Management & Governance

Part 1

The directors are pleased to present their report to shareholders of Rio Tinto plc and Rio Tinto Limited, together with the Full financial statements for the year ended 31 December 2007.

Dual listed structure

An explanation of the dual listed companies structure (DLC), which unified Rio Tinto plc and Rio Tinto Limited in 1995, can be found in the Dual Listed Companies Structure section of this report. This section also provides a description of voting rights restrictions which may apply in respect of the shares of either Company under specified circumstances.

Memorandum and articles of association

Rio Tinto plc's articles of association were adopted by special resolution passed on 11 April 2002 and amended by special resolutions passed on 14 April 2005 and 13 April 2007. Rio Tinto Limited's constitution was adopted by special resolution passed on 24 May 2000 and amended by special resolutions passed on 18 April 2002, 29 April 2005 and 27 April 2007.

Activities and business review

Details of the Group's results, operations and principal activities, likely future developments, significant changes during the year and post balance sheet events are set out in the Chairman's statement, the Interview with the chief executive and in the Operating and financial review.

During 2007 and until 22 February 2008 the significant changes and events affecting the Group have been:

• The retirement of the chief executive, Leigh Clifford, in April and the appointment of his successor, Tom Albanese.
• The acquisition of Alcan Inc in October and the subsequent commencement of integration.
• Announcements of major expansion plans in iron ore and uranium.
• US$15 billion divestment programme announced in November with US$10 billion targeted for 2008.
• In November an approach by BHP Billiton proposing a combination of companies and a subsequent pre-conditional takeover offer in February, both of which were rejected by the board of Rio Tinto.

As permitted by sections 299(3) and 299A(3) of the Australian Corporations Act 2001, information which is likely to result in unreasonable prejudice, regarding likely future developments in, and the expected results of the operations of the Group or its strategies and prospects, has been omitted.

The Group's principal risks and uncertainties are described under Risk factors.

Share capital, buybacks and options

Details of the Group's issued share capital as at 31 December 2007 can be found at notes 28 and 29 to the financial statements. Details of the rights and obligations attached to each class of shares can be found in the section "Dual Listed Companies Structure - Voting rights".

Details of certain agreements triggered on a change of control can be found under "Dual Listed Companies Structure".

Details of certain restrictions on holding shares in Rio Tinto plc are described under the heading "Dual listed companies Structure - Limitations on ownership of shares and merger obligations". There are no other restrictions on the transfer of ordinary shares in Rio Tinto plc save for:

• restrictions that may from time to time be imposed by laws and regulations (for example, those relating to market abuse and insider dealing);
• restrictions that may be imposed pursuant to the Listing Rules of the UK Financial Services Authority whereby certain employees of the Group require approval to deal in shares;
• restrictions on the transfer of shares that maybe imposed under Rio Tinto plc's articles of association or under Part 22 of the UK Companies Act 2006, in either case following a failure to supply information required to be disclosed following service of a request under section 793 of the UK Companies Act 2006; and
• restrictions on transfer of shares held under certain of the Rio Tinto plc's employee share plans while they remain subject to the plan.

Details of substantial shareholders of Rio Tinto plc and Rio Tinto Limited can be found in Rio Tinto share ownership.

On 2 February 2006 the Group announced, subject to market conditions, an intention to return a total of up to US$4,000 million of capital to shareholders during the course of 2006 and 2007, comprising a special dividend of US$1,500 million, and a share buyback programme of US$2,500 million.

On 27 October 2006 the Group announced, subject to market conditions, a US$3,000 million increase in the programme to US$7,000 million which would be returned to shareholders by the end of 2007.

At the annual general meetings held during April 2007 the shareholders:

• renewed the general authority to buy back up to 101.7 million of Rio Tinto plc's ordinary shares, representing approximately ten per cent of its issued share capital for a further 12 month period;
• approved buy backs by Rio Tinto Limited under off-market buyback tenders and/or on-market over the 12 months following approval, provided that the number bought back did not exceed 28.5 million shares; and
• renewed the shareholder authorities to buy back up to all the Rio Tinto Limited shares held (indirectly) by Rio Tinto plc.

Shareholders will be asked to renew these authorities at the 2008 annual general meetings.

During 2007 Rio Tinto plc bought back 27,700,000 ordinary shares under the buyback programme, representing approximately 2.8 per cent of its issued share capital, on the open market for US$1,562 million. All were held as treasury shares. Following the announcement on 12 July 2007 of the Group's recommended all cash offer for the acquisition of Alcan Inc, the buyback programme was discontinued.

During 2007, to satisfy obligations under employee share plans, Rio Tinto plc issued 311,458 ordinary shares and reissued 969,435 ordinary shares from treasury, and Rio Tinto Limited purchased on market and transferred 1,217,923 shares.

Also during the year, the Companies' registrars purchased on market 451,867 Rio Tinto plc ordinary shares and 760,057 Rio Tinto Limited shares to satisfy obligations to shareholders under the dividend reinvestment plans.

No further shares were bought back between 1 January 2008 and 22 February 2008. During this period, Rio Tinto plc issued 70,244 shares in connection with employee share plans, and reissued 385,692 ordinary shares from treasury and Rio Tinto Limited's registrars purchased on market and delivered 783,209 shares.

Awards over 2,195,740 Rio Tinto plc ordinary shares and 1,932,977 Rio Tinto Limited shares were granted in connection with employee share plans during 2007, and as at 22 February 2008 there were options outstanding over 6,051,292 Rio Tinto plc ordinary shares and 5,590,662 Rio Tinto Limited shares. Upon exercise, options may be satisfied by the issue of new shares, the purchase of shares on market, or, in the case of Rio Tinto plc, from treasury shares.

There were no changes to the authorised capital of Rio Tinto plc during the year.