremely well placed, being the lowest cost operations of iron ore in the world, on top of that, being proximate to China.

Chris, why don't you talk about net debt and the ratings?

Yes, thanks, Sam, and thanks, Myles, for the question.

We don't have a precise, definitive target for net debt levels, and that's largely a function that we're looking to reduce our net debt at the moment.

But anything we can do to strengthen our balance sheet, puts us in a position to be able to return funds to shareholders, in both larger volumes and in a quicker time period.

So our intent, at this stage, is to continue to be committed to the progressive dividend, that's number one.

The intent is to use the proceeds of disposals to pay down debt.

The third thing is our capacity to reduce our debt also is bolstered by two other factors.

One is any reduction in the capital expenditure, and also any improvement in the cost structure.

So as we can enhance our cash flows versus what they would have previously have been predicted to be, we can apply that to either paying down debt, addressing the balance sheet issue, or returns to shareholders.

So I think our focus is going to be the progressive dividend and reduction in net debt levels for the next, probably, 6 to 12 months, but ultimately, the returns to shareholders are totally a function of the Board's decision making.

You're aware the interim dividend is largely, in our settings, as an arithmetic outcome.

It's half of last year's total dividend, and the bigger dividend decisions are made around the end of year results.

So keep an eye on that one in there, but the intent at the moment is to use the proceeds of disposals, to pay down debt.

And the more we can enhance the business, the better capacity we have for both returns to shareholders, and reduction of debt.

Menno Sanderse, Morgan Stanley.

Two questions; one on Aluminum, one on the capital allocation.

It's good to hear the capital allocation is going to change, and you mentioned a number of measures and metrics you're using.

But the problem still remains, garbage in, garbage out, and clearly in Mozambique's case, you could argue that wasn't the best stuff that went in.

So how have you changed the Company to make sure the data going into this is not overoptimistic as it has been, for the industry as a whole in the last 10 years?

And secondly, on Aluminum, I take your point there is no easy solutions, but you would think that the easiest solution was to bring your own costs down, and close the high cost assets.

So why are you slowing down Kitimat, which should be a very low cost asset when it's finished?

And not taking quicker action on the higher cost ones.

Okay, thanks for those two questions.

Look, in relation to capital allocation, investment decisions, I've mentioned that we've strengthened investment committed process, and the inputs into that process from our business evaluation group and our technical evaluation group.

Quite frankly, during the growth period, we had relaxed some of the checks and balances that those groups provided to our investment committee.

We made a decision to bring all the investments through to the investment committee.

Well, you need to have a check and balances in order to ensure that there is a filter process there.

I think the best way I can describe it is that there are things that need to be worked through in the middle of an organization.

You can't actually determine these from the top of the organization; you need the subject matter experts.

The investment committee can't make decisions as to whether there's been enough infill drilling.

They can't make decisions as to whether the hydrology model [right] or the geo technology.

They've really got to rely on the middle level experts to do that.

We had weakened that process.

Chris and I have reinforced that the basic systems that we operated, really since the establishment of Rio Tinto, those systems work.

We know that they work.

The organization gets that they understand how they work.

So that has helped us get the discipline back.

Of course, we've created environment of, in inverted commas, scarce capital and that also ensures that you're putting a priority on only the best projects.

It's not every single project that gets through and pass muster.

In relation to Aluminum, I think there has been some very good work in terms of reducing the costs of the Aluminum business.

If you compare our business to other western aluminum producers, hey, we're doing pretty well.

But of course, the whole segment has been impacted by low aluminum prices, and the rate of growth of aluminum, particularly in Western China.

But we have reduced our costs; we have taken off 600,000 tonnes of smelting capacity.

We have either curtailed or sold 15 of our Aluminum assets, and you can see, in our costs and our improved results in our Aluminum business, that we are making a difference there.

Now, am I satisfied with where we are?

No, I'm not.

There is clearly more work to be done.

But we've got that business and we've got the broader business, focused on improvement, focusing on cost.

Some people have said, well, have you spent your time travelling around the world, whatever?

The answer's no.

I've spent the majority of my time focusing on the cultural changes that we need to make.

Focusing on the steps that we need to put in place in terms of clear goals, clear measurement, clear incentives, clear delivery, rather than being the minister for tourism.

I have visited our major operations around the world, Montreal, Perth, Sydney, Brisbane, Melbourne and so on, I have visited those to deliver the message.

Then I step back; they know that I'm looking at what they're doing; they know what they need to do, and they're delivering.

So is the journey finished in Aluminum?

No it's not, but we've got the right steps in place, and have a look at the results, we are delivering.

Could I have a question from the telephone?

(Operator Instructions).

[Lyndon Fagan, JPMorgan].

I've got a couple of specific questions on the Iron Ore business.

Firstly, just with Tom Price, it's running at 24 million tonnes, but according to your reserve statement, there's three years of reserves left.

So I'm just wondering, can you perhaps give us some color on the mine life there, and is there upside to the three years?

The second question is specifically on Silvergrass, I'm just wondering does that come up for Board approval in 2013?

Thanks.

Yes, thanks very much Lyndon, for your question.

And the people in this room, some of them are probably wondering what on earth we're talking about.

But these are two of -- one is an existing mine, one's a future mine; Tom Price was the original mine that started in 1966.

And I can remember, when I joined the Iron Ore business, in 1994, people said Tom Price had seven years left.

Well, the life continues as we find more deposits.

Particularly what we've done at Tom Price, and in fact [Parapadua], another long dated mine, we've been able to bring in satellite deposits.

And, Lyndon, the most graphic example there is Western Turner Syncline, which is on a ridge over the back of Tom Price, and there we've been able to build a conveyor that actually links those two mining operations, so that we're actually the Tom Price plant and facilities.

I see that type of strategy continuing in relation to Tom Price.

We've got a lot of good equipment there; it's been well looked after, well maintained; it's got a lot more life in it, and that's how we'll extend the life there.

In relation to Silvergrass, Silvergrass is one of our options, Silvergrass and [Kodidori] are the two major options in relation to the new mines associated with 360 million tonnes, and that will be part of the review that the Board undertakes in the latter part of this year.

We may or may not announce Silvergrass at that point in time, depending on what is the logical and most rational order to develop, taking into account the productivity improvements I mentioned.

Paul McTaggart, Credit Suisse.

Sam, I think you alluded to it earlier, you mentioned that if FX rates hold in the second half of the year obviously the dollar's come back, you've shown in dollar, what potentially can you achieve and what rate underpinned the initial $5 billion, the $3 billion and the $2 billion that was put in place before those targets?

What kind of FX rate were you assuming when you put those targets in place?

I'm really trying to get a sense of can we get a positive surprise?

Thanks for that, Paul.

Exchange rate is outside of the targets that we set for the $5 billion.

I can't recall exactly what the rate would have been at the time we set it, but certainly as Chris alluded to, if the Australian dollar and the Canadian dollar continue at their lower rates, then there will be a flow through in relation to improved cost.

But the cost reduction work that we've got underway and the evaluation and exploration, those are the 1,500-odd projects that Chris referred to, all projects aimed at physically reducing our cost base rather than perhaps a lucky win of what may happen with an exchange rate.

Adrian Wood, Macquarie.

I've got just a couple of questions.

First of all, on the 290 million tonnes expansion, back at the second quarter result you spoke of a steady ramp up for the new facilities; you're now talking about an accelerated ramp up.

Can you just talk through if there's been any change in management mindset over the last three weeks?

And then just regarding Turquoise Hill and Oyu Tolgoi, you've announced today another larger bridging facility.

First of all, what's changed over the last couple of weeks that's seen that grow so significantly?

And given that OT is now running at 80% of nameplate capacity and expected to ramp up in the second half, how much longer is it until OT's revenues are going to cover the mine's costs?

Yes, in relation to the 290 million tonnes ramp up, the acceleration there relates to the fact that, originally, we're going to bring on that mine or that process towards the latter part of this year, but we're now bringing it forward to September.

As I provided you some details, some granularity, it's getting very close, which you'd expect if you're going to start the full commissioning in September.

In relation to that, we'll bring it on as quickly as we can.

These are large systems, large pieces of equipment.

Yes, most of it replicates equipment that we've got that we're familiar with, but you're talking about major pieces of equipment that, quite frankly, we need to test through the systems and ramp up sensibly.

In relation to Turquoise Hill and the bridging finance, there, of course, we've had the sale announced of the Kazakhstan gold asset.

That will assist with the cash flow, but we wanted to put enough certainty into Turquoise Hill so that it wasn't a distraction.

There's been a bit of commentary, speculation if you like, about that.

The bridging finance is required to see Turquoise Hill through to moving to cash break-even at Oyu Tolgoi, which we expect to happen late this year.

And, of course, to cover the fact that there is $1.8 billion of credit facility provided by Rio Tinto to Turquoise Hill.

We need to provide that certainty so that people are not distracted, we can get on with what we need to do.

That is ramping up production of OT from 80% to 100%, resolving the issues with the government so that we can make an investment decision in relation to the underground.

These are two very important aspects for that project.

Let us move back into the room, and if we could take the next question here.

Jason Fairclough, BofA Merrill Lynch.

Just a question or two around the disposal process, and I guess what's interesting to me is, in a way, not what's happened, but what hasn't happened.

So if we take something like Diamonds, you've agreed not to do it for the moment.

If we look at what's happening with PacAl it's coming back into the Rio Tinto family.

How do you take these orphan assets and look after them now that you've decided to keep them and make sure that value is maintained?

And I guess a follow-up on that, before there's been the concept of what is a Rio Tinto asset and are you still asking yourself that question vis-a-vis Aluminum?

We will continue to look at every aspect of our business and whether it fits our portfolio, whether it's going to deliver value, going forward.

If I look at Diamonds and PacAl, we tried hard over a period to sell these assets.

I made a comment in a media interview that this is not market day at a bizarre, and it's not.

We're focused on value; we're focused on delivering value, and ticking of a box by saying we've sold an asset that we'd sell at a huge discount, that just doesn't make sense.

I'm very pragmatic, Chris is very pragmatic; we've given it a good shake; we've given it the time to see if we can deliver value.

Yes, we had a number of offers; they're not where we wanted them to be so we're not about to do something silly just for the fact that we put them on the market.

Bringing them back into the organization, Diamonds is a good business, it's very prospective, it is a good business.

We're bringing on the Argyle underground, that was one of the four projects that we talked about.

We've got good assets there; they've got a natural home within our Diamonds and Industrial Minerals Group, quite frankly.

That group was received back with open arms and they're getting back down to business.

In relation to PacAl, there's been some very good work there by taking a private equity type approach to that part of the business, and you can pick it up in the press release under other.

You can see the improvement in results there of that business.

We will continue to run that as a separate entity within Rio Tinto Alcan so that we don't, as you suggest, we don't lose the values that we've found.

But also, I've learnt in my career if you want to transfer technology, if you want to transfer knowledge, the best way to do it is actually to transfer people.

And that way, you can physically get people working side by side and see closely what's going on and how you can get the same sort of benefits really flowing through.

It's not the concept, private equity, yes, we all know what they do; the trick is how you actually implement it.

Implementation is hard, and you need to have the knowledge and experience, and you always need to have done it to do it.

The other aspect in relation to PacAl, I was running two aluminum businesses.

That's not a healthy situation to be in.

You've got one group sitting on the edge of their chairs, waiting and wondering if they're going to be disposed of; that's not a productive way.

You need to stabilize the business.

It's a little bit counterintuitive, but bringing it back into the business will actually save more money, because we've had to set up two management structures.

I'm making two phone calls instead of one (laughter).

Sorry, I'm joking.

But there are benefits there for us, in terms of bringing it back in.

You are dead right; we need to make sure that we don't jeopardize the cost reductions we've achieved.

We're very focused on ensuring that we don't.

Tony Robson, Bank of Montreal.

Sorry if I move back to your problem child, Oyu Tolgoi.

Any vague timeframe possible, please, in terms of discussions with the government over those 22 points of contention?

And what happens, actually, if you can't deliver what the government wants, that you see that side of the investment agreement on what you signed up for?

What's the resolution there, please?

Thank you.

I'm very optimistic that we will work through the issues.

We're seeing some encouraging signs after the press release that we put out last week, stating that we're putting the project on hold as we work through it.

We are in -- or Chris is in discussion with the banks on extending the project finance deadline.

So we are aligned.

We want to see the project move forward; the Government of Mongolia wants to see the project forward.

It's just a complicated beast, and we just need to work through these fundamentals, to get them right.

These are things that we've been doing in jurisdictions all round the world.

For us, it might seem easy and simple, and what have you.

They're doing it for the first time.

I need to get it right; I need to get it right for future generations of Mongolia.

We need to get it right, so that we've got the stability and a firm platform to go forward.

So if it takes 10 minutes longer to resolve it, that's what it will take, but it'll be a much more solid project, going forward.

James Gurry, Credit Suisse.

You did mention, I think during the presentation, you or Chris did, that there's some reviews going on of CapEx in the outer years.

I think the increase today, not expected, but we're not quite sure exactly which projects we can attribute it to.

But with the benefits of the Australian dollar moving, considerations for the 360 million tonnes and potential to debottleneck there, can you just give us an indication of how you see CapEx moving around from, I think it was $11 billion and $7 billion that you indicated that you had already approved for '14 and '15?

Yes.

Let me ask Chris to handle that.

Chris (laughter) has been bird-dogging this very closely, as you could imagine.

Chris, why don't you comment?

Okay.

Thanks, James, for the question.

I guess the first thing to talk about are the facts.

First fact is that we're about 9% down this half versus the same half last year, and that's about the end of the facts.

Then we go into versus what do we think we're going to finish the year with, and where that might be.

Our current projections are about $14 billion.

That may get some assistance from a lower Australian dollar, but it's a little bit early to be too prescriptive about that.

And it's also a function about how much of the spend has already been committed for this year, and including in which currency it's committed for, and so on.

So we'll flesh that out over the coming weeks, and we'll have a better view of that internally.

With regard to this year, I think the announcements that were made in February talked about $13 billion of approved as at that stage.

So I have to say, from my own experience as an Executive in the Company, our plan, which includes both approved and as yet to be approved, was always a much higher number than that.

And we've actually slightly reduced the plan for CapEx of all sources, even within 2013, marginally.

We started doing that work in the middle of the year.

With regard to the full year, we expect it to be about a 20% reduction on last year.

Last year's definitely our peak for the foreseeable future, and we think that reductions in that sort of timeframe, or that sort of order of magnitude, are possible for next year also.

So that's about as definitive as I can be.

And as I said earlier, what Sam and I are both keen to avoid is getting too prescriptive about what we're going to do.

We'd like to talk more about -- do things, and then talk about what we've done, and give you the intent about where we're going.

But certainly our intent is to take some value out, take some money out of the capital expenditure over coming years.

That's got to be very well managed.

It will be done on a prioritized basis, so our intent there is to make sure that we have only the best projects; not any use of cash that's a good use of cash, a good use of cash is not quite enough.

It's got to be the best use of cash, and that's where our focus will be.

And that decision will be taken amongst other considerations, like paying down debt, like returns to shareholders, and so on.

So the best we can do is improve the business.

We are going to strengthen our balance sheet, and part of that process will be making sure we've got a very, very healthy attitude toward how we allocate capital.

Yes.

I should just add, Chris is doing a great job here.

And we are also focused on, obviously, working capital and sustaining CapEx in that process, and it's all under the microscope.

Why don't we move to telephones for some calls there?

Clarke Wilkins, Citi.

Just in terms of the asset sales, you've mentioned taking Pacific Aluminum back into the fold, and Diamonds getting pulled.

Can you just clarify what assets you're still actively looking at divestment of, and any potential timeframe?

And also may one for Chris.

Just in terms of the franking credit, the balance keeps building here in Australia.

Is there active looking at ways that that can be released, and creating value for shareholders through that mechanism?

Thanks, Clarke.

Let me take the first one.

Chris, if you could pick up franking credits?

In relation to asset sales, we had made public that PacAl and Diamonds were on the market.

Beyond that, I have just commented that we'd make significant divestments during this year.

Chris does have a team that's working on that.

There are a number of things that are in the pipeline.

We're not going to wade into that detail, purely and simply because I've learnt the hard way that where we do announce something, every 10 minutes we get a phone call, saying, what's happened now?

I'd much rather a situation where we can determine whether these assets have a natural buyer; where there are synergies; where somebody values something at a greater value than us, or they don't.

And if they don't, well, let's get on with life, rather than distracting every single person in the organization.

There are further projects that are being worked on.

All will be revealed if that comes to fruition.

Importantly, though, we're focused on value.

And this is not about chasing our tail, delivering ticked boxes, but not delivering value.

It makes sense to focus our business on our core assets.

It makes sense to have a focused organization where we're delivering value.

But it doesn't make sense to give things away just purely and simply so you can tick a box.

I think $2 billion, or $1.9 billion in the first half, I think it's a credible result in this market.

Clearly, the team are continuing to work on this.

But Chris, why don't you talk about franking credits?

Okay.

Thanks, Sam.

The obvious way of utilizing franking credits is via dividends and fully-franked dividends, and for the foreseeable future I don't think there's any doubt that the dividend paid to limited shareholders will be fully franked.

We do have a large stock of franking credits available.

The other way that franking credits can be utilized is if you were to do a buyback of the limited stock.

But the last time we were doing buybacks, there was a significant discount in the PLC stock to limit it that more than offset that franking credit advantage.

So it didn't make sense for us to buy back the limited stock when the PLC stock, which represents exactly the same economic interest, was a cheaper option.

So I think we'd love to find more creative way to extract this value; it's a challenging issue; it's been there for a long time.

Best way is dividends, and we're doing our best on that with the 15% increase last year which floats through arithmetically into this interim dividend.

But I think the likelihood is that there's not a silver bullet that get these out.

And any action we take on dividend policy, any sort of capital management issue, we have to make sure that we're cognizant of the equity and fairness for both sides of the deal.

So whilst all Australian dividends will be fully franked, that's part of the Australian law, well the Australian law permits the franking credit.

Unfortunately, we haven't yet found a way to utilize them any faster than we are currently.

Yes, thanks very much, Chris.

Thanks Clarke, and we're very happy to receive any bright or brilliant ideas you might have on this.

Abhi Shukla, Societe Generale.

I would like to ask three set of question.

First on Pacific Aluminum, roughly how much EBITDA and EBIT did you make in the last six months?

And is there a good part and a bad part to the business?

Is there half of the Pacific Aluminum which is maybe free cash flow positive, and other half which is negative?

This will really help us understand the business better.

The second, on Bingham Canyon, how much money do you expect to recover from the insurance?

And third, on the titanium dioxide, when do you think the destocking will end, and when do you expect a pickup in the market?

Thank you.

I think in relation to PacAl, I'll let Chris answer those questions.

The detail is actually in the press release, and the pack, but I'll let Chris make some comments on it in a moment.

In relation to Bingham Canyon, we have business interruption and we have equipment, asset loss insurance.

We're working through that process.

As soon as we've got any news there, we will reveal that.

But at this point in time, we're going through the due processes that you could expect in relation to that.

In relation to the TiO2 market, titanium dioxide, if you look at the medium to long term, the market is good for this product.

These projects are hard to bring on; they're not easy, and there are not a lot of new projects that are in the hopper.

So I think the prognosis for titanium dioxide is good, going forward.

At the moment, we're going through adjustments; at the moment, we're going through processes of uncertainty.

We've seen, with these products, that they're on a different cycle to the rest of our portfolio.

TiO2 used in paint and other applications, it tends to be, well, you've built a building, you're now going to go in and maintain it or repair it or whatever.

So it has a different cycle, but all of a our products have a cycle and it will have its time in the sun.

But perhaps with that, Chris, if I could go back to you to answer about PacAl in relation to its EBITDA and the makeup of the business?

Sam, we don't break it out in detail.

In the press release it's part of the other operations.

There's about $70 million, $80 million of EBIT in that area.

With regard to whether -- and I guess the other thing to say about PacAl is the current state is less significant than the rate of improvement in PacAl.

And there have been a lot of things put in place, that are improving the outcomes on PacAl, which we want to make sure we retain and persevere with, and carry across into other aspects of the business.

So there's been some great work done there, and really want to compliment Sandeep and his team on that.

With regard to other good and bad assets, yes, and a couple in between that as well.

But in the main this business right now, the closer to the dirt you are the better, and bauxite is probably the strongest part of the PacAl assets.

But the other assets are being dramatically improved, and some really good work underway there.

And you may have seen the announcements regarding the NZAS contract, by way of example, which is a big change from what that contract would otherwise have delivered.

So some very good value delivered there.

Thanks, Chris.

Glyn Lawcock, UBS.

Look, two questions.

Firstly, just on the iron ore market, just curious as to how you think about it.

When you come to the end of the year, you've got two decisions, you can go ahead with 360 million tonnes.

Hopefully, that puts pressure on the market a little bit, and, therefore, you can keep new entrants out.

If you don't go ahead, you get the short-term gain of probably higher price, but you run the risk of potentially destabilizing what has been a very, very good market historically, high returns, very consolidated.

So just wondering how you think about that, the benefits, pros and cons.

And then secondly, this might be a little bit granular, and if it is, happy to take it off line, but just on the aluminum premium, clearly that's been a big benefit to the industry, and for yourself.

It now seems to be disappearing with what's happening with the warehousing debate.

Just wondering, in terms of the premium, you obviously get that, but you also get a product premium.

Just wondering if you could split out how much of the benefit comes from the LME premium, and how much is a product premium?

Thanks.

Firstly, in relation to iron ore market and 360 million tonnes.

There are more than two options in relation to 360 million tonnes.

There is an option of moving ahead full steam; there's an option of not doing it, of course.

But there are other options in the middle, as I've tried to describe, in relation to productivity improvements, incremental mining, existing mining improvements, and bringing on new mines.

So there we have got the ability of developing 360 million tonnes, in a range of ways, a lot of flexibility.

360 million tonnes will happen.

It will go ahead.

Now, the issue is timing; the issue is the way that we bring it ahead and so on.

But it's a robust project; it's a good project, and the market will need the iron ore that comes from this.

Remembering that we are the low-cost producer, remember that the Pilbara is the closest delivery point in -- or shipping point in relation to China.

There's been a lot of controversy, in fact there's a lot of instant experts on iron ore, and iron ore prices and so on, in relation to trade offs of volume and price.

And it's been some people who are worried that, in our analysis, we don't take into account our existing iron ore portfolio when we look at the additional tonnes that we're bringing on.

Well, let me assure you all, we look at the total picture.

We look at the total valuation of the business, in terms of the trade off there between price and volume.

But importantly, what will drive that expansion will be what the market demands physically need.

Glyn, I can remember, back in the early 2000s, where people said, well, you're bringing on more tonnes than the market needs.

Well, we relied on the very detailed analysis that our marketing people do, on the ground, looking at supply and demand, looking at potential steel projects, looking at what the demand for steel is going to be, looking at potential iron ore supply opportunities and so on.

And by taking all that into account, we made decisions which, with hindsight pretty darned good decisions.

That process is still in place.

That process will actually evaluate, in great granularity, as to what the market demands are going to be for the product and how we physically bring it forward.

Let me just go back to say we're going to be very rational and logical about this in ensuring that we are actually delivering value to shareholders and not just proceeding with something because it's on the books.

It will be a well thought through process.

In relation to aluminum premiums, that is a very detailed question.

I'd love for our team to come back to you.

Clearly, there are two premiums that we get.

Certainly, we've got super high premium product that delivers a premium in its own right.

You then have normal market-type premiums that are applying.

Yes, the changes to LME warehousing rules, that will flow through in terms of the market for metal, in particular.

And time will tell where that actually takes us, but I'll ask the team if they could get back to you on that.

Let me take another question, or another three questions, here in the room.

Ian Rossouw, Barclays.

Just a bit of details on the cost saving targets you're talking and what you have achieved in the first half, the $977 million on the operating side.

In the waterfall chart you give some details on the grade, I just wanted to -- well, it's unclear how much you've banked from unit cost reductions from volume improvements and I was just hoping if you could quantify that?

Yes, Chris, perhaps if I could get you to help me with that one?

Thanks, Sam.

The vast bulk of the savings are from the specific programs and the like.

Grade comes from both directions, so there is an offset in there.

It's totally consistent with how we've always planned to report this cost saving.

One thing I will make a point about with regard to the cost savings is that, in my school of mathematics, I think it's really a $3 billion target.

It's $2 billion this year and a further $1 billion next year.

The $5 billion comes about from the fact that we retained the $2 billion that we achieved this year going through there.

But I think the number that you're looking for, Ian, is probably in the order of a couple of hundred million dollars in this period.

Thanks, Chris.

Thanks, Ian.

Fraser Jamieson, JPMorgan.

Just a question going back to the competition from the capital discussion that's been going on today.

Obviously, A credit rating very important for you, so you will take cash flow and pay down debt to retain that, that's pretty obvious.

What's less obvious is how you weigh the competition between a project and returning capital to shareholders.

So could you maybe just try and give us some context, is that purely a qualitative discussion, or how do you make that a more quantitative discussion?

I'm thinking particularly around discount rates that you might apply to some NPV analysis and IRRs, etc.?

Chris, perhaps if I could get you to answer that one?

Okay.

Well, Fraser, the very first question; there's a series of questions and a series of gates that any project has to get through before it actually gets in the field of competition, if you like.

The first one is, what's the strategic fit?

And it has to satisfy that equation.

Second, NPV, whilst it's not the only metric, it's still an important metric for us.

Third, internal rate of return.

Fourth, will be the payback period over which we see when this cash starts to come back to us.

Fifth, is where it fits in the total overall process about our total suite of potential options.

A further consideration would be what does it do to the overall corporate -- like a corporate impact of that project and so on.

So there's never any one clear defining metric, but I think what you'll determine, and I think what you'll be able to observe over coming periods, is that projects that do get up will have a significant return.

There's a much higher return hurdle that's now able to be asked for, simply on the basis of the way that we're apportioning capital.

And we're not in a position.

We do have a need to repay some debt.

We have a need to make sure we've got good returns going to shareholders, and we have a need to fund our future growth.

Now, that is an iterative process and our capacity to do any one of those three and all three combined is something that's always on our agenda, but the few ideas that I've just rattled off there are some of the things that we consider.

There needs to be some form of form about the team that's bringing the project.

Do they have a record of delivering?

That factors into our equation.

That's one of the more subjective things, perhaps, in terms of your question, but it's a very important thing.

How will this project be delivered?

Who will be the people that deliver it?

What's their track record in terms of delivery?

Very important part of the process.

So there's a lot more separation of the independent review process that's part of some of the changes that Sam referred to earlier.

We're very, very diligent on this and we want to make sure we get it right.

It might slow us down a tad, the approval process; if that's the case, so be it.

Better to get the right answer later than the wrong one now.

Yes, thanks very much, Chris.

Of course, at the end of the day, the Board are the ones who make the ultimate decision in relation to whether these should be organic growth projects or, in fact, buyback or how we look at our capital management.

If we could have one more question perhaps, and perhaps if I take that from the phone?

Paul Young, Deutsche Bank.

I have a few questions on the Aluminum restructure.

It appears that most of the savings to date are from efficiency gains rather than cost-cutting, and I know that divestment or closure of three smelters during the half will show benefits in the December half, but clearly, more work needs to be done on reducing overheads.

So the question is, specifically, what progress have you made in reducing overheads in Canada?

And are the government agreements and commitments from 2007 an impediment?

And lastly, are you viewing the closure of other low margin small smelters such as Edea, Sorel and Bell Bay?

Thank you.

Thanks very much, Paul, for that.

In relation to Aluminum, we're looking at every area of the business, whether it's efficiency, whether it's management overhead, whether it's actually the day-to-day how we operate, what we're doing in-house, what we're doing outside and so on.

And reducing overheads is an important element of that.

In relation to our undertakings to the Canadian Government, that is something that we track very closely.

We have met all of those undertakings in one way or another, and I believe we're at a stage now where we're beyond the constraints of the -- in relation to decisions regarding our aluminum assets, as very simply as yesterday, we made a decision to curtail Shawinigan, 50,000 tonnes immediately and 50,000 tonnes in the latter part of this year.

So it is an active process that we have underway.

What we need to do is compare our improvement projects versus how prices are tracking versus how an actual operation is tracking.

But we've not stopped.

We're going to continue to improve that business and I think what you've seen in the results for Aluminum in the first six months.

It has changed; we are injecting additional improvement and we'll see additional benefits flow through.

We're almost out of time.

Let me just quickly, in closing, sum up the key points for today.

These are solid results, they are, and they're showing clear progress against our objectives.

We are improving performance; we are reducing costs; we are reducing our capital; we are delivering results; and we're completing our approved growth projects while divesting of non-core assets.

There's a lot that I talked about in February.

You're seeing the results today.

You're seeing that we are an organization that's very focused, very disciplined; we're delivering on what we said that we would do.

So I'm confident we're moving in the right direction.

I'm confident that we're moving to deliver greater value to you, our shareholders.

Thank you all very much for being here and taking the time to listen to this pretty good story.

Thank you.