Operations & financial report

STRATEGIC OVERVIEW

Alcan Inc. (Alcan) joined the Rio Tinto Group on 23 October 2007. The total cost of the acquisition amounted to US$38.7 billion, including fees. The expanded aluminium product group, formed by the combination of Alcan and Rio Tinto's existing aluminium assets, was renamed Rio Tinto Alcan (RTA).

RTA comprises closely integrated, high quality bauxite, alumina and aluminium businesses with a broad global reach. The business is founded on large reserves of the mineral bauxite, which is refined into the intermediate product alumina, before being smelted into aluminium metal. RTA is a world leader in the production of bauxite and aluminium, with a defined pathway to becoming the largest producer of alumina through the commissioning of the Gove refinery expansion and current expansion of the Yarwun refinery, both in Australia.

RTA is an industry leader in technology which, combined with an ownership position in clean hydro-electric generating capacity of 3,689 megawatts (MW), provides a significant, sustainable competitive advantage of increasing value in a carbon constrained world. The combined group has one of the industry's most extensive bauxite mine, alumina refinery and aluminium smelter development portfolios, comprising 16 major projects in 13 countries.

RTA's strategy is to maximise shareholder return whilst achieving excellence in health, safety and environmental performance; maximising value generated from existing assets; and optimising and opportunistically growing the bauxite, alumina and aluminium businesses. RTA uses its dedicated business improvement programme, called Lean Six Sigma, to improve operations, process stability and eliminate waste.

RTA is currently organised into four business units - Bauxite & Alumina, Primary Metal, Engineered Products and Packaging. In the announcement of Rio Tinto's offer for Alcan in July 2007, it was disclosed that it had been agreed with Alcan that the Packaging business would be divested. The Packaging business has therefore been classified as an Asset held for sale and its results for the period since acquisition have not been included in the earnings of the Rio Tinto Group.

RTA's financial results include Alcan businesses from 24 October 2007. On this basis, in 2007 RTA contributed 22 per cent of Rio Tinto's gross sales revenue and 15 per cent of its underlying earnings. As at 31 December 2007, RTA accounted for 63 per cent of Rio Tinto's operating assets.

At year end, RTA employed 71,600 people of whom 67,000 joined the group with Alcan. About 25,000 employees are employed in the Bauxite & Alumina and Primary Metal business units and approximately 45,000 employees in the Engineered Products and Packaging businesses.

Dick Evans, chief executive, Rio Tinto Alcan, is based in Montreal, Canada.

DIVESTMENTS

As part of Rio Tinto's offer for Alcan on 12 July 2007, it was announced that the Packaging business would be divested. Following a company wide strategic review of the combined Rio Tinto and Alcan assets, on 26 November 2007 the intention to divest the Engineered Products business was also announced.

INTEGRATION OF ALCAN

Rio Tinto's offer for Alcan on 12 July 2007 aimed at after tax synergies of US$600 million per annum by the end of 2009. Within the parameters of relevant takeover regulations, intensive and cooperative integration efforts were made between 12 July and 23 November 2007 which resulted in an increase in the targeted after tax synergies to US$940 million per annum by the end of 2009. A rigorous and comprehensive integration plan is being progressively executed and is overseen by an Integration Steering Committee and an Integration Management Office.

*A reconciliation of the net earnings with underlying earnings for 2005, 2006 and 2007 as determined under EU IFRS is set out in the Group financial performance. Adjusted earnings for 2003 have been determined under UK GAAP. All amounts presented by the product groups exclude net interest and other centrally reported items.