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annual report 2008 focusing on our strengths

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2008 rio tinto is a leading international business involved in each stage of metal and mineral production the group combines rio tinto plc which is listed on the london stock exchange and rio tinto limited which is listed on the australian securities exchange we aim to operate as a seamless organisation that maximises the benefits of standard and shared approaches for every activity we find mine and process the earth s mineral resources that fulfil vital consumer needs and improve world living standards we produce aluminium copper diamonds coal iron ore uranium gold and industrial minerals borates titanium dioxide salt talc with production mainly in australia and north america we operate in more than 50 countries and employ about 106,000 people we promote health safety and sustainable development wherever rio tinto operates the health and safety of our employees and a contribution to sustainable development are key priorities we work as closely as possible with host countries and communities respecting their laws and customs and ensuring a fair share of benefits and opportunities the group s objective is to maximise its value and the long term return delivered to shareholders by finding mining and processing natural resources across the globe our proven strategy to achieve this goal is to invest in large long term cost competitive mines and businesses rio tinto s shareholder documents are available on the website www.riotinto.com the annual report the full financial statements and auditor s report comply with the australian and uk reporting requirements they can also be obtained free of charge from the companies registrars whose contact details can be found on page 180 some shareholders prefer to receive the summary financial statements which do not allow as full an understanding of the group front cover image rio tinto s gove bauxite operations in australia.

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highlights record underlying ebitda of us$22,317 million 60 per cent above 2007 ebitda of us$23,870 million was 75 per cent higher than 2007 earnings before interest taxes depreciation amortisation restated us$m 04 05 06 07 08 6,111 9,743 12,566 13,611 23,870 contents overview a description of the business activities of the group and messages from the chairman and the chief executive group overview product overview where we operate chairman s statement chief executive s message recent developments selected financial data 4 6 8 10 12 14 17 markets and strategy an overview of our markets the group s strategy measures of performance and the outlook for 2009 market review core objective and strategy key performance indicators risk factors capital projects outlook for 2009 20 21 23 24 29 31 record underlying earnings of us$10,303 million 38 per cent above 2007 net earnings were us$3,676 million 50 per cent below 2007 cash flow from operations up 64 per cent to a record of us$20,668 million annual production records set for iron ore bauxite alumina on a like for like basis record net capital expenditure of us$8.5 billion a 71 per cent rise over 2007 ordinary dividend for the 2008 year maintained at 136 us cents performance key performance data and operational highlights by product group and function together with a review of the group s contribution to sustainable development group financial performance aluminium copper diamonds energy minerals iron ore exploration technology innovation other operations sustainable development 34 38 46 58 66 73 76 78 80 financial review financial results and in depth discussion financial review 92 production and reserves information tables and details of our assets metals and minerals production ore reserves mineral resources group mines group power stations group smelters and refineries 108 112 117 122 126 128 governance introducing the board of directors and senior management with their remuneration and our approach to corporate governance chairman and executive directors non executive directors executive committee members directors report remuneration report corporate governance 132 133 135 136 141 158 shareholder information net earnings and underlying earnings relate to profit attributable to equity shareholders of rio tinto underlying earnings is defined on page 23 and is reconciled to net earnings on page 34 ebitda is earnings before interest taxes depreciation and amortisation underlying ebitda excludes the same items that are excluded from underlying earnings ebitda and underlying ebitda are reconciled to the income statement in the financial information by business unit section of the 2008 full financial statements key shareholder information and data shareholder information rio tinto share ownership definitions and exchange rates financial calendar useful addresses 168 175 176 179 180 pages 4 to 105 form the business review required by section 417 of the uk companies act 2006 rio tinto 2008 annual report 1

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world leading assets cautionary statement about forward looking statements this document contains certain forward looking statements with respect to the financial condition results of operations and business of the rio tinto group the words intend aim project anticipate estimate plan believes expects may should will or similar expressions commonly identify such forward looking statements examples of forward looking statements in this annual report and financial statements include those regarding estimated ore reserves anticipated production or construction dates costs outputs and productive lives of assets or similar factors forward looking statements involve known and unknown risks uncertainties assumptions and other factors set forth in this document that are beyond the group s control for example future ore reserves will be based in part on market prices that may vary significantly from current levels these may materially affect the timing and feasibility of particular developments other factors include the ability to produce and transport products profitably demand for our products the effect of foreign currency exchange rates on market prices and operating costs and activities by governmental authorities such as changes in taxation or regulation and political uncertainty in light of these risks uncertainties and assumptions actual results could be materially different from projected future results expressed or implied by these forward looking statements which speak only as at the date of this report except as required by applicable regulations or by law the group does not undertake any obligation to publicly update or revise any forward looking statements whether as a result of new information or future events the group cannot guarantee that its forward looking statements will not differ materially from actual results.

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overview iron ore for shipment rio tinto is the second largest supplier to the world s seaborne iron ore trade this section contains a description of the business activities of the group and messages from the chairman and the chief executive group overview product overview where we operate chairman s statement chief executive s message recent developments selected financial data 4 6 8 10 12 14 17 overview

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group overview rio tinto s organisational structure is designed to facilitate a clear focus on the group s objective the structure comprises primarily four product groups and two business support groups product groups aluminium products bauxite alumina aluminium metal the aluminium product group rio tinto alcan is one of the world s largest producers of bauxite alumina and aluminium benefiting from a sustainable low cost energy supply it operates mainly in canada and australia with interests in europe new zealand africa south america and the us the group is organised into four business units bauxite alumina primary metal engineered products and packaging the latter two of which are to be divested underlying earnings contribution number of employees 39,326 operating assets us$35,730 million 12 12 underlying earnings pp contribution gross sales revenue us$23,839 million underlying earnings us$1,184 million the copper group is a world leader in copper production comprising kennecott utah copper in the us and interests in some of the world s largest copper mines and development projects including escondida in chile grasberg in indonesia the resolution and pebble projects in the us the oyu tolgoi project in mongolia products copper in and the la granja project in peru concentrate refined the diamonds group is a leading supplier of rough diamonds comprising copper gold silver interests in the diavik mine in canada the argyle mine in australia and the molybdenum magnetite murowa mine in zimbabwe served by a diamond sales office in belgium vermiculite diamonds copper diamonds number of employees 8,976 operating assets us$5,536 million 17 underlying earnings contribution gross sales revenue us$6,669 million underlying earnings us$1,758 million number of employees 14,278 operating assets us$5,639 million energy minerals products coking and thermal coal uranium titanium dioxide feedstock borates talc the energy group is one of the biggest suppliers in its markets represented in coal by rio tinto coal australia and coal allied in australia and by rio tinto energy america in the us it also includes uranium interests in energy resources of australia and the rössing uranium mine in namibia both among the world s largest uranium operations the industrial minerals businesses are global leaders in the supply and science of their products comprising rio tinto minerals made up of borates and talc operations in the us south america europe and australia as well as rio tinto iron titanium which has interests in north america south africa and madagascar the iron ore group is the second largest contributor to the world s seaborne iron ore trade with interests that comprise hamersley iron and robe river in australia iron ore company of canada corumbá in brazil and the simandou guinea and orissa india projects the group includes the hismelt® direct iron making plant in australia employing a new cleaner iron making process developed largely by rio tinto it also includes the dampier salt operations at three sites in western australia 28 underlying earnings contribution gross sales revenue us$10,998 million underlying earnings us$2,887 million number of employees 11,109 operating assets us$7,632 million iron ore products iron ore pig iron salt gypsum 58 gross sales revenue us$16,527 million underlying earnings us$6,017 million number of employees 694 business support groups exploration the exploration group is organised into five teams based in north america south america australia asia and africa/europe and a sixth project generation team that searches the world for new opportunities and provides specialised geological geophysical and commercial expertise to the regional teams technology innovation technology innovation has bases in australia canada the uk and the us its role is to identify and promote operational technology best practice across the group and to pursue step change innovation of strategic importance to the development of orebodies of the future number of employees 351 aggregate product group underlying earnings contribution of 115 per cent is reduced to 100 per cent by negative amounts for other operations other items exploration and net interest note the data for aluminium includes engineered products and excludes packaging 4 rio tinto 2008 annual report

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overview rio tinto the rio tinto group combines rio tinto plc which is listed on the london stock exchange and headquartered in london and rio tinto limited which is listed on the australian securities exchange and has executive offices in melbourne businesses include open pit and underground mines mills refineries and smelters as well as a number of research and service facilities the group consists of wholly and partly owned subsidiaries jointly controlled assets jointly controlled entities and associated companies the principal entities being listed in notes 37 to 40 of the 2008 full financial statements on 31 december 2008 rio tinto plc had a market capitalisation of £14.87 billion us$21.72 billion and rio tinto limited had a market capitalisation of a$10.86 billion us$7.66 billion the group s combined market capitalisation in publicly held shares at the end of 2008 was us$29.38 billion operational structure rio tinto s operational structure is designed to facilitate a clear focus on the group s objective this structure reflected in this report is based on the following primary product and business support groups · aluminium · copper diamonds · energy minerals · iron ore · exploration · technology innovation the chief executive of each product group and the global head of each business support group report to the chief executive of rio tinto nomenclature and financial data rio tinto plc and rio tinto limited operate as one business organisation referred to in this report as rio tinto the rio tinto group or more simply the group these collective expressions are used for convenience only since both companies and the individual companies in which they directly or indirectly own investments are separate and distinct legal entities limited plc pty inc limitada l.l.c a.s or sa have generally been omitted from group company names except to distinguish between rio tinto plc and rio tinto limited financial data in united states dollars us is derived from and should be read in conjunction with the 2008 full financial statements in general financial data in pounds sterling £ and australian dollars a have been translated from the consolidated financial statements and have been provided solely for convenience exceptions arise where data can be extracted directly from source records certain key information has been provided in all three currencies in the 2008 full financial statements rio tinto group sales revenue profit before finance items and tax net earnings and operating assets for 2007 and 2008 attributable to the product groups and geographical areas are shown in notes 31 and 32 to the 2008 full financial statements in the performance section operating assets and sales revenue for 2007 and 2008 are consistent with the financial information by business unit in the 2008 full financial statements the tables on pages 108 to 120 show production for 2006 2007 and 2008 and include estimates of proved and probable ore reserves and mineral resources words and phrases often technical have been used which have particular meanings definitions of these terms are in the glossary on pages 176 to 178 the weights and measures used are mainly metric units conversions into other units are shown on page 178 history rio tinto s predecessor companies were formed in 1873 and 1905 the rio tinto company was formed by investors in 1873 to mine ancient copper workings at rio tinto near seville in southern spain the consolidated zinc corporation was incorporated in 1905 to treat zinc bearing mine waste at broken hill new south wales australia the rtz corporation formerly the rio tinto-zinc corporation was formed in 1962 by the merger of the rio tinto company and the consolidated zinc corporation cra limited formerly conzinc riotinto of australia limited was formed at the same time by a merger of the australian interests of the consolidated zinc corporation and the rio tinto company between 1962 and 1995 both rtz and cra discovered important mineral deposits developed major mining projects and also grew through acquisition rtz and cra were unified in 1995 through a dual listed companies structure this means the group with its common board of directors is designed to place the shareholders of both companies in substantially the same position as if they held shares in a single enterprise owning all of the assets of both companies in 1997 the rtz corporation became rio tinto plc and cra limited became rio tinto limited together known as the rio tinto group over the past decade the group has continued to invest in developments and acquisitions in keeping with its strategy in 2007 rio tinto completed an agreed takeover of the canadian aluminium producer alcan inc in a us$38 billion transaction that transformed the group s aluminium product group into the global leader in aluminium with copper and iron ore this gave the group a leading role in the production of the three key metals associated with the growth and urbanisation of china and other developing countries rio tinto 2008 annual report 5

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product overview bauxite alumina aluminium the mineral bauxite is refined into alumina which is smelted into aluminium metal aluminium is one of the most widely used metals from tennis racquets to aircraft rio tinto is a leading global supplier of bauxite alumina and primary aluminium with an annual production capacity of 35 million tonnes of bauxite nine million tonnes of alumina and 4.1 million tonnes of aluminium no one can spend a day without using a metal or mineral in the production and supply of metals and minerals rio tinto is one of the world s most diversified companies major products are aluminium iron ore copper molybdenum coal uranium diamonds gold borates titanium dioxide salt and talc gross revenue by commodity 2008 us$bn aluminium 23.8 41.0 coal 7.0 12.0 copper 4.5 7.7 diamonds 0.8 1.4 gold 0.4 0.7 industrial minerals 3.0 5.2 iron ore 16.2 27.9 molybdenum 0.7 1.2 uranium 1.0 1.7 other 0.7 1.2 products integral to our way of life silver silver is a good conductor of electricity and does not corrode it is used in many electrical and electronic applications and is the principal ingredient of photographic and x-ray film silver is also a metal of beauty used to make lasting products for the home and person rio tinto produces silver as a by-product of its copper production molybdenum molybdenum is a metallic element frequently used in alloys with stainless steel and other metals it enhances the metal s toughness high temperature strength and corrosion resistance we produce molybdenum as a by-product from the kennecott utah copper operations gold gold has enjoyed a mystique and value unrivalled by other metals most gold that is not stored as bullion for investment purposes goes into jewellery gold s conductivity and non corrosive properties make it a vital fabrication material in technology electronics space exploration and dentistry we produce gold as a by-product from our copper mines coal coal is plentiful relatively inexpensive and safe and easy to transport we are one of the world s largest producers of thermal coal used for electricity generation in power stations we also produce higher value coking or metallurgical coal which when treated into coke is used in furnaces with iron ore to produce steel uranium uranium is one of the most powerful natural energy sources known used in the production of clean stable base load electricity after uranium ore is mined it is milled into uranium oxide the mine product that is sent away for further processing into fuel rods for nuclear power stations 6 rio tinto 2008 annual report

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iron ore iron is the key ingredient in the production of steel one of the most fundamental and durable products for modern day living from railways to paperclips our mines are located in australia and canada copper about two thirds of copper production is used in electrical applications due to its high conductivity it helps power our lives in homes and factories cars computers phones and equipment further major uses are in air conditioning and refrigeration plumbing and roofing rio tinto produces about five per cent of world mined copper salt dampier salt is the world s largest salt exporter salt is one of the basic raw materials for the chemicals industry and is indispensable to a wide array of automotive construction and electronic products as well as for water treatment food and healthcare talc talc is hydrated magnesium silicate and is the softest rock in the world it is an important ingredient in the manufacture of paper paints moulded plastics for cars and other familiar products our talc subsidiary rio tinto minerals serves more than 1,000 customers in more than 100 countries gypsum gypsum is a key ingredient in wallboard plaster cement and is used in agriculture markets rio tinto s dampier salt operations at lake macleod australia provide high quality natural gypsum to the markets in africa asia and australia overview borates mineral borates are used in hundreds of products and processes they are a vital ingredient of many home garden and beauty care products and have many automotive applications they are commonly used in vitreous applications such as fibreglass products and high temperature glasses and enamels about half of the world s borates come from rio tinto s boron mine in california diamonds gem diamonds share the role with gold as a luxury commodity in jewellery rio tinto offers diamond products across a wide range from the pink champagne and cognac stones from argyle in australia to the spectacular whites of diavik in canada and murowa in zimbabwe titanium dioxide the minerals ilmenite and rutile together with titanium slag can be transformed into a white titanium dioxide pigment or titanium metal the white pigment is a key component in paints plastics paper inks textiles food sunscreen and cosmetics titanium metal s key properties of light weight chemical inertness and high strength make it ideal for use in medical applications and in the aerospace industry sulphuric acid sulphuric acid is one of the most important industrial chemicals with a wide range of uses it is produced as a by-product of rio tinto s copper smelting operations at kennecott utah copper rio tinto 2008 annual report 7

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where we operate at february 2009 wholly owned unless otherwise shown 38 17 18 35 33 14 70 2 62 1 63 51 61 29 45 36 44 41 52 58 19 27 56 67 32 54 57 north america activities we produce aluminium diamonds iron ore and titanium dioxide feedstock in canada and thermal coal copper borates and talc in the us south america activities we own 30 per cent of the world s largest copper mine escondida in chile and we are developing the wholly owned la granja copper project in peru aluminium group 1 2 3 4 1 5 1 1 6 7 8 9 10 11 12 1 13 copper diamonds group 26 27 28 29 30 31 32 aluminium operating sites alma alouette 40 alucam edéa 47 anglesey aluminium 51 arvida awaso 80 beauharnois bécancour 25 bell bay boyne island 59 cbg sangaredi 23 dunkerque gardanne gove alumina re nery gove bauxite mine grande-baie isal 14 jonquière vaudreuil kitimat 1 laterrière 15 lochaber 16 lynemouth 17 porto trombetas mrn 12 7 queensland alumina limited 80 18 são luis alumar 10 19 sebree 1 shawinigan 20 sohar 20 21 soral 50 22 st-jean-de-maurienne 23 tiwai point 79 24 tomago 52 25 weipa 7 yarwun 1 copper and gold operating sites bougainville not operating 54 escondida 30 grasberg joint venture 40 kennecott utah copper northparkes 80 palabora 58 rawhide projects la granja oyu tolgoi 10 pebble 10 resolution 55 nickel projects eagle sulawesi 37 38 39 diamonds operating sites argyle diavik 60 murowa 78 projects bunder 40 33 34 35 36 52 53 rio tinto s activities span the world we are strongly represented in australia north america and europe which account for 90 per cent of our assets and we have significant businesses in south america asia and southern africa key mines and mining projects smelters re neries and processing plants remote from mine rio tinto has announced its intention to divest both the packaging and engineered products business units sites relating to these business units are not shown 8 rio tinto 2008 annual report

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overview 34 13 21 15 16 4 9 55 40 73 59 22 10 66 53 28 26 49 12 37 11 20 25 43 47 7 8 74 5 3 71 72 60 69 68 30 42 48 46 24 39 6 23 50 31 65 64 australia and asia activities australia is home to our core iron ore and metallurgical coal businesses as well as producing bauxite alumina uranium copper talc and salt europe africa and middle east activities in europe and the middle east we have aluminium production in south africa copper in namibia uranium and in madagascar ilmenite energy minerals group 41 42 43 44 41 45 43 46 41 47 46 45 48 iron ore group 67 68 coal operating sites antelope bengalla 30 blair athol 71 colowyo cordero rojo decker 50 hail creek 82 hunter valley operations 76 jacobs ranch kestrel 80 mt thorley operations 61 spring creek warkworth 42 projects clermont 50 mt pleasant 76 uranium operating sites era 68 rössing 69 projects sweetwater borates operating sites 54 boron 55 coudekerque plant 56 tincalayu 57 wilmington plant talc operating sites only major sites are shown 58 ludlow 59 talc de luzenac 60 three springs 61 yellowstone titanium dioxide feedstock operating sites 62 qit-fer et titane lac allard 63 qit-fer et titane sorel plant 64 qit madagascar minerals 80 65 richards bay minerals 50 lithium projects 66 jadar 69 70 68 43 42 iron ore operating sites corumbá hamersley iron mines brockman channar 60 eastern range 54 hope downs 50 joint venture marandoo mt tom price nammuldi paraburdoo yandicoogina hismelt® 60 iron ore company of canada 59 robe river mines 53 pannawonica west angelas projects orissa 51 simandou 95 salt operating sites dampier 68 lake macleod 68 port hedland 68 73 74 49 50 71 72 71 51 rio tinto 2008 annual report 9

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chairman s statement no one in the basic resources industry will forget 2008 quickly it was a year of two parts ­ starting with a continuation of strong demand and prices but finishing with a dramatic slide in prices driven by the collapse in global economic conditions our long standing strategy of investing in large long life low cost mining and processing assets remains our core strength in the current downturn of the world economy despite market declines this uncomplicated approach will continue to deliver long term shareholder value and ensure we are well positioned to take advantage of our top quality assets when the recovery comes we remain convinced that the addition of the alcan assets to our portfolio and their integration into rio tinto will be a source of long term value creation we are ahead of target to deliver us$1.1 billion after tax in synergies from the end of 2010 we made net capital expenditures totalling us$8.5 billion in 2008 we will now limit capital expenditures for 2009 to around us$4 billion to reflect falling demand while sustaining our growth trajectory we retain the goal of returning our balance sheet to a single a credit rating and will reduce net debt by us$10 billion in 2009 in the meantime our cash flows are able to repay the existing level of debt we are focused on the future to ensure we are best positioned for the upturn when it comes in 2008 we put important building blocks in place with major development projects testing technology for automated mines renewing our organisational structure to maximise the benefits of standardised and shared management approaches and introducing our progressive new rio tinto brand identity bhp billiton s approach you will recall in november 2007 rio tinto received an unsolicited approach from bhp billiton proposing a combination of the two companies this was followed in february 2008 by a pre-conditional takeover offer which bhp billiton finally withdrew in november 2008 citing deterioration of near term global economic conditions during the term of the offer our board monitored the situation closely and nothing changed our view that the bhp billiton bid significantly undervalued our assets and future prospects the board also believes the great majority of synergies that would have resulted would have come from the rio tinto assets and rio tinto shareholders would not have been adequately rewarded those synergies would in any event have been highly dependent on any remedies required by competition regulators and on delivery risk we remain a very strong standalone company and have a world class portfolio of assets which even in tough markets are highly cash generative proposed transaction with chinalco on 12 february 2009 we announced the intention to form a major strategic partnership with chinalco a leading chinese diversified resources company that the board unanimously recommends to shareholders chinalco s cash investment of us$19.5 billion will strengthen our balance sheet on terms that add value to the group and increase our flexibility to grow as markets recover it will strengthen rio tinto s position in the industry during a period in which china s importance in the global economy is growing rapidly more detail on the proposal is set out on pages 14 to 16 value creation strategy rio tinto has for decades followed a consistent and successful strategy with the goal of maximising shareholder value through excellence in mining the operation of large scale long life low cost assets and an emphasis on quality we draw strength from our product diversity and broad geographic spread of operations the strategy focuses on the upstream activities of metals and minerals production particularly mining and as in rio tinto alcan on advantaged primary processing through a rigorous and risk aware investment appraisal process we seek opportunities that will create value at all points of the economic cycle investing in expansions in line with market demand rio tinto has always preferred value to growth quality assets will perform better in tough times our strategic priorities today despite a sharp reversal in prices the strong medium to long run outlook for commodity markets has not fundamentally changed · at the end of 2008 many metals and minerals prices remained well above the historical trend · subdued conditions are expected in early 2009 · chinese investment is expected to start gaining strength in the second half of 2009 · marginal producers are expected to curtail supply 10 rio tinto 2008 annual report results and dividends the group s underlying earnings in 2008 were us$10,303 million 38 per cent above 2007 net earnings were us$3,676 million compared with us$7,312 million in 2007 reflecting impairment charges resulting from recent significant weakening in economic and market circumstances principally relating to goodwill on the alcan acquisition this includes a charge of us$8.4 billion related to impairments partly offset by gains of us$1.5 billion from asset divestments cash flow from operations increased 64 per cent to us$20,668 million the total dividends declared for 2008 of 136 us cents per share maintained the level of the 2007 dividend the group s objective remains to maximise its value and increase the dollar value of ordinary dividends over time.

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are to adjust the speed of our expansion and development activities in line with market developments accordingly a number of business units have been reviewing and adjusting their activities another priority is our programme of disposal of non core assets which will lower our debt level and create the opportunity to focus our business on world class market leading positions in 2008 we realised us$2.6 billion from disposals and the divestment programme has continued in 2009 board and governance good governance is the foundation of an ethical approach to business the board continued their focus on promoting the high standards of conduct we expect of our employees around the world recognising that actions speak louder than words in 2008 we renewed our commitment to our values with a revised version of our statement of principles and standards of conduct the way we work the board was pleased to welcome jan du plessis as a non executive director from 1 september 2008 and he will be standing for election at the 2009 annual general meetings he is currently chairman of british american tobacco plc as well as a non executive director of lloyds banking group plc and marks and spencer group plc his appointment brings additional financial expertise to the board and a broad experience of major global businesses particularly in africa jan has also joined the audit committee as was announced on 14 january 2009 i notified the board of my preference to retire at the conclusion of the annual general meeting in australia on 20 april 2009 after the termination of the bhp billiton preconditional offer for the group and the identification of a successor which started in late 2008 i felt this was the right time to step down after five and a half years as chairman jim leng was appointed chairman designate in january 2009 he subsequently resigned from the board in february and i have agreed to the board s request to remain as chairman until a successor is appointed dick evans who joined the board following the acquisition of alcan will be stepping down and i thank him for the contribution he has made to rio tinto sustainable development a commitment to sustainable development remains central to our strategy our operations have long time horizons and involve the investment of large amounts of fixed capital we need careful management of social environmental and economic issues with strong governance to deliver on our promises to communities governments employees and shareholders we strive for a zero harm environment and all of us on the board regret very much the tragic loss of life that occurred at our operations in 2008 we know we can always do better but it is very encouraging to note the broad endorsement we have received from many in the global conservation community for our approach to managing biodiversity the awards our businesses receive for work to combat hiv-aids our renewed focus on tackling the causes of climate change with a revamped energy and climate strategy team and the efforts we are making to prepare nationals for careers in the mining industry ahead of our projects in mongolia and guinea rio tinto was again identified as a sustainable development leader during the year by retaining its listing on the dow jones sustainability index djsi world index and the ftse4good as well as again attaining platinum status on the business in the community corporate responsibility index the group was also added to the djsi stoxx index rio tinto became a signatory to the un global compact in 2000 and we were one of its early supporters we also remain an active member of the world business council for sustainable development and the international council on mining and metals whose members are committed to superior business practices in sustainable development outlook we have recently seen an unprecedented rate of decline in our markets but our strong long term outlook for commodity markets has not fundamentally changed at the end of 2008 prices remained above the historical trend despite the downturn although the current slowdown has been much more dramatic than anticipated we expect china s long term growth to continue as a major driver of commodities demand china has been temporarily hit by the combined effect of the western world slowdown and a correction in its housing market partly a function of the tightening of monetary policy introduced in 2007 to damp down rising inflationary pressures when global economic activity recovers we could see metals and minerals demand pick up rapidly driven by the requirement to rebuild stocks at a time when supply is constrained by the cutbacks that occurred during the downturn and by the challenges of delivering new supply often from new sources china particularly may surprise the market it is the rate of deceleration and acceleration of the chinese economy which drives metal demand and prices given its major share of total global demand just as china decelerated sharply with a strong impact on metals demand it will also work powerfully in the upswing we believe the fundamentals of the chinese market and other fast growing markets like india remain intact and the industry s long term prospects remain positive while activity is likely to be relatively muted in the first half of this year chinese investment is expected to start gaining strength in the second half of 2009 with the support of substantial domestic savings and a shift in government policy towards promoting growth objectives including expansion of transport infrastructure and housing while government spending will support chinese gdp growth it is expected nevertheless to slow further in 2009 our people we have a high performing organisation and i regret that deteriorating business conditions have caused us to slow our development programme and reduce the size of our workforce in 2008 we conducted a global employee engagement survey to give our people an opportunity to have their say about working for rio tinto it gave us clear insights into what we need to do to enhance business performance the group benefits enormously from the strong commitment of the rio tinto team around the world i thank them for their unfailing efforts in 2008 during a period of quite extraordinary and challenging corporate activity in spite of many distractions management and employees have stayed focused on safety maintaining deliveries to customers and conducting our business in a socially reponsible way the board is highly appreciative of these efforts which during my period as chairman i have found inspirational overview paul skinner chairman rio tinto 2008 annual report 11

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chief executive s message low cost long life assets that enable us to build value throughout the cycle no less important to the group s success is the quality of our people who have demonstrated great skill flexibility and drive in meeting the exceptional challenges which confronted us in 2008 during the year we continued to invest in new production capacity while reexamining the timing of big capital projects to ensure that planned production levels are carefully aligned with projections of demand looking to our future the transaction we announced with chinalco in february 2009 makes great financial and strategic sense it is intended to position rio tinto to lead the resources industry into the next decade and beyond by ensuring the continuity of our strategy with the added benefit of chinalco s valuable relationships resources and capabilities an extraordinary year 2008 was a year of stark contrasts our business performed exceptionally well in the first nine months before being hit hard by a steep decline in commodity markets in the fourth quarter but despite the biggest global financial crisis in generations the quality of our business shone through and we succeeded in maintaining strong cash flow and earnings this encouraging financial performance was unfortunately overshadowed by a very damaging year on the safety front there were 18 fatalities in the businesses managed by rio tinto including ten people killed in a helicopter crash in peru twelve of the 18 deaths occurred at new projects in developing countries and 14 of the 18 were employees of contractors a major review of contractor management is now under way and in 2009 there will be renewed emphasis on the implementation of group standards and systems for safety and on the expectations and training for leaders we have also redoubled our work on preventing low probability high consequence incidents on a more positive safety note 2008 saw a welcome reduction in the frequency of lost time injuries and also of the rate of all injuries market conditions in the fourth quarter of 2008 combined to send the spot prices of many commodities down to levels last seen in 2006 the unprecedented downturn and continuing near term uncertainty reflect a more negative global macroeconomic setting we have always said we are in a cyclical industry and our strategy is geared to this fact rio tinto is a resilient business with 12 rio tinto 2008 annual report how we manage for value we are a low cost producer of the key commodities that support the industrialisation of developing countries like china in 2007 the most recent year for which full comparative industry data is available 93 per cent of our iron ore production 95 per cent of our copper and 87 per cent of our aluminium production were positioned in the lower half of the cost curve in the current market conditions we are implementing a comprehensive package of tough but necessary measures which take into account the short term impact on the demand for our products these initiatives are aimed at preserving value for shareholders by conserving cash flow and reducing levels of debt there will be 14,000 staff reductions globally ­ made up of 8,500 contractors and 5,500 employees controllable operating costs are to be cut by at least us$2.5 billion per annum by 2010 and net debt will be reduced by us$10 billion by the end of 2009 we intend to cut our capital expenditure to about us$4 billion in 2009 from us$8.5 billion in 2008 which will of course affect many projects in addition more assets will be divested than those already earmarked for sale all projects and near term capital expenditure will be continuously reassessed in light of demand from china the prevailing outlook for commodity prices and the falling costs of construction in short our aim is to make sure our businesses remain robust during a period of relatively low prices we have for example deferred a final decision on the us$2.5 billion modernisation of the kitimat aluminium smelter in canada instead we plan to spend a further us$300 million to continue the initial stages of the project this is in addition to us$200 million committed last july rio tinto alcan has announced an 11 per cent cutback in aluminium production equivalent to 450,000 tonnes of metal per year this is being accompanied by a decrease in alumina production of close to six per cent the fundamentals of the aluminium industry nevertheless remain strong higher energy costs are raising the aluminium cost curve particularly in china to the advantage of lower cost producers like rio tinto alcan i am therefore confident that our aluminium operations will continue to play a vital role in helping rio tinto meet its commitment to creating value our iron ore operations are performing well and we expect robust demand in the medium to long term in the short term however a drop in demand has led to a ten per cent reduction in our iron ore shipments and to a scaling back of our immediate production forecasts iron ore company of canada is cutting production in 2009 and expenditure at the simandou iron ore project in guinea is being reduced our review of short term capital spending has also led us to slow exploration and evaluation at the la granja copper project in peru meanwhile in australia the argyle diamond underground project northparkes mines copper kestrel coal and hismelt® have all trimmed back their expansion activities or temporarily ceased further investment but the story is not only one of capital expenditure cuts and slowdowns we are taking advantage of this period to look for further opportunities to add value to projects by redirecting our project design focus looking at the best rather than the fastest solutions creating this breathing space gives us the time for further study to reduce capital costs minimise our environmental impact enhance our social contribution and shorten development timetables a stable financial position the way we manage for value means our financial position remains stable in 2008 we reduced our net debt by us$6.5 billion our next major repayment will become due in october 2009 and we have available to us unused credit facilities of us$8.1 billion whilst our interest costs are at a very competitive rate of around 3.5 per cent in early 2009 we sold for very good prices our corumbá iron ore mine in brazil and two potash development projects in

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argentina and canada all the previously announced divestment processes are under way and our primary objective continues to be obtaining appropriate value in spite of some delays in the timing of the divestments market conditions the recent turbulence in the world s financial markets and the dramatic drop in the demand for our products have resulted in a massive synchronised global slowdown china s growth trajectory dipped much more than expected in the fourth quarter of 2008 this may lead to a pick up in 2009 in the cumulative demand for most of the metals and minerals we produce however we hope to see some recovery in china s gross domestic product in the second half of this year in the west anxiety in financial markets has meant falling asset values volatile exchange rates and depressed commodity prices the net result has been a substantial downturn in oecd economies meanwhile in china monetary policy to dampen inflation is being loosened in order to maintain a growth rate that remains the envy of the world the china urbanisation story and its beneficial effect on future metal markets still holds true despite the recent economic turmoil fifteen years ago only 25 per cent of the chinese population was living in cities today urban dwellers account for about 40 per cent of the total and that proportion is expected to reach 60 per cent by 2025 in other words there will be hundreds of millions of people who will require new homes schools factories offices roads and other infrastructure take aluminium for example in china today consumption of the metal is about nine kilograms per capita in taiwan and south korea it is about 20 kilograms so if china were simply to attain a similar level of consumption it would consume an additional 13-15 million tonnes of aluminium a year ­ the equivalent of 38 per cent of today s total world demand mining is a long term industry and we still expect global demand for rio tinto s key products ­ including seaborne iron ore copper and aluminium ­ to double in the next 15 to 20 years that growth will be sustained in large part by china along with india and other emerging markets so the long term outlook for rio tinto remains positive in the meantime the group has positioned itself to deal with the economic slowdown and to take advantage of the rebound when it happens looking to future growth rio tinto has a broad portfolio of projects and our growth rate is not dependent on any one project more than 80 per cent of our growth plans are derived from brownfield developments in established business environments generally 85 per cent of our earnings come from businesses located in oecd countries in madagascar construction of the us$1 billion qmm mineral sands operation was substantially completed on time in 2008 it represents the largest foreign investment in the country and forms part of a regional development plan supported by the world bank the first production of ilmenite from the plant is due to be shipped to canada in march for processing into titanium dioxide slag this high quality resource in madagascar is expected to be in production for 40 years we are confident we can manage the risks associated with investments such as these we are experienced operators in frontier regions with a good reputation in sustainable development and community relations in the midst of the current difficulties we are keeping our eyes on the longer term prize our mine of the futuretm technology and innovation project in western australia remains a top priority whatever the market conditions it is one of the world s biggest private sector trials of robotics and it will transform the efficiency and safety of the way we mine it consists of a fleet of mining equipment that loads and hauls ore automatically an important step towards reality was taken in 2008 with the activation for testing of the first autonomous haulage system at the west angelas mine in the pilbara we have promising exploration prospects in nickel bauxite diamonds ilmenite and lithium borates plus potential expansion of iron ore resources in the pilbara and at simandou in guinea at the heart of our long term value story is the strength of our project pipeline and our commitment to improving mining technology our portfolio of projects allows us to target strong production growth over the long term with the flexibility to decelerate ­ as we have done ­ when there is a pause in demand a new reality we will have a difficult global economy for perhaps the next two years during which we will have to navigate with cost cutting and debt reduction all of our actions over the past few months are focused on communicating this reality that said looking beyond the current global financial crisis there remains good reason to be fairly optimistic about the medium and longer term i am confident we have the right strategy for these difficult times indeed it is a strategy that will serve us well whatever the future may bring having travelled widely round the group in 2008 i have seen for myself the skills energy and unwavering commitment of our workforce i very much regret the necessity of having to make many of these valuable people redundant and to cut back on our project development work those employees who remain will make us a stronger company a company that is able to shift more rapidly back to a higher gear when the upturn comes it is they who make us strong and competitive adding value for shareholders every day i thank all of them for their outstanding contribution as we press on into another eventful year overview tom albanese chief executive rio tinto 2008 annual report 13

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