rio tinto group (rio) earnings report: q4 2014 conference...

CompanyName:RioT into PLCCompanyTicker:RIOSector:BasicMaterials

Industry:Metals&MiningEventDescription:Q4 2014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 23

RioTintoGroup(RIO)EarningsReport:Q42014ConferenceCallTranscriptThefollowingRioTintoGroupconferencecalltookplaceonFebruary16,2015,03:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

SamWalsh;RioTintoplc;CEOChrisLynch;RioTintoplc;CFO

OtherPart icipants

RobClifford;DeutscheBankResearch;AnalystJasonFairclough;BofAMerrillLynch;AnalystMennoSanderse;MorganStanley;AnalystClarkeWilkins;Citi;AnalystLyndonFagan;JPMorgan;AnalystJamesGurry;CreditSuisse;AnalystTimHuff;RBCCapitalMarkets;AnalystMylesAllsop;UBS;AnalystCraigSainsbury;GoldmanSachsandCo.;AnalystPaulYoung;DeutscheBankResearch;AnalystFraserJamieson;JPMorgan;AnalystHeathJansen;Citi;Analyst

MANAGEMENTDISCUSSIONSECTION

SamWalsh(CEO):

Goodmorning,all,andwelcometotheRioTinto2014annualresultspresentation.Itisgreattobeheretodaytoshareourseriouslygoodresultswithyou.

ChrisandIcameintoourrolesabouttwoyearsago.Atthattime,wetalkedtoyouabouthowwe'dimprovethebusiness,howwe'dstrengthenthebalancesheet,andhowwe'ddeliverresults.Well,allofthisisevidenttoday.Duringthepasttwoyears,ourfocushasremainedonrunningRioTintoasefficientlyaspossible,notjustfortodaybutalsoforthelongtermandforthesuccessofthebusiness.

SoifIcanstartbythankingallofour62,000colleaguesfortheirefforts.RioTintoisnotjustasetofTier1assets,butmoreimportantly,acompanyoftrulyworld-classpeople.Andtoday'sresultsshowtheirdedicationand,importantly,theircapability.

Wetookdecisiveearlyactionandwe'vedeliveredonwhatwepromised.Wesaidthatwe'dreducecostsand,since2012,we'vetaken$4.8billionoutofthebusiness.Wesoldunwantedassetsandwe'verealized$3.9billionfromthistorecyclebackintothebusiness.Andwe'vemorethanhalvedcapitalexpenditureto$8.2billion,spendingcapitalmoreefficientlyforthebestreturn.

We'vemadereducingworkingcapitalaparticularfocusand,overthetwoyears,we'vereleased$2.1billionofworkingcapital.Wesaidthatwe'dreduceourdebt.Well,wecertainlydeliveredonthat;areductionofalmost$10billionsincedebtpeakedinJune2013,creatingaverysoundbalancesheet.




Wealsosaid,andpossiblymorethanonce,thatwe'dmateriallyincreasereturnstoshareholders.Well,ourfocusonoperatingexcellencehasallowedustodoexactlythat;anincreaseinshareholderreturnsof64%thisyear,whichtakesatotalreturnstoshareholderstoalmost$13billionsincethebeginningof2013.

Importantly,however,today'sresultsarenotadestinationbutacontinuingjourney,andajourneyinwhichwe'llcontinuallystrivetodeliverindustryleading,sustainableshareholderreturns.

Inamoment,Chriswilltakeyouthroughthenumbersinmoredetail,butlet'slookatafewhighlightsfrom2014.Wereportedunderlyingearningsof$9.3billion.Weincreasedvolumesandreducedcosts,whichenabledustosignificantlyreducetheimpactofweakerprices.Ourfocusoncashgenerationthroughoutthebusinessledtonetcashfromoperationsof$14.3billion.

Pricesreducedthosecashflowsby$4billion.However,wemanagedtoclosethegapconsiderablyandtheoveralldecreaseincashflowwasjustunder$1billion,comparedtolastyear.

Asaconsequenceofourdisciplinedapproachtocashmanagement,netdebtfinishedat$12.5billion,whichisastunningoutcomeintoday'smarketconditions.

Ourprimarycontractwithyou,ourshareholders,isourprogressivedividend,whichwe'veincreasedby12%to$2.15pershare,or$3.9billionforthefullyearof2014.Inaddition,I'mecstatictoannouncetodaythatwe'reenteringintoasharebuybackprogramof$2billionduring2015.Theseamountsdeliverourcommitmenttomateriallyincreaseshareholderreturnswhilst,importantly,maintainingthestrengthofourbalancesheet.

Wesaidthatwe'ddeliver,well,wehave.Wesaidwewerefocusedonshareholderreturns;weareandwe'llcontinuetobe.SoletmenowhandovertoChris.

ChrisLynch(CFO):

Thankyou,Sam.In2014,ourindustrywasaffectedbydifficultmarkets,butourfocusremainedonstrengtheningourbusiness.Wesetsomeambitioustargets,butbothSamandIhavebeenimpressedbyallofourcolleaguessteppinguptotheplateandensuringthatweexceededallofthem.Intoughconditions,wesuccessfullymarketedourproductsandoperatedatcapacitywhendemandwasthere.

WebeatourcostreductionandCapExtargets,andthereductioninworkingcapitalhasbeenoutstanding.Asaconsequence,ourcashflowgenerationhasbeenstrongandourbalancesheetisnowextremelyrobust.ThishasputusinanidealplacetomeetourcommitmentforthematerialincreaseincashreturnstoourshareholdersthatSamhasmentioned.

Whenwestartedthejourneytostrengthenthebalancesheet,wedidsoinanticipationofincreasedvolatilityinglobaleconomiesandinthepriceofourproducts.We'renowinapositionofstrengthwhichallowsustonotonlymeetourcommitmenttomateriallyincreasecashreturnstoshareholders,butalsotoberobustagainstlowprices,tobeinapositiontotakeadvantageofopportunitieswhichmaypresentinthefuture.

Goingforward,we'llcontinuewithourpolicyofallocatingcapitalfirstlythenecessarysustainingcapital.Weintendalsotomaintainorincreasethedividendpershare,ourprimarycontractwithourshareholders.Thethirdareaiscompellinggrowth.

Andweplan,thisyear,tohavespendingofjustunder$7billion,so$2.5billiontosustainingcapital,andabout$4.5billiontogrowth.Nextcomesthebalancesheetpositioningand,finally,furtherreturnstoshareholders.

Butbeforewegetontothat,let'shaveacloserlookatthe2014results.RioTintohasdeliveredonitspromisesintheseresults.Insummary,ourcontinuedfocusoncostshasdeliveredanincremental$1.5billionofsavings,leadingtoanoverallreductionof$4.8billionversus2012.




Weidentifiedworkingcapitalasanareaforimprovementandtheresultshavebeensignificant,withthereleaseof$1.5billionduringtheyear.AsI' llshow,thisisnotmerelyaboutcashreleaseasaconsequenceofpricedeclines,butactivereductionsininventoryandtightermanagementacrosstheboard.

We'vecontinuedtoreducecapitalexpenditure.IntheNovemberseminars,wesaidthatthiswouldbelessthan$8.5billionandwe'veachievedthatwith$8.2billion.Thisrepresentsa$4.8billionreductionon2013andislessthanhalfofthe2012level.

Andwe'vebroughtin$1.4billioninproceedsthisyearfromthedivestmentsofClermontandthesaleofourheadofficebuildingintheSt.James'sSquareinLondon,wherewe'llbemovingbackinlaterintheyearastenants.

Ourstrongoperatingcashflows,assistedbyalltheseactions,havemeantthatwe'vefurtherstrengthenedourbalancesheetandreducedournetdebtby$5.6billionduring2014toendtheyearat$12.5billion.

AsIoutlinedattheinvestorseminarinNovember,we'llbeaimingtomaintainournetgearingratiowithinarangeof20%to30%,andwe'llfinishtheyearwellaheadofourtarget.Webelievethathavingastrongbalancesheetisessentialduringanincreasinglychallengingtimeforcommoditycompanies,andforanindustryaslongtermasoursis.Itprotectsthebusiness,itprotectsshareholders,anditcreatesaplatformforfuturereturns.

2014underlyingearningswas$9.3billion,whichis9%downon2013.Theimpactofpricesalonewasareductionof$4.1billion,partlyoffsetbyfavorableaverageexchangeratesof$691million.Ifweflex2013earningsforprice,exchangeandinflation,wecouldhaveexpectedearningsofabout$6.5billion.

However,wewereabletooffsetmuchofthatdeclinebyourearlyactions.Volumegainsof$1.4billion,notablyfromourironorebusinessfollowingtherampupto290milliontonnesinMaylastyear.Theearlyactionswetooktoreduceourcoststructurealsoborefruitwithnearly$1.2billionofcashcostimprovementsflowingthroughtothebottomline,andfurtherreductionsinevaluationandexplorationspend.

Furthermore,lowertaxexpense,asaresultofremovalofMRRT,hadapositiveimpactonearningsin2014.

Turningnowtonetearnings.Netearningsof$6.5billionforthefullyear,with$2.8billionbelowunderlyingearnings,wereaffectedbyimpairmentsandnon-cashexchangemovements,whichI' llnowexplaininabitmoredetail.Thiscomparedwith$3.7billionofnetearningsin2013.Overallnetearningsincreasedby78%.

TherewereimpairmentsrelatingtooverrunsattheKitimatmodernizationproject,whichwererecognizedatthehalf-year,andthewritedownofthemolyautoclaveprojectatKennecott.Thesewerepartiallyoffsetbythereversalofapreviousimpairmenttakingonthe[PacAl]assets.

Thisreversalreflectsimprovedpricingintheindustry,butmoreimportantly,isdrivenbyoursuccessfulworktoimprovetheefficiencyandcostcompetitivenessofthe[PacAl]assets.

LossesondisposalmainlyrelatetothedivestmentofourinterestinRioTintoCoalMozambique,inOctober.

AndfollowingtherepealoftheMineralsResourceRentTax,orMRRTinAustralia,inthesecondhalfoflastyear,wewroteoffthedeferredtaxassettothetuneof$362million.

Aswesawinourhalf-yearresults,thebiggestimpacttonetearningswasduetonon-cashexchangelossesonUSdollardenominateddebtheldinAustraliandollarfunctionalcurrencyentities.Theselossesof$1.9billionmainlyreflectthedeclineintheAustraliandollarfrom$0.89atthestartoftheyearto$0.82attheend.Thesewerefunctionalcurrencyadjustmentsonly.OuroverallUSdollardebtandcashflowisunaffectedbytheseexchangemovements.




Asyouwillseenhaveseenfromourquarterlyproductionreport,wehadanextremelystrongfinishtotheyear,particularlyintheironoredivision,followingthecompletionofthe290milliontonneexpansioninMayof2014.Thisistranslatedthroughtotheexcellentproductgroupearningsandcashflowsthatyou'reseeinghere.

Ironorepricesdeclinedsignificantlyin2014.Onaverage,thepriceof62%irondeclinedeclinedby30%fromtheprioryear.Notwithstandingthis,ourironorebusiness'sunderlyingearningswere$8.1billion,areductionofonly18%.

Weincreasedoursales,with90%ofourexpansiontonnesgoingintoourpremiumPilbarablendproduct.Inaddition,continuedcostreductionefforts,andthefavorableeffectoftheweakerAustraliandollar,partiallyoffsetthepricedecline.

Thestrongemergenceofouraluminumbusinesscontinuedin2014.Theimprovementwehaveseenintheall-inpriceforourproducts,coupledwiththebusiness'scontinuedfocusonefficiencyandproductivity,hasseenearningsmorethandouble,from$557millionin2013,to$1.2billionlastyear.Clearly,thestrongerpricingenvironmentandweakerlocalexchangerateshavehelped,butthecostsavingprogramalsocontinuedtodeliver.

Thisyear,aspromised,youwillhaveseenthatwe'vesplitouttherevenues,EBITDAandearningsofourbauxiteandaluminabusinesses.Thisenhanceddisclosurerevealsthatourbauxitebusinessisgeneratingstrongmargins,butalsothatmoreworkneedstobedoneinthealuminarefineries.Wehavesetsometoughtargetsfor2015,soweexpectthatalumina'sprofilewillsteadilyimprove.

Ourcopperproductgroupdeliveredan11%increaseinunderlyingearnings.Thiswasdespitea7%reductioninaveragecopperprices,andreflectstheeffortsofourteamthereinreducingcostsandboostingproductivity.ImprovedvolumesfromOT,andreductionincashunitcosts,andexplorationandevaluation,werethemainreasonsfortheimprovement.

Ourenergybusinessfacedaverytoughyear,andgeneratedalossof$210millionatunderlyingearnings.Thisisdownfroma$33millionprofitin2013.

Lowerpricesacrossthecoalsectorreducedearningsby$433million,butnotallofthiscouldbeoffsetbycostreductionsof$170million.RioTintoCoalAustraliawasprofitable,at$21million.ButERAincurredalossof$119million,andRioTintoCoalMozambique,alossof$93million,beforeitwasdivestedinOctoberof2014.

Thediamondsandmineralsbusinessachievedunderlyingearningsof$401million,a15%increaseontheprioryear.Highervolumesandlowercostsmorethanoffsetlowerprices.Theteamcontinuedtoalignproductiontodemand,andhavebeenhighlysuccessfulinreleasingworkingcapital,withmorethan$470millionfreedup.

Comparedwiththe2012base,we'venowreducedouroperatingcashcosts,andevaluationandexplorationexpenditureby$4.8billion.Butwe'renotstoppingthere.Whenweannouncedatthehalf-yearthatwehadachieved$3.2billioncashunitcostreductions,beatingthe$3billiontargetsixmonthsaheadofschedule,wewerekeentoensurethatthemomentuminthebusinesswasmaintained,andthefocusonreducingthesecostscontinued.

We,therefore,setanadditionaltargetofafurther$1billionofsustainablecostimprovementsbytheendof2015.Inthesecondhalfoflastyear,wemadegoodprogresstowardthistarget,andreducedouroperatingcostsby$400million,wellaheadofthe$250milliontargetwehadforthesecondhalf.

Buildingonthismomentumwe're,therefore,maintainingourtargetfor2015at$750million,whichweexpectwillbeweightedtowardsthesecondhalfoftheyear.




Sincetheendof2012,we'venowdeliveredover$3.6billionofoperatingcashunitcostsavings,beatingouroriginal$3billiontargetbyabout20%bytheendof2014.

Asyoucanseefromthechart,we'veachievedsignificantcostreductionsacrossourportfolio,witharound$900millioncomingoutofourcoppergroup,$800millionfromeachofaluminaandenergy,and$700millionfromironore.Theremaining$300millioncamelargelyoutofdiamondsandminerals,otheroperations,andtheheadofficecostreductions.

Additionally,wehavesaved$1.2billionoverthepasttwoyearsbyreducingourexplorationandevaluationactivities,focusingonlyonthehighestvalueprojects.

WecontinuetodelivergreateroperatingandcommercialefficiencyinourunrivaledPilbaraassets.In2014,ourcashunitcostwas$19.50pertonne.Butifyoutakecurrentoilandcurrencyrates,ourestimateforQ4unitcashcostswouldbeequivalenttoabout[$7million]atonne.

OuraveragerealizedpriceforourPilbarablendproductswas$84.30perwetmetrictonneforthefullyearof2014,equivalenttoabout$91.60perdrymetrictonne.AndourspotsalescontinuetobeconsistentlyabovethePlatts'62%FEbenchmark.Acombinationoflowcostandsoundmarketinghasledtoconsistentandattractivemargins.

We'veoftensaidthatTier1assetsprovidestabilitythroughthecycle,andthiswasclearlyinevidenceduring2014.Theactionwetookreinforcedourlowcostpositionandmeantthat,despitepricedeclines,wemaintainedmarginsataconstantlevel,comparedto2013.Morethanthree-quartersofourassetsgeneratedEBITDAmarginsinexcessof30%in2014,andalmosthalfofoursalesenjoyedmarginsofover60%.

Now,turningtocashflows.Despitesignificantlylowerprices,theearlyactionbyallourbusinessesgeneratedstrongoutcomesonoperatingcashflows.Strongproductionresults,volumegrowth,costreductions,andliberationofworkingcapital,resultedinoperatingcashflowsof$14.3billion.Workingcapitalwasasignificantcontributor.Solet'sturntothatnow.

Weidentifiedworkingcapitalasanareaforfocus.Samhasbeenrelentlessonthiswiththeleadershipgroup.Thereleaseof$1.5billionofcashwasanexcellentachievement,butwebelievethere'sstillfurthertogo.

Youcanseefromthechartthatwefreedupmorethan$1billionfrominventoriesandreceivables.Oursuccessinreleasingworkingcapital,therefore,wasnotmerelythebenefitofpricingandexchangerates,butdirectactionfortighterinventorymanagementacrossthebusiness.$400millionofthereductionwasfrompricesonreceivables,thepriceeffectonreceivables.

Overthepasttwoyears,we'veconsistentlyreducedourcapitalexpenditurefromapeakof$17.6billionin2012to$8.2billionin2014,inlinewiththeguidancewegaveinNovemberoflessthan$8.5billion.OursustainingCapExcameinataround$2.5billionin2014andwe'dexpectittoremainataroundthoselevelsoverthenextfewyears.

Wedemandexceptionalreturnforeverydollarspent.Asaresult,wenowanticipatetotalcapitalexpenditureofjustbelow$7billionin2015.Someofthisdecreasefromourpreviousguidancecomesfromexchangeratechanges,butaroundhalfofthereductionreflectsfurtherconsciousadditionalreductionsinexpenditure.

Andourconstantchallengingandperformanceoftheironoreteam,bothinoperationsandcapitalexpenditure,hasallowedustodeferthedecisiononSilvergrassnowto2016.

Webelievethathavingastrongbalancesheetisextremelyimportant,particularlyintimesofsuchvolatility.We'vebeenworkingonthisconstantlyoverthelasttwoyears.

Wereducedournetdebtin2014to$12.5billion,whichsetsourgearingratioat19%,slightlybetterthanthe




targetrangethatIoutlinedintheinvestorseminarofthelowendoftherangebetween20%and30%fornetgearing.

Followingthebuyback,ournetgearing,onaproformabasisattheendoftheyear,endof2014,wouldbeequivalenttobeabout21%onaproformabasisIstress,whichremainscomfortablyatthelowerendofthatrange.

Withcashofover$12billiononhandattheendoftheyear,weexpecttoretireabout$1.75billionofmaturinggrossdebtin2015.Aswellasboostingaprogressivedividendandcompletingthesharebuyback,westillmaintainaverystrongliquidityposition.

Asoundbalancesheetisakeycompetitiveadvantage.Itprovidesawiderangeofoptionsinthefuture,regardlessofmarketconditions.Itallowsustoinvestinourbusinessandprovidessecuritytodeliversustainableshareholderreturns.

It'sworthtakinganotherlookatourcapitalallocationframework,whichshould,bynow,beveryfamiliartoyou.Ourfirstallocationistonecessarysustainingcapital,whichweestimateataround$2.5billionperannumforthenextfewyears.

Nextcomestheprimarycontractwithourshareholders,theprogressivedividend.Ourpolicyhereisthatthedividendpersharewillbemaintainedorincreasedeachyear.Thefull-yearpaymentsin2014amountedto$3.7billionand,followingtheBoard'sdecisionfora12%annualincrease,thiswilltaketheoverallpaymenttojustover$4billionin2015.

We'rethenintotheiterativecycleofcompellinggrowth,debtandbalancesheetmanagementandfurthercashreturnstoshareholders.Compellinggrowthwillrequireabout$4.5billionperyear,allonstrongreturningprojects.Notallofthishasbeenapprovedatthisstage,butthat'sourexpectation.

We'venofurtherneedforfurtherdebtreductionin2015aswe'reatthebottomofourtargetgearingrange.

ThedesiretomakeadditionalreturnstoshareholdersisclearlythereandthepotentialforfurtherreturnsbeyondtheprogressivedividendwillbereviewedbytheBoardeachFebruary,takingaccountofcashgenerationandbalancesheetcapacity.

Andwiththat,I' llhandbacktoSam.

SamWalsh(CEO):

Thankyou,Chris.AsI'vespokenbefore,ourintentionistodeliverindustryleading,sustainableshareholderreturnsandtheevidenceofthiscanbeseenintoday'sresults.Andthiswillcontinuetobeourintention,notasingleevent,butajourney.

Ourconfidenceisbasedonthequalityofourassets,ourfinancialdiscipline,ouroperatingexcellence,andourcultureofsafetyandintegrity.Solet'shavealookforwardintothatjourney.

Asyouallknow,acultureofsafetyandintegrityiscentraltoRioTinto.Awellrunoperationisasafeoperationand,overthecourseof2014,weimprovedoursafetyasmeasuredbyallinjuryandlosttimeinjuryfrequencyrates.

However,tragically,wehadtwofatalitiesinouroperationsandsadly,wealsolostacolleagueinMadagascarinlateJanuarythisyear,andmythoughtsandprayersarewithhisfamilyandhisfriends.Butfatalitiesareavoidableandwe'reallconvincedthatwecanoperatewithoutfatalities,andeveryoneinthebusinessisworkingtowardsthisgoal.

AtourinvestorseminarinNovember,Ispokeaboutthenear-termoutlookbeingchallenging.Well,thishas




certainlyturnedouttobethecaseandissettocontinuefortheimmediatefuture.

ButIalsomentioned,againstthisbackdropRioTintothrives.Thesedynamicsplaytoourstrengthandit'swhenourcompetitiveadvantagescomeintotheirown.AndtheresultsthatwereleasetodayjustshowhowourTier1assetbase,combinedwithoperatingandcommercialexcellenceandastrongbalancesheet,allowedustomeetthechallengesthatthemarketthrewatusin2014.

2015willbeatoughyearfortheindustry,butbyustakingearlyanddecisiveaction,wecontinuetomaintainourstrongpositionaswelookahead.Ourgoalistodeliveronourcommitmenttotheprogressivedividend,toinvestinourbusiness,andprovidetheBoardwithoptionstoconsiderthistimenextyear.

We'llcarryonseekingincreasedshareholdervalueineverythingthatwedo,andensuringthateverydollarisspentwiselyformaximumbenefit.Costsandcashmanagementwillcontinuetobekeypriorities;protectingshareholdersthroughthestrengthofourbalancesheet,sustainingthebusinessandensuringthatwedelivermeasuredvalue-addinggrowth.

Ourironorebusinessneverstopsimprovingandraisingthebar.Incostsandproductionandmarketing,we'llseecontinuousimprovement.Inmid-2015,Andrewandhisteamwillcompletetheinfrastructurefor360,whichwillallowustocontinuereducingourcostsaswellasdeliveringgrowth.

Inthealuminumdivision,[Alf]andhisteamachievedsector-leadingmarginsin2014andthequalityoftheseassetsisincreasinglyapparent.Inmid-2015,thecommissioningofthenewKitimatsmelterwillmakeoursmeltingbusinessevenmorecompetitive.Andforthefirsttime,ourenhancedreportingfromouraluminumgroupallowsyoutoseeforyourselvestheattract44%FOB,EBITDAmarginswemadelastyearonourbauxitesales.

Andwe'llfurtherexpandourbauxitebusinessatGoveandtheSouthoftheEmbleyprojectwherewerecentlyapprovedcapitaltocompletethefeasibilitystudythisyear,withfirstproductionexpectedin2018.

WehavefurthergrowthoptionsalsointheCapeYorkPeninsula,whichwe'llseektodevelopinlinewithmarketdemandaswecontinuetodevelopourproductastheseabornebauxiteofchoice.AluminumhasgrownintoasignificantcontributortoGroupearningsandcashflows.

Jean-Sebastienandhisteamincopperhavedeliveredsomeimpressivecostimprovements,andthey'vealsorestructuredthecopperdivision,preservingEBITDAmarginsof42%yearonyear.

Andthere'sacontinuedfocusonourcopperportfolio.WeexitedPebblein2014andwe'reintheprocessofexitingSouthGobi.RampupofOyuTolgoicontinues,andKennecottwillhaveayearofpreparationasweworktowardshigheroutputin2016.

Wehavesomeexcitingmedium-termgrowthopportunitiesincopper,butthesewillprogressattherighttimeandonlyonsoundcommercialtermsthatprotectthevalueoftheseprojects.

WemadesomegoodprogressinResolutionin2014withalandexchange,andwehopetomakefurtherprogressin2015.Butletmeemphasize,there'snoshortcutsinprotectingvalueanddeliveringprojects.

Indiamondsandminerals,Alancontinuestomanagethatbusinessforcash,with$1.2billionofnetcashflowsdeliveredduring2014.Alotofhardworkinthisgrouphasreducedcosts,butit'smaskedbytheimpactoflowervolumesfromcapacitymatchingproductiontothesalesandthemarket.

Thedivisioniswellplacedforcontinuedgrowthinconsumermarkets.ThefeasibilitystudiesfortheSimandoumineandinfrastructureproject,whichhasthepotentialtobeatrulyworld-classoperation,hascontinuedtotheextentpossibleduringtheyear,despitetheoutbreakofEbola,andtheworkwillcontinuein2015.



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Inenergy,andaprettydifficultindustryenvironment,Harryandhisteamhaveworkedhardtomaximizeefficienciesandreducecosts.OurAustraliancoaloperationscontinuetogeneratepositiveearningsandpositivecashflows.

Akeyfocusfor2015willbeprogressingtheHunterBlendproject.ThisisaplantooperateourHunterValleyassetsasafull,integratednetworkofmines,railandport.Andthestrategywillbeunderpinnedbytheintegratedoperationscenter,whichisexpectedtoopeninSingletonearlythisyear,andtheprocessingexcellencecenter,whichisalreadyoperatinginBrisbane.

Ouraimistodrivenetworkproductivitybyimprovingyieldsandvolumesand,atthesametime,blendingproductionacrossminesandpits,inordertoenhancetheconsistencyandvalueofourproducts.Thesestepswilldeliverfurthercostandproductionefficiencies,furtheroptimizingtheassetswehaveinthespineoftheHunterValley.

OurstrategyofinvestinginTier1assetsmeanswecangeneratestrongcashflowsandmarginsfromourkeycommoditiesthroughoutthecycle.With$14.3billionofoperatingcashflowsin2014and,importantly,maintainingmarginsyearonyearat39%despitethelowercommodityprices,we'vedemonstratedthestrategicvalueofourworld-classportfolio.

Wecontinuetoinvestinourgrowthprojects,focusingonthosewhichofferthebestreturnstoshareholders,andfitourcriteriaoflonglife,lowcost,expandableassets.

Wealsoleadtheindustryintechnologyandinnovation,whichisaclearcompetitiveadvantage.Operatingexcellencewillsustainourlowcostleadershippositionanddriveouroperationsevenfurtherdownthecostcurve.

Ourrelationshipwithcustomersandpartnershavebeenbuiltover140years,andsupplyinghighqualityproductswhichhavebeendevelopedtomeettheirneedsisthebasisofourbusiness.Andtheimportanceoftheserelationshipsshouldnotbeunderestimated.

Ourfinancialstrengthisattheheartofourbusiness,givingprotectiontoourshareholdersinachallengingenvironment.Weconstantlyevaluatebuyagainstbuild,butIrepeat,wehavenonear-termplansformajorM&A.

Thecapitalinthebusinessbelongstoyou,ourshareholdersanditwillbeusedwisely.Soundgenerationoffreecashflowisasignthatwe'restickingtoourknitting,andthisisafoundationfromwhichwecandeliversustainableshareholderreturnsthroughoutthecycle.Thiswastrulydemonstratedtodayinour64%increaseinreturnstoshareholders,the12%increaseindividend,andthe$2billionbuyback.

Soletmeclosewithsayingwe'vedeliveredonallofourcommitmentsoverthepasttwoyears.RioTintoisnowamoreefficientandamuchstrongerbusiness.We'rebackatwhatwedobestandwe'repositionedtothrive,providingstabilitytoourworkforce,thecommunitiesaroundus,andsustainablereturnstoyou,ourshareholders.

QUESTIONS&ANSWERS

SamWalsh(CEO):

Nowifwecouldmovetoquestions,andifIcouldgetyoutoprovideyournameandorganization,I' lltakethreeintheroom,andthenI' lltakethreefromthephone.

RobClif ford(Analyst-DeutscheBankResearch):

Justaquestiononthemechanicsofthebuyback.Canyoutalkaboutthe--andthisistheon-market




buyback,thetimeframethatyou'replanningtodoit;who'smanagingit;whatarethepricelimits;isitgoingtobedoneweekly?Whatarethemechanicsaroundthat?

Andthenjustsecondlyonthebuyback.WhentheBoardsitsdowninayear'stime,howdotheythinkabouttheongoingnatureofthebuyback,intermsofsizingitandmatchingthatwithCapExrequirements?Howcanyoubeconfidentaboutitbeingongoinginnature,intermsof[theshortterm]?

SamWalsh(CEO):

Okay.Letmeanswerthesecondpart,andChris,ifyoucouldhelpmeinamomentwiththefirstpart?

InrelationtotheprocessthattheBoardgoesthroughinrelationtoassessingshareholderreturnsandanalyzingtheprogressofthebusiness,bothcurrentandforward,letmeassureyouitisaveryrobustprocess,andit'ssomethingthattheBoardisveryinterestedin,butalsotakesitveryseriously,withinputfromarangeofareas.

We'vehadthetraditioninrecentyearsofreviewingthataroundthistimeeachyear,andthat'sreallywhatisgoingtocontinue.Butimportantly,whatwe'reprovidingatthisearlypointintheyearisastrongbalancesheet,withadebt/equityratioof21%which,dependingonhowthebusinessflowsthroughthisyear,willgivetheBoardseriousoptionstoconsiderthistimenextyear.

Butwe'reveryearlyintheyear.Itisaveryvolatilemarket.ChrisandIbelievethatwehavetakenleadingaction,intermsofincreasingourcostreductionactivity,refocusingourcapital,andreallyputtingthebusinessonalertthattheyear'sgoingtobeprettytoughfortheindustry.Butwe'reenteringtheyearinavery,verystrongposition,averystrongbalancesheet,withrealmomentum.

I'vetalkedbeforeaboutthere'sapendulum,andit'smoving,it'sunderway,andtheorganizationisveryfocusedondeliveringtheimprovementthatwe'vestarted.It'snotaone-ortwo-yearjourney.Itisgoingtobeovertime,butitisaverystrongbusiness.

Now,Chris,ifyoucouldhelpuswiththemechanicsofexactlyhowthebuybackisgoingtooperate,hourbyhour?

ChrisLynch(CFO):

Thanks,Sam.Firstup,Ithinktheoff-marketbuybackinAustraliaisprobablythefirstthingtotalkabout.Ithasadefinedtimeframe.We'reannouncingit,andthatwillrunthecourse.It' llbecompletedwithinApril,sothecashflowtothat,it'sAUD500millionisthesizingofit.Wereservetherighttogoupanddown,butthat'sthetarget,isAUD500million.Androughlythebuyback's--basicallyit'sintheratiooftheDLCcomponentsoftheplcandthelimitedstock.

Sothefirstcabofftherank--well,inthefirsthalfoftheyeartheoff-marketbuybackinAustraliawilltakeplace,andwe'llspendabout$600millionintheplcbuybackduringthefirsthalf.Buttheintentisthatthe$2billionwillbespreadthroughouttheyear,andit' llbedoneonthatbasis,andwe'llhaveaseriesofdifferentmethodologiesforachievingthat.Butit'sbasically[standin]themarketintheplcstock,andtheoff-marketinAustralia.

We'llprobablyfleshthisoutoverthenextfewdays,aswegetabitdeeperintotheconversations,butthecapitalsumassignedtowhateverthebuybackpriceendsupbeingis$9.44fortheAustralianoff-marketbuyback.TheremainderwillbewhattheAustralianjurisdictiondeemsadeemeddividend,whichwillbefullyfranked.Sothewaythemechanismswork,that'swhatallowspeopletobidatadiscounttothemarketprice.Sothereisadiscountavailableusuallyinthoseoff-marketbuybacks.

Sothefirstcabofftherank,off-marketinAustralia,andcommensuratewiththatwillbeabout$600millionin




theplcstockforthefirsthalf.

SamWalsh(CEO):

Thanks,Chris.

JasonFairclough(Analyst-BofAMerrillLynch):

JasonFairclough,BofAMerrillLynch.Maybeasimplequestion,Sam.Youmentionedyourcolleaguesinminerals,andhowthey'redoingsomeworktomatchcapacityproductionwiththemarketdemandforthatproduct.MaybethebiggerquestionforRioTinto'sironore,you'reoneoftheworld'slargestproducers,towhatextentdoyoufeelaresponsibilitytoplayaroleinbalancingsupplyanddemandwithironore?

SamWalsh(CEO):

Ifyoulookatsupplyanddemandforironore,itreallyhingesonthemarginalproducer,andwe'veseenthatpriceshavedroppedsubstantiallyduring2014.Ifyoulookat2015,we'reexpectingthatabout100milliontonnesofnewcapacitywillcomeon.Therewillbegrowthindemandofabout20milliontonnes,andthere'saround80milliontonnesofcapacitythatislikelytocomeoff.Ifyoulookatthecostproductionandtheirabilitytorespond,they'reunderwater.

Beyondthat80milliontonnes,there'sabout80milliontonnesthatwewoulddescribeasbeingatrisk.Thesearepeoplethatarecurrentlyunderwater,butthey'vegottheoptionofreducingcostsandmakingtheimprovementstokeeptheirbusinessafloat.

Now,Iknowthere'ssomepeoplehangingonbytheirfingernails,andsomeofthemareburningthefurniture,andreducingexpenditureonmaintenanceandsustainingCapEx,andfiringBoardmembersandallsortsofthings.Youcanonlydothatforacertaintime,andsoonerorlater,you'vereallygottorecognizetherealityoflife.

Aswejustmentionedduringthepresentation,ifyoutakethecurrentspotexchangerateandthespotenergypriceintoaccount,thentheironorebusiness'scostsarerunningataround$17pertonne,cashcost.Andthat'scomparedtothesellingpricetodayat$62atonne,sothere'sasignificantmarginthereforus.

YousawthevolumeeffectasChriswentthroughthenumbers.Theimpactforourbusinessissubstantial.ButasI'vesaidbefore,ifyouwanttobalancethemarket,thenyoucan'tjusttakeoff3millionor5milliontonnesandexpectthatsuddenlythepriceisgoingtogothroughtheroof.You'veactuallygottotakeoffsizablechunks,probably100milliontonnesofcapacity.

Guesswhathappenswhenyoutake100milliontonnesoff.Well,thepricegoesup,andallthosepeoplethatwentoutofthemarketcomebackintothemarket.Andguesswhat.Thepricegetsbacktowhereitwas,andwacko,we'dbedown100milliontonnes.That'snotinthebestinterestsofourshareholders.

Whetheryoulikeitornot,there'snoOPECinironore.It'sindependentproducersmakingtheirindependentdecisions,andthedecisionswemakeareinthebestinterestsofourshareholders.That'svery,veryimportant.


I'msorry,canIputwordsinyourmouth?

SamWalsh(CEO):

Idon'tknow;itdependswhattheyare.





Asalowcostproducer,youdon'tfeelanyresponsibilitytobalancesupplyanddemandinironore.

SamWalsh(CEO):

No,look,thesepeoplewhentheycameintothemarketdidn'tphonemeupandsay,jumpforjoy;I'mgoingtobringonsomehighcostproduction.SoIdon'tfeelany,anyresponsibilityforthem.

Yes,I'msadforemployeesandcommunitiesandsoon,butpeopleneedtorealizethattheminingindustryiscyclical.Itgoesthroughcycles;it'ssupplyanddemand;it'sseasons;it'sawholeraftofthings.Andimportantly,peopleneedtoplanaccordinglyandthat'swhywefocusonTier1assets.That'swhywefocusonhavingthemostcompetitivebusinessesinthemarket.That'swhatit'sallabout.

Nowthegoodnewsis,yes,yougothroughthecycles,butifyoulookatthelong-termpicture,theworldisgoingtocontinuetodevelop.Urbanizationisgoingtocontinuetohappen.China,ahugemarket;yes,we'reseeingitmoreresemblingadevelopedcountry,ratherthanadevelopingcountry,withgrowthslowingfrom7.4%lastyeartoaround7%thisyear,butthebaseismuch,muchbigger.

Thismorning,wewokeuptoreadthatIndiahasnowpassedChinainrelationtogrowth.Beforeyoutellme,Sam,there'sabitofservicesandtertiaryindustryinthatgrowth;yes,thereis.Butwe'reallseeingthefundamentalsincreaseforsteelproductionandironore,asurbanization,industrialization,consumerizationtakesholdinIndia.Andbeyondthat,there'sAsia,MiddleEast,Africa,SouthAmerica,astheworldcontinuestodevelop.

Thelong-termfundamentalsforourbusiness,whateverthecommodityis,isvery,verysound.Butitisacyclicalindustry.Howdoyoucopewiththat?Youmakesureyou'reTier1,andthat'swhyImadethecommentsthat,inthesetimes,RioTintothrivesbecauseofourpositioning,becauseofourlowcostposition.

MennoSanderse (Analyst-MorganStanley):

MennoSanderse,MorganStanley.Twobriefones.Firstoncorporate;youtalkedalotaboutcreatingoptionsfortheBoard,buttheoptionsincorporateseemtobequitelongdatedorprogressingveryslowly.Isthereanythingyoucandotopushthatbusinessabitharder,ormakeitlookdifferentlybecause2015isclearlygoingtobequiteatoughyear,tosaytheleast?

Secondly,onsteelconsumptioninChina,RioTintohasalwaysbeenveryresilientorconfident,somewouldsaystubborn,initsviewthat1billiontonnesofsteelisgoingtobeconsumedinChina.Whatgivesyouthatcontinueresilience,despitelastyearbeingquiteatoughyearforsteelconsumption?

SamWalsh(CEO):

Inrelationtocopper,ofcoursewehaveourexistingoperations.WehaveKennecottUtahCopper;wehavetheOTopencutoperation,whichsomepeopleforgetisoperatingandoperatingwell.WehaveourtonnesatEscondida,andtheavailabilityoftonnesoutofGrasberg,dependingontheirproduction.

We'vegottheOTundergroundproject;LaGranja,andResolutionareallinthehopper.OTunderground,weputourbestandfinaloffertotheGovernmentofMongoliainNovember,andthey'recurrentlyconsideringthat.

Therehavebeensomepositivemovesinrelationtoanumberofshareholderissues.There'sbeenresolutionofsomeoperatingconstraints;forexample,inrelationtowateravailabilityfortheproject,andalsotheprovisionofthird-partypowerintotheproject.

Sothereisprogress.Wearepatient;itisalong-termproject;weneedtogetitright.We'renotabouttorush




thisandjeopardizethelong-termfutureoftheproject.

Resolution,thelandswap,whichwentthroughtheUSCongressjustbeforeChristmas,thatwasasignificantmoveforthatprojectandprovidesuswithfulloptionalityinrelationtohowwedevelopthatproject.Yes,it'sgottogothrougharangeofenvironmentalandothergovernmentalapprovals,butworkonthatdevelopmentiscontinuing,aswithLaGranja.

Inrelationtothe1billiontonnesinChina,thatisstillourforecast;thatChinawillreach1billiontonnesofproductionby2030.Thatrequires1%growthperannum,andwebelievethatthatisimminentlypossible,whenyoulookatthefactthatChinaiscurrently--urbanizationisaround54%.Weexpectthatitwillmoveto70%.Everythingthatwe'rehearingfromChinaindicatesthatthaturbanizationprocessisstillunderway.

Nowimportantly,growthinconstructioniscontinuingintheTier1cities.Inlowertiers,yeswe'reseeingasurplusofrealestate,andalotofpeoplearefocusedonthat.Butthedemandforhighgradeironorecontinues.

Notonlyistheissueofurbanization,industrializationanimportantissueforus,butalsotheissueofimprovingpollutioninChina.Thisisparticulates;thisissmog;thisisanincreasingissueforthepeopleinthemajorcitiesinChina.Improvingthegradeofironoreisactuallygoingtohelpimprovetheefficiencyoftheiranti-pollutionmeasures.

Dowehaveaquestiononthephoneline?

Operator:

ClarkeWilkins,Citi.

ClarkeWilkins (Analyst-Citi):

Aquestionjustinregardstotheworkingcapitalrelease.Itwasagreatjobin2014releasingthatworkingcapitaltoboostthecashflow.Canweexpectafurtherboosttocashflowforworkingcapitalreleasethisyear?

SamWalsh(CEO):

Thisisaverypetprojectofmine,butIseeChristhereandChriswantstogetinandanswerthis,soovertoyou,Chris.

ChrisLynch(CFO):

Noworries.Thanks,Sam.Wedotalkquiteabitaboutthisinternally,butifyougotothe$1.5billionreduction,therewasabout$400millionofthatwastodowiththepriceeffectonreceivables.Therestofitwasallabouttheinventoriesandtheoveralldiscipline,andwe'vebeingkeentogetafterthisidlecapital.

Basically,anydollarthatwetieupinworkingcapitalunnecessarilyisadollarthatwecaneitherputtoworkingrowthorgivebacktoourshareholders,sothat'sbeenthefocus.It'sreallysayingthatthisstuff,unlessit'sactivelypromotingadifferentrevenueoutcome,thenwhydowehaveit?Whydowehaveworkingcapital?Whydowehavecapitalidle,ifyoulike,onthebalancesheet?

Sothisliberationof$1.5billion,yes,$400-odd-millionwasasaresultoflowerprices,buttherestofitisallaboutmakingsurewecollectreceivables,makingsurewehavetheoptimumlevelsofinventory.Andthat'sbeenalotofhardworkbut,acrossthebusiness,theguyshaveallhadaredhotcrackatthis.

Now,wedothinkthatthereismorescope,obviouslynotatthatsortoflevel,butweareactivelyafteritagainonacontinuingbasis.We'renotgoingtostophere,butwedowanttomakesurethatinventories,wherevertheyoccur,areoptimum.




Andifyouthinkaboutabusinesslikeours,youcanthinkaboutproductinventory,butequally,we'vegottohaveagoodhardlookatwarehouseinventoriesaswell.What'sontheinputsideintoourprocessisstillcapitaltiedupthatareaaswell.

Sowe'vegotopportunitiestoattackitonavarietyoffronts.It'salotofhardworktogetfurtherreductionsfromwhereweare,butweareactivelyafteritandwe'vegotpeoplechargedwithdeliveringthatresult.

SamWalsh(CEO):

Yes,thanksforthat,Chris.Andforthoseofyouthatknowmewell,knowthatIstartedmycareerinacarindustrythatintroducedjustintime.Whilsttherearedifferencesbetweenminingandmakingcars,Ihavenoticed,thesamesortofphilosophycanbeapplied,butittakesadifferentmindset.Ittakesbreaking140yearsofthattraditionandit'sajourneythatweneedtogothrough.ButasChrissaid,we'vebothbeenvery,verypleasedattheworkduring2013and2014withatotalof$2.1billionbeingreducedoutofworkingcapital.AndasChrissays,thereareotheropportunities.

Ofcourse,I'moutrageousandtotallyunbelievablewhenIsaythat,ifIcanbuyabookandAmazoncandeliverthenextday,whydoweevenneedwarehousesnow?I'mbeingalittlebitcheekythereintermsofsayingthatbecauseweoperateinalotofremotelocations,butitisadifferentmindset.

We'rein2015,not1873,andyouneedtotakeadvantageofthat.Youneedtotakeadvantageofimprovedcommunicationsandimprovedlogistics.Andtheoperationcentersactuallyhelpusintermsofbeingabletointegratetheprocessofmaintenanceshutsandschedules,andensuringthateverybodyactuallyunderstandswhichwidget,whichrotable,whichspare,you'regoingtoneedwhen.

Operator:

LyndonFagan,JPMorgan.

LyndonFagan(Analyst-JPMorgan):

Sam,Ijustwantedtoaskyouaquestionaboutslide17whereyou'veprojectedCapExoutto2017andreducedtheceilingtoaround$7billion.Itlooksasthoughthathaslargelycomefromtheyettoapprovesection,andI'mjustwonderingwhetheryoucouldprovideabitmorecoloraboutwhytheyettoapproveprojectshascomedown.

Andthenafurtherquestiononthatslide,ittalksaboutcomparingprojectstoabuyback.I'mjustwonderingexactlyhowyoudothatinternally.Thanks.

SamWalsh(CEO):

Okay.I' llletChrisdescribehowwecompareourprojectstothealternativeofabuyback.Butinrelationthecapital,ifyoulookatthereductionfor2015,we'veindicatedthat,withcapitalthatwasgoingtobearound$8billion,we'renowindicatinglessthan$7billion.Ifyoucangetthefullflowthrough,thefulleffectofexchangeandoilprices,thenthataccountsforabout$450millionofthereduction.

Thebalanceofthereductionisactuallylookingattiming,streamliningprojects,valueengineeringwork,whichisunderwaywithSouthoftheEmbleyandZultiSouthandOTandotherprojects.Partofthatexchangeeffectwillactuallyflowthrough,assumingexchangeratesstaywheretheyareinsubsequentyears.

Sothere'sacoupleoffactorsthereand,ofcourse,we'realwayslookingatimprovingthewaythatweactuallydevelopourprojectsandrecognizingthatwe'reseeingawholerangeofinputcosts,laborandmaterialsthathaveactuallyalsoreduced.




It'sonethethingsthatflowsthroughfrompeoplebeingmorefocusedoncapitalthatyouactuallyseecapitalcostsgodown.Andcertainly,we'reseeingit,notonlyinthemineralsindustry,we'realsoseeingitinoilandgas,thattheheadydaysofalltheseprojectsarecomingtoanendandit'simportantweactuallytakethebenefitofthataswegoforward.

Ofcourse,theotheranswerinrelationtothatistheimportanceofbeingprudentintermsofourcashmanagementandourbalancesheetaswegoforward.Andthat'ssomethingthatweconsiderimportantintermsofbeingaheadofthegame,intermsofrecognizingthatthemarketfundamentalsinthenear-termhaveactuallychanged.

Chris,wouldyouliketojustcommentonthecomparisonofprojectsversusbuybacks?

ChrisLynch(CFO):

Yes,thanks,Sam.Insimpleterms,it'sreallyafunctionaboutwhatcashflowstreamareyoubuying,whetherit'saninvestmentinaprojectorabuyback.Andwe'llalwayshaveaviewaboutthefuturecashflowsand,inthecaseofabuyback,youlooktothefuturecashflowsoftheentireCompanyandmakeyourjudgmentsaboutthatagainstthatbackground.

Ithinkonepointthatwehaven'ttalkedaboutinthepresentationandallthosesortsofthings,buttheefficiencyofsomeourprocesseshavebeenincreasedsubstantially,internalprocessesforreviewandthelike.Andweareawholelotmoreonerousandrigorousaboutmakingsurethatprojectsarereadytogowhentheycomethroughforapproval.

TherearesomethingsthatIwouldmuchratherspendthreeorsixmonthslongermakingsurethatwe'reaswellpreparedaswecanbebeforepullingthetriggeronaproject,ratherthangoingoffearlyandhavingconsequencesatthelaterstageswhenspendingcangetoutofcontrolinthatregard.

Theotherpointtootomakeinregardtothereductioninsomeofthenumbers,Samreferencedthepointaboutthecurrencies.AndIthinktheotheroneisthatthesamecyclicalitythat'sdrivingsomeofthepriceoutcomesthatwe'reseeingisalsodrivingthecapitalconstructioncostdynamicsaswell.Soyoucangetalotmorebangforyourbuckinthissortofmarketthanwasthecasebackintheveryhotmarketsforthoseassets.

We'resayingit'snotjustaresourcesissue;it'sacrosstheboard.Andifyougototheoilandgasindustry,Ithinkyou'regoingtoseesomefairlysignificantreductionsinthatareaprettyquickly.TheUSshaleisprobablythemostobviousexampletherewheretheresponsecanbeabitquickerthan,perhaps,theroutineoffshoreoil.

Butinanswertoyourdeliberatequestionabouthowdoyoumeasureabuyback?It'sagainstthefuturecashflowstreamthatyou'rebuyingandwhatyoupayforitandthat'syourreturnsortofsoyoucangetanumberonthat.Wedon'tpublishthatnumber,butyoucangetanumberonthatquiteeasily.

SamWalsh(CEO):

Thanks,Chris.

Operator:

[PeterO'Connor,TheShoreGroup].

Unident if iedPart icipant :

MyquestionisdirectedatChrisanditrelatestofrankingcredits,whichmustbethegreatestunderorunvaluedassetintheentireGroup.Chris,couldyouwalkmethroughwhatyou'rethinkingaboutfrankingcreditsand[atcore]value?WhatyourthoughtsareontherecentprecedentsanddevelopmentsinAustralia




regardingreleasingthatpooloffrankingcredits?AndhowIcouldthinkaboutthatissue,goingforwards?

ChrisLynch(CFO):

Thanks,Peter.Well,frankingcredits,they'reobviouslyawell-regardedassetintheAustralianenvironment.They'reprobablynotaswellunderstoodactuallyintheUK,somaybejustalittlebitabout.

Basically,distributionofadividendinAustralia,yougetthedistributorataxcreditwiththatdividend,onthebasisthattheCompany'salreadypaidtaxbeforeitdeclaredthedividendinearningtheprofit.Andsolongasyou'vepaidcorporatetaxonthewaythroughearningthatprofit,whenyoucometodistributethedividend,thedividenditself,inthehandsoftheshareholder,cancarryataxcreditwithit.

Ourdividendsinthelimitedstockareallfullyfranked.Byfullyfranked,itmeanstheycarrya$0.30taxcreditwiththem.Andtheoff-marketbuybackinAustraliaallowsyoutoutilizesomeofthosefrankingcredits,becausethenatureoftheoff-marketbuyback,itallows--thisiscomplicated,butit'sworthtakingabitoftimetotryandexplainit.

Itallowspeopletobidadiscounttothemarketpricetosellintothetender.Andthereasontheycandothatisbecausethe--wehaveanagreementwiththeAustraliantaxofficeabouttheallocationbetween--whateverthepurchasepriceendsupbeing,betweencapitalandadeemeddividend.

Thecapital,inthecaseofourbuyback,isestimatedtobe$9.44pershare.Sotheremainderofthebuybackamountthat'sultimatelytenderedwillbeadeemeddividendanditwillcarrywithitadeemedfrankingcredit.Thatfrankingcreditiswhatallowspeopletobidthediscountedofferintothetender.

Now,whatPeter'sreferringtoissomerecentactivityinthisareainAustralia.Peter,Ipresumeyou'retalkingabouttheTabcorpissuejustrecentlywhere--Ihaven'tseenthefulldetailsofthissoit'salittlebitdifficulttogettoofarawayfromit.

ButTabcorphereintheAustralianjurisdictionhavedonebasicallyanacceleratedrenounceableentitlementoffer,aformofarightsissue.Andtheproceedsfromthatwillbebasically,asIunderstandit,willbeaspecialdividendwithafrankingcreditattachedtoit.

Now,again,Ihaven'tgotallthedetailsofthatandIhaven'tseenthetenderbookletandsoon,soitwouldbeimprudenttogettoofarintothat.Inourowncase,we'vegottobealittlebitcircumspectaboutthatsortofmechanism,becausewehavetheissueoftheDLCstructurerequiresequaltreatmentofbothendsoftheDLC.

SoifweweretopayadividendinAustralia,arealdividendinAustralia,we'dhavetohaveeitherthesamedividendorsomeformofmatchingactionintheplcstock.Andthat'sasignificantdifferenceforuswiththeDLCstructureversussomeonewho'sjustinalimitedstructure.Sowe'llgetachancetotalkmoreaboutthatoff-line,Peter,butIthinkthat'sthesortofshortanswer.

Sointermsofwhatarewedoingwiththefrankingcreditbalance.Wedohaveasignificantfrankingcreditbalance.Clearly,thedividendinthelimitedstockwillbefullyfranked,andtheoff-marketbuybackwillbeanotherutilizationofsomefrankingcreditsthatwillgotobenefitthepriceweultimatelypaytobuybackthestock.

SamWalsh(CEO):

Thanks,Chris.Let'scomebackintotheroom.

JamesGurry(Analyst-CreditSuisse):

JamesGurry,CreditSuisse.Justwanttotalkalittlebitaboutaluminum.You'reactuallyearningmore




EBITDAinnetearningsfromaluminumthatyouarefromcopper.Thealuminumgroup'sneverbeenworthmoretoyounow,asagroup,thansinceyouboughtit.Howsustainabledoyouseetheearningswithinthataluminumportfolio?

AndwhatdoyouthinkthedynamicsareofexpandingyourbauxiteandaluminaexportsintoChina?And,atthesametime,Chinaisrecentlyexportingasignificantamountofaluminumproductstotherestoftheworld.Doesthathavethepotentialtopotentiallyharmtheearningsofthesmelterportfolio?

SamWalsh(CEO):

Thanksforthequestion.Imentionedduringthepresentationthatwe'veseensignificantimprovementinthealuminumbusinessandIguesseverybodyisnowseeingit.

2012wemade$50millionnetearningsinaluminum;2013$550million;thisyear$1.25billion.Soverysignificantjourney.AndJacynthe,andfollowedonby[Alf],havetaken$800millionofcostsoutofthebusiness.We'vetaken700,000tonnesofmetaloutofourproduction.We'veshut,curtailedandsoldbusinesses,we'verenegotiatedpowercontracts,awholeraftofactivities.

Ifyoulookatthemetalbusiness,whenKitimatcomesonstream,theKitimatmodernizationexpansion,whateveryouwanttocallit,around80%ofourbusinesseswillbeinthefirstcostquartile.That'saverystrongpositionforustobeinmetal.

Inrelationtoalumina;aluminacontinuestobeatoughbusinessandclearly,there'salotofworkunderwayatQueenslandalumina,atYarwunandVaudreuilintermsofimprovingourcostbasethere.Andwe'veindicatedbyseparatingourbauxiteandaluminaearnings,forthefirsttimethisyear,thealuminabusinesslost$200millionlastyear.

Soalotoffocus,bigspotlight,andwe'reworkingtoimprovethatbusiness.WedidtakeactionlastyeartocurtailtheGoverefineryandactionlikethatisactuallyimprovingthebottomlineofthealuminabusiness.

Inrelationtobauxite;bauxitecontinuestobeaveryprospectivebusinessforuswiththeincreaseofexportcapacityfromGove,fromaroundthe6millionto8milliontonnesofexport.It'sinfrastructure,thatmeanswe'rehavingtorampthatupduringthisyearwithnewconveyorsandhandlingsystemsandwhathaveyou.

TheSouthoftheEmbleyproject;we'veapprovedthestudyfundingrecentlyforthefullfeasibilitystudyandwe'reexpectingthatthefullprojectwillcomeintotheinvestmentcommitteeandtheBoardlaterthisyear.Thereissomepreliminaryexpenditurethatwe'relookingattoensurethatwe'llholdthetimingof2018forthatproject.

Andthere'sfurtherworkunderway;[smallbikkies]inGuineaattheCBGprojectlookingtohaveasmallexpansiontheretomatchportcapacity.Sointermsofsustainingthebusiness,there'salotofworkunderwayinbauxiteandmetaltocontinuetoimprovethatbusinessandtocontinuethejourney.Inalumina,it'sspecialefforttogetthatbusinessbacktopositiveearnings.

Inrelationtothetrade-off;doyousupplybauxiteordoyouholdbackandhopethatthatwillmeanthatChinaandelsewherewillreducetheirexports?Well,ourviewofthatisthat,onewayoranother,thebauxitewillbesupplied.Andwe'reintheidealpositionwithproximitytoChinaoutofWeipatoactuallysupplythatmaterialtothem.Ifwedon't,itwillcomefromsomewhereelse.

AndSouthoftheEmbleyisactuallyoneofthemostattractiveprojectsthatwe'vegot,soitissomethingthatisofparticularinteresttous.Itissomethingthatwewillcontinuetoprogress.And,byhaving80%ofouraluminummetalbusinessinthefirstcostquartile,thatkeepsusinaverystrongposition,goingforwards,regardlessofwhatmayhappeninChina.




Letmejustclosethisitemoffbysaying,look,you'vealsogottolookatthelong-termprognosisforaluminuminChina.Currently,they'reusingalotofstrandedpower,andwhatbetterthanbuildanaluminumsmelter,andthatwillprovidejobsandprovideotherbusinessopportunitiesandwhathaveyou.

But,asChinamovestoamoreconsumption-ledeconomy,andduringthepastyearthey'vemovedfrom34%consumptionto48%consumption,whichmeansthathouseholdsarebuyingrefrigeratorsandwashingmachinesandairconditioners,andeveryelectricalgadgetknowntoman,they'regoingtoneedthatpower.AndtherewillsuddenlybeahugedrawonthatpowerasthemiddleclassinChinaincreases.And,havingboughttheirfridge,theywanttoactuallybeabletoturniton.

Sothereisashiftthere.Forthoseofyouthatsay,Sam,you'redreaming,justhavealookatwhathappenedinJapan.Japan,priortothe1970s,hadanaluminumsmeltingindustry,andexactlythesamethingthatI'mtalkingabouthappenedthere.Today,there'snotanaluminumsmelterinJapan.So,overtime,thesamethingwillactuallyhappenthere.

Therewillbeatransition,andthatwilllimittheirabilitytodomesticrequirementsofaluminumsothattheycanputit,actually,intotherefrigeratorsandwashingmachinesandeverythingelse.

TimHuf f (Analyst-RBCCapitalMarkets):

TimHuff,RBC.Justtwoquickquestions,comingbacktothethemesonthefinancials.CapEx,youmentionedthatyougotyoursustainingCapExdownto$2.5billion.Thatseemsaprettysignificantreductionfromsixmonthsago.Iwasjustwondering,youmentionedthe$450millionofflowthroughthatcancomefromFXandotherthings,butIwaswonderingifyoucouldgiveussomecoloraroundhowyou'vemanagedtoreducethatsosustainably.

Andthen,ontheworkingcap.Obviously,athalf-yearandattheInvestorDay,youtalkedabitaboutlookingatworkingcapreductionlongerterm,withrespecttotheJapaneseautoindustryjustintime.Obviously,that'samultiyearprocess,notamonthlyprocess.

Withrespecttothat,didIgetitrightthatyousaidyoufreedup$470millionofcapitalfromdiamondsalone?Anddoesthatimplythatyou'regoingtobemaking---thattherearealsosignificantgainstobemadeinotherdivisions?Orwasitjustthattherewasmoreopportunitytofreeupcapitalindiamondsandminerals?

SamWalsh(CEO):

Chris,canyouhelpmewiththis?

ChrisLynch(CFO):

First,Tim,regardingthesustainingcapital,wehavetalkedconsistently,there'sacurrencyeffect;there'savalueformoneyeffect.Everythingnowiscurrentlybeingabletobebidfarmoreaggressivelyandmorecompetitively,sowehavethataspect.

Atthestartofanyyear,ifyouwentintoanyoneofthebusinesses,they'dprobablyhavealonglaundrylistofprojectsthattheywouldhavesomeinklingorsomeintentiontodo,eitherthisyearorontheirworkagenda,forsomesortoftimeperiodthatwouldberelevanttothatscaleofbusiness.

Probably,attheendofanyyear,about50%ofthat'sbeendone.Andtheother50%hasbeendisplacedbyotherthingsthatbecamemaybeeither,nearterm,morepressing,orthatemergedasabetterthingtodothanwhatwasoriginallyinthatmindset,ifyoulike.

Sowherewearenowistosay,yes,wehavehadquestionsabout,people,canyoumanagethisastightlyasyoucanandwe'vehadtheresponse,andthelike.We'vealsohadimprovementsinproductivity.Sosomeof



©2014TheStreet,Inc.AllRightsReserved Page18 of 23

thesustainingcapitalwillgointothingslikefleetandthattypeofheavymobileequipment.Andthat,again,we'regettingbetterlifeandwe'regettingbettertimebetweenrefurbishment,ormeantimethephaseisgettinglonger,andthelike.

There'saraftofthingswhereimprovementsaregoingontohelpyouwiththings.Socurrency,morebangforthebuck,andbetterpractice,meanslessdemandonthesustainingcapital.

Withregardtoworkingcapital,thecashreleasedfromdiamondsandminerals,soit'snotjustdiamonds,it'sdiamondsandmineralsbusiness,hasbeensignificant.Buttheydidhavequitehighinventories,relativetothescaleoftheirbusiness.We'vebeenactivelyworkingtoreducethat;Alanandhisteamhavebeenonthatforsometimenow.Andthatsortofactivity--theopportunityvariesacrossthepatch.

Butwe'vestillgot,forinstanceinironore,we'vestillgotproductupatthemineendoftheinfrastructurechainwhichhasbeenbulkedout.Oncewe'vegotcapacitytobeabletomovethatdowntheinfrastructurechainandgetitavailabletoaport,thenthatcanbefurtherreduced,bywayofexample.Ifyougointothesmeltingbusiness,there'sprobablylessopportunityinthereinthealuminumsmelterssideofthehouse.

We'vebeenabletoachieveafairlysignificantreductioninMongolia,bywayofexample.Earlieron,thereweresomeconcernsanddifficultiesaboutactuallygettingpermittingtoactuallyshiptheproduction.We'vebeenabletoreducethat,getthatinventorydowntoatotallynormallevelnow.SoifyoulookatthedataforMongolia,weactuallyshippedslightlymorethanweminedduringthecourseoftheyear.Andthat'saresultofmovingdownthatinventorychain.

Sothere'sopportunitiesacrossthepatch.Imentionedearlier,andSam'sprobablymentionedearlier,I'mnotsure,aboutthewholeareaaboutthewarehouseinventoriesandthelike.We'renotgoingtogetaD10deliveredbyAmazonthenextday,butwecanimprovetheoutcomesofourwarehousingintermsofwhatdoweactuallyneedifweweresmarterwiththewaythatweranthem.Whatwouldweactuallyneedforthevarioussystemsthatwehavearoundthepatch.

Sothere'salotofopportunity,hardwork,alotoffocusedwork.Andthat'sreallywherewe'regoingtobegoingafterit.

SamWalsh(CEO):

Thanks,Chris.

MylesAllsop(Analyst-UBS):

MylesAllsop,UBS.Justfollowinguponthreequestionsearlierintheday.Intermsofthesustainabilityofthebuyback,ifyoulookatspotcommodityprices,andgivenyourworkingcapitalguidance,yourCapExguidancesayingnosignificantM&A,doyouthinkit'shighlylikelythattheBoardwillbeinapositiontoannounceatleasta$2billionbuybackin2016,thistimenextyear?

We'renotgoingtoholdyoutoit,butitwouldbeinterestingtoseewhatyoursenseisatspotcommodityprices.

SamWalsh(CEO):

Iwon'tbehere,I' llbefired.

MylesAllsop(Analyst-UBS):

Andthen,secondly,ontheCapExside.Everytwomonthsyoureduceby$1billion,andfromthesoundsofit,thisisadeflationarycurrencymove.Isitrighttoassumethatyourlong-termvolumegrowthtargetisstillaround5%?Oristhatstartingtocomedown,oratriskofcomingdown?




Andthen,finally,justonironoreandsupplydiscipline;obviously,you'readding50milliontonnesofthe100milliontonnes,soyou'rekindofthebiggestcontributorthisyear.But,Ithink,themoreinterestingsideisIOCbecause,atcurrentprices,Isuspect,it'snotgeneratingahugeamountofcashflow.Areyoupreparedtotakeactionthereifitmovesintoacashflownegativesituation?Thankyou.

SamWalsh(CEO):

Thanksforthose.Inrelationtoshareholderreturns,Ijokinglycommentedaboutthat,butitreallyisaBoarddecision.TheBoardrepresentsyou;theBoardrepresentsshareholders;andtheBoardwillwanttolookatthatthistimenextyeartoreallyassesswhereweare.

There'salotofmovingparts.Theworldisfarmorevolatiletodaythan,Isuspect,it'severbeen,notjustinrelationtocommodities,butinrelationtoworldpolitics,inrelationtoawholerangeofthingsthatimpact,inonewayoranother,onourbusiness.And,quitesensibly,theBoardwillwanttolookatthatafterwe'vefinished2015anddetermineexactlywhatreturns.

Havingsaidallthat,weareabsolutelycommittedtotheprogressivedividend.Beyondthat,itwilldependontheeconomics;itwilldependonthebusiness.ButletmeassureyouthatChrisandI,andall62,000ofus,areveryfocusedoncontinuingtoimprovethebusiness,continuingtoprovidetheoptionstotheBoardthatwillallowthemtoconsiderwhattheydoinrelationtoreturns.

Ithinkinrelationtogrowth,ourintentionisthatourgrowthwouldbecontinuingattheindicationthatwegaveof5%copperequivalentgrowth.Clearlyagain,movingpartsinrelationtowhatdoeshappenwithexchangeratesandenergyprices,and,asChrismentioned,whathappenswithcapitalequipment,andsoon.

Butweareveryfocusedongettingthebalancerightbetweenshareholderreturns,futuregrowthofthebusiness,futurevaluetoshareholders,andourfeelingisthat5%isgettingitaboutright.Certainly,whenweraiseditinNovember/Decemberwithshareholders,shareholdersacceptedthatthat'sprettyreasonable,that'sprettyfair,thatensuresthatyou'vegotongoinggrowth.

Thelastquestion,IOC.Look,whatweareverypragmaticaboutensuringthatourbusinessesareactuallycashpositive.It'sahypotheticalquestion,butclearlyit'ssomethingthatthebusinessisawareof,thebusinessistakingaggressiveactiontoimproveitscostbase,intermsofawholeraftofactivities,gettingthemanningright,gettingtheshiftpatternsright,gettingthebalancerightbetweeninternalworkversuscontractorwork,andsoon.

KellySandersisrunningthatbusiness.KellyhasactuallymovedoutoftheIOCheadofficeinMontreal;he'smovedintoLabCity,sohecanbeveryfocusedwithhisteamthereontheground,andthat'sobviouslyforareason.

AndIthinkthatwiththereductionsthatthebusinesseshas,theironorebusinessinCanadahasseeninrelationtoWabush,inrelationtoPlumeLake,Millennium,younameit,we'reseeingacommunitythere,we'reseeingsuppliers,we'reseeingaworkforcethatisactuallyfar,farmoreattunedtotherealitiesoflife.

Havingsaidallthat,IOCproducesapremiumproduct,itproducesapremiumconcentrateandapremiumlump,andattainsasignificantvalueinuseforthat.Soit'snotjustacostequation,it'salsoavalueequationintermsofwhatthey'reactuallyreceivingfortheirsales.

Perhapswiththat,we'llmovetothephonesforanotherthreequestions.

Operator:

CraigSainsbury,GoldmanSachs.




CraigSainsbury(Analyst-GoldmanSachsandCo.):

Justaquickoneonthebalancesheet,probablyforChris;we'reallreallysurprisedbythedebtandthat'sreallyquitepositive,gettingthatdowntoaroundthat$12billionwhichisprobably$4billionor$5billionbelowwhereconsensushaditpegged.

Whatalsosurprisedmewastherewasareallybigdropinthe[hire]ofproperty,plantandequipmentfromthehalf-yeartothefullyear,itwasdownbyabout$5billionoverthatperiod,andalotofthatwasinironore.Ithinkit'sabouta$3.7billiondropintheoperatingassetsoverthatperiodoftime.

NowIknowcurrencyhasfallen,Iworkeditouttobeabout$1billiondifferential,sojustwonderingwhetheryoucantalkmethroughwhytherewassuchabigdropinsixmonthsinthePP&Eandparticularlyinironorewhichisobviouslygrowingbusiness?

ChrisLynch(CFO):

Thekeythinginthissortofmarket,theydoraisetheissueofbalancesheetstrength.AndIthinkIdowanttomakethepointaboutthismarketbeingsofundamentallybenefitingfromastrongbalancesheet.AndSam'searlierreferencestopotentialfuturebuybacksandthelike,thestrongbalancesheetisessentialinordertobeabletobeinapositiontobeabletodothat,anddohavebalancesheetcapacitythere.

InrelationtoyourspecificquestionontheironorePP&E,we'llgetbacktoyouonthatdirectly,butthekeything,fromourpointofviewherenow,istomakesurewemaintainthisstrongbalancesheet,andthat'swhythebuyback'sbeensizedthewayithas.Butastrongbalancesheetinvolatilemarketsisabsolutelyessentialforrobustnessagainstwhateverthatvolatilitythrows.

Italsogivesyouthecapacityforreturnsviabalancesheetcapacity,anditalsogivesyouthereadinesstobeabletorespondtowhateveropportunitiespresent.

SamWalsh(CEO):

Okay.Thanks,Chris.We'llgetbackonthatPP&Equestion.

Operator:

PaulYoung,DeutscheBank.

PaulYoung(Analyst-DeutscheBankResearch):

Twoquestionsonthealuminumdivision.Consideringitdeliveredthelargest[hit]versusconsensusforecasts,thefirstthingoncosts;theoriginaltargetyouprovided,Ithinkitwasbackin2013,was$1.1billionintotalcostreductions.Soyou'veachieved$800millionthusfarandIwantedtoknowdoesthe$1.1billiontargetstillstand,orcanyougobeyondthis?

Andalso,consideringthe[PacAl]assetsperformedprettystrongly,haveyoucompletedyourportfoliosimplificationorrationalizationforaluminum?

Andthenalsoonbauxite,Inoticedthatthespotbauxitepricehasincreasedbyabout$15atonneoverthelast12months,yetitlookslikeyourrealizedbauxitepricewasflatyearonyear,ifIlookatitonaCIForaFOBbasis,sowonderingwhenyou'dexpecthigherbauxitepricestostartflowingthrough.Thanks.

SamWalsh(CEO):

Inrelationtothecosttarget,yes,aluminumstillhastheirtargettofurtherreducetheircosts,and[Alf]andtheteamarevery,veryfocusedonthat.Inrelationto[PacAl],look,we'veseenasignificantimprovementinthat




businesswithsomeveryimpressivecashgenerationfromthebusiness.

Inrelationtoanyofourbusinesses,we'reopentoanybodyiftheywanttomakeastunningofferthatvaluesthebusinessmorethanwedo.Beyondthat,I'mnotgoingtocommentonwhatwemaydoandwhathaveyou.ButI'vegottosay,inthismarket,divestmentsareprettychallenging.

We'vegotastrongbalancesheet;Iwasbraveenoughtosaythatwe'veprobablygotthestrongestbalancesheetofanybodyintheindustry,butwe'recertainlyamongstthestrongest.Andthatputsusinauniqueposition,butitalsosignifiesthatothersaretreadingwater.

Inrelationtobauxiteprices,wedohavesomelegacycontracts;wealsohavesomeinternaltransfers.ButChris,beyondthat,Ican'tthinkofwhythatincreaseinbauxitepricesmaynotbeflowingthrough.Doyouhaveanyfeel?

ChrisLynch(CFO):

Well,wehadtheGoveeffectofwe'renowsellingmoredirectbauxiteratherthanprocessingitthroughGoveoverthelastyearandahalf,orwhatever.AndIguessnotallbauxiteisfungible;dependingonthecharacteristicsthatpresentinthebauxitedependsonwhattheaudienceisforthatparticularbauxite,isithighorlowtemperatureandsoon.Sotherearesomeidiosyncrasiesaboutbauxite.

It'soneofthereasonswhywe'llcontinuetotreat--we'llgiveyouthedataaboutbauxiteandaluminaseparately,whichwe'vedonenow,andhopefully,thatwillbeappreciatedformoretransparencyonthatdata.

Butfromabusinessandaccountingpointofview,we'llcontinuetoseethatasone,whatwecall,cashgeneratorunitonthebasisthatwestillhavearelativelybalancedsystemintheaggregate.Andnotallbauxitecangotoallrefineries;arefineryhasgottobesetuptoreceiveaparticulartypeofbauxiteifyoulike.

Sowe'vegottobealittlebitcarefulabouttranslatingacrossaheadlinenumbertoeveryparticulartonne.They'renotallthesameandtheywillattractdifferentprices,dependingonhowbigtheaudienceisforthatparticulartypeofbauxite.

SamWalsh(CEO):

Thanks,Chris.

FraserJamieson(Analyst-JPMorgan):

FraserJamieson,JPMorgan.Acoupleofquickones.YoumadeaprettyunequivocalstatementaboutM&A;Ijustwondered,though,ifyoucouldtalkaboutwhatyou'reseeingintermsofvalue,inpotentialopportunities.

Isvaluebecomingmoreattractive,givensomeofthesharepricemoves,etcetera,andthepressureonpeople'sbalancesheets?AndtheextensionIguessis,isitstillrighttobequitesounequivocalaboutthatM&Apoint,giventhestrengthofyourbalancesheetrelativetotherestoftheindustry?

AndthenifIcouldaskasecondquickone;ironorelumppremiumhasclearlybeenabigbenefitforyouguysininsulatingagainstsomeofthedownsideinthebenchmarkprice.Couldyoumaybetalkabitaboutwhatyou'reseeingintermsofcustomerbehavior,etcetera?Therewas,Ithink,anexpectationthatwewouldseethatlumppremiumcomeoffabitbynow;itdoesn'tseemtohavehappenedsofar.Areyouexpectingthattoremainatcurrentlevelsthroughthecourseof2015?

SamWalsh(CEO):

InrelationtoM&A,yes,Iwasverystridentinmycommentsthatwe'renotlookingatanymajorM&A.




Therearearaftofthingsthat,Idon'tknow,areonthemarket.Thesearealotofdistressedassetsand,guesswhat,they'redistressedforareason.They'rehighcost;they'rethesortsofbusinessesthatwe'retalkingaboutearlierwhenwetalkaboutpeopleneedingtotakethebusinessoffthemarketbecauseit'sunderwater,losingmoney.

IfyoulookatthetrueopportunitiesforM&A,andneversaynever,butthesearefewandfarbetweenifyou'rereallyfocusingonTier1lowcostopportunities.Andunfortunately,ifoneofthosecameontothemarket,whoknowswhen,theywillbecontested.

Sodespitethefactthatwe'vegotaverystrongbalancesheet,itdoesn'tautomaticallyflowthatwe'regoingtorushoutanddoit.There'salsobeenalotofjournalistsandwhathaveyouhavesaid,well,youknow,youshouldrushoutandbuyFreeportorAngloorwhatever,andit'snotonourradar.Itabsolutelyisnot.

Inrelationtoourironoreprices,you'reactuallyseeingacoupleofeffectsthere.You'reseeingtheeffectofthebalanceofoursalesportfoliobetweenquarterlylaggedandmonthlylaggedandspot,plusasyouquiterightlysay,thelumppremium.Wehaveseenastrongerpremiumthanwethought,whichcomesbacktomycommentsearlierabouttheChinesemillstryingtoimproveenvironmentalperformance,andtheyarecomingundersignificantpressuretodothat.

Butlook,it'saveryvolatileworldoutthereandI' llleavethemarkettodeterminewherethepriceisgoingtobe,goingforward.

HeathJansen(Analyst-Citi):

HeathJansen,Citi.Justtwoquickquestions.Justgoingbacktoyourgearingratios,youputoutthe20%to30%targetandthenobviouslyChrishassaid,wewanttobeatthebottomendofthattarget.Iguesseffectivelywhatyou'resayingtothemarketiseffectivelythatrangeisactuallymuchnarrowerbetween20%to22%,not20%to30%becauseofalltheuncertaintyandeverythingelse[theygear].

Iguessthequestionis,whatwouldmakeyougearup,effectivelywouldyougear--whatyou'resayingobviouslytodayis,youdon'twanttogearuptodoabuyback,butwouldyougearuptomaintainyourprogressivedividendandsustainingCapEx?Orareyousaying,well,youthinkthingsaregoingtogetworse,therefore,youwantthatheadroominyourbalancesheettobasicallydrawdownifmarketconditionsgetworse?Becauseifitgetsworse,thecyclicalminingcompaniesobviouslygearupatthebottomofthecycle,notgearupatthetopofthecycle,whichyou'vebeenrenownedto.

Andthensecondareallyquickquestion;obviously,withyourCapExguidance,IknowyouhavehistoricallygivenoutyourFXguidancearoundthat,butthatwouldhelpinmodelingintermsofthat$7billion,whatareyouassumingfortheCADandAussiedollar?Thanks.

SamWalsh(CEO):

I' lllet[John]andhisteamcomebacktoyouontheFX.Inrelationtothegearingratio,itiswhatwesaiditis,thatweareshootingforaratioof20%to30%.AndweindicatedbackinNovemberthatweprefertobe,inthismarket,atthispointintime,atlow20%sratherthanhigh20%s.

Itdoesgiveustheoptionalitythatyoudescribe.Itputsusinanincrediblystrongposition.No-oneshouldunderestimatethevolatilityofthemarketrightnow,andIdon'tthinkanybodywouldhavepredictedthedropsthatwesawbetweenNovemberandFebruaryintermsofarangeofcommodityprices.

Wewouldliketoseeabitofastabilitythere;weliketoseethatthingshavestabilizedoutbeforewechangeourpositioninthatgearingratio.Havingsaidallthat,quiterightly,weareinanincrediblystrongpositionandthat'sahugecompetitiveadvantageforustodowhateverwewanttodointermsofreturnsorinvestmentsorM&Aorwhatever.Butrightnow,averyprudentpositiontobeisexactlywhereweare.




Ithink,withthat,ifIcouldwindupandifIcouldjustthankyouallforbeinghere.Thankyouallofyouontheline.Chris,thanksforstayinglateintheofficeMelbourne;Ireallyappreciatethat.

Wesaidwe'dmateriallyincreasedourshareholderreturns;we'vedoneexactlythat.Wesaidwe'dreduceourcosts,we'dimproveourbusiness,andwewouldpositionourselvesinachallengingmarket,andthat'sexactlywhatwehavedone.

Wesaidwe'dstrengtheningourbalancesheet,well,wehave.Andthegoodnewsisit'sajourney.We'venotarrivedatourdestination;it'spartofajourney.Wewillcontinuetoimprovethebusiness;wewillcontinuetoprovidetheoptionstoourBoardtoincreaseourshareholderreturns.

Sothanks,onceagain,forbeinghere.Iappreciateyourinterestandyoursupport.Thankyou.

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