Financial review
Sales revenue
|
Commodity |
Source |
Unit |
2008 US$ |
2007 US$ |
2006 US$ |
|---|---|---|---|---|---|
Aluminium |
LME |
pound | 1.18 | 1.20 | 1.16 |
Copper |
LME |
pound | 3.20 | 3.24 | 3.06 |
Gold |
LBMA |
ounce | 872 | 691 | 602 |
Iron ore |
Australian benchmark (fines) (a) |
dmtu(b) |
1.29 |
0.79 |
0.71 |
| Molybdenum |
Metals Week: quote for dealer oxide price |
pound |
31 |
30 |
25 |
(a) average for the calendar year
(b) dry metric tonne unit
The above table shows published 'benchmark' prices for Rio Tinto's commodities for the last three years where these are publicly available, and where there is a reasonable degree of correlation between the benchmark and Rio Tinto's realised prices. The prices set out in the table are the averages for each of the calendar years, 2006, 2007 and 2008.
The Group's sales revenue will not necessarily move in line with these benchmarks for a number of reasons which are discussed below.
The discussion of revenues below relates to the Group's gross revenue from sales of commodities, including its share of the revenue of equity accounted units, as included in the 2008 Full financial statements.
The sales revenues of the Iron Ore group increased by 80 per cent in 2008 compared with 2007. There was an 86 per cent weighted average increase in the benchmark price, mainly effective from 1 April 2008 which resulted in a 63 per cent increase in the average Australian iron ore fines benchmark for the calendar year. In addition, spot market sales had a significant positive impact. Although the price for iron ore on the spot market decreased during the final three months of 2008, the impact on Rio Tinto was limited since the vast majority of its iron ore spot market sales were made in the first nine months of the year when spot prices were in excess of long term contracts. IOC enjoyed a more stable operating environment in 2008 after the resolution of the industrial action in 2007.
The Australian iron ore fines benchmark increased by 9.5 per cent in April 2007. In addition to higher prices, sales revenues at Hamersley Iron were higher from record production following completion of the second phase of the Dampier port upgrade and the Tom Price brownfield and Yandicoogina JSE mine expansions. At IOC, volumes were lower as a result of a seven week strike in the first and second quarters of the year and this was only partly mitigated by higher prices.
The 2008 sales revenues of the Aluminium group decreased by one per cent against 2007 on a combined adjusted basis and increased by 224 per cent on a non adjusted basis due to the inclusion of a full year of Alcan. The average aluminium price of 118 US cents per pound was two per cent lower than the 2007 average price. Aluminium prices were strong for the first nine months of the year. The fourth quarter saw a sharp fall in aluminium prices from around 110 US cents per pound to 66 US cents per pound at year end. The decline in prices underlines the weakness in demand causing a continued build-up of LME stocks. Despite the fact that the fall in aluminium prices has been accompanied by a fall in costs, producers have also been responding to the downturn and the weakness in demand by cutting back output. However, these have not been of sufficient magnitude to support prices as LME stocks have continued to rise.
The Aluminium group's sales revenues are from aluminium and related products such as alumina and bauxite. Aluminium production was unchanged overall from the prior year, while bauxite and alumina production rose by 12 per cent and six per cent respectively over 2007. The bauxite production increase reflects investment in increased capacity at Weipa and the alumina production reflects a 23 per cent increase at the Gove refinery as it continues to increase capacity.
The average 2007 aluminium price of 120 US cents per pound was three per cent above the 2006 average price. Alcan's sales revenue for the two months from acquisition, which includes revenue from Engineered Products, was US$3,798 million. Rio Tinto Aluminium's sales revenue increased by one per cent in 2007 reflecting higher volume and price for bauxite and aluminium and lower volume and price for alumina.
A significant proportion of Rio Tinto's coal production is sold under long term contracts. In Australia, the prices applying to sales under the long term contracts are generally renegotiated annually; but prices are fixed at different times of the year and on a variety of bases. For these reasons, average realised prices will not necessarily reflect the movements in any of the publicly quoted benchmarks. Moreover, there are significant product specification differences between mines. Sales volumes will vary during the year and the timing of shipments will also result in differences between average realised prices and benchmark prices.
Sales revenues for the Energy & Minerals group increased by 49 per cent in 2008 compared with 2007 due to higher prices and sales volumes. Asian seaborne thermal coal spot prices came off their highs in the second half of 2008 due to the general slump in demand across all economies in reaction to the global economic downturn. Published 2008 market indications for Australian thermal coal showed an increase of 93 per cent and an increase of 145 per cent in the coking coal benchmark price.
Revenues of the Group's Australian coal operations increased by 126 per cent in 2008 due to higher thermal coal prices and higher coking prices. Hard coking coal production from the Queensland coal operations increased by 20 per cent compared with 2007 as a result of higher demand and increasing port capacity.
Revenues of the Group's Australian coal operations decreased by three per cent in 2007 with lower thermal coal sales largely attributable to infrastructure constraints and a severe weather event. Published 2007 thermal coal benchmarks in Australia improved by 33 per cent in the calendar year whilst coking coal benchmarks decreased by 13 per cent.
Rio Tinto Energy America's 2008 revenues have benefited from new contracts at higher prices. Volumes in 2008 are higher than 2007 due to recent investment and expansion at Antelope, Jacobs Ranch and Spring Creek mines to meet the robust market demands of Powder River Basin coal. In the US, published market indications of spot prices for Wyoming Powder River Basin thermal coal 8800 BTU (0.80 sulphur) show an increase of 36 per cent for the average spot price in 2008 compared with 2007. These same prices showed a decrease of around 20 per cent in 2007 compared with 2006. However, Rio Tinto Energy America's revenues increased by nine per cent in 2007 with improved realised prices due to its long term contracts.
The Copper & Diamonds group also produces gold and molybdenum as significant by-products. The average copper price of 320 US cents per pound was one per cent below the 2007 average price. The gold price averaged US$872 per ounce, an increase of 26 per cent on the prior year, whilst the average molybdenum price was US$31 per pound, an increase of three per cent compared with 2007. Total Copper & Diamonds Group sales revenues in 2008 decreased by 30 per cent over 2007. Higher by-product prices were more than offset by lower volumes of copper, gold and molybdenum. Kennecott Utah Copper sales were impacted by a scheduled smelter shutdown during the second half of 2008. Escondida experienced lower volumes due to lower grades and operational difficulties at the Laguna Seca SAG mill, and Grasberg was adversely impacted by a pit wall failure in September 2008. Diamond prices realised by Rio Tinto depend on the size and quality of diamonds in the product mix. Diamond sales revenue decreased by 18 per cent in 2008 against 2007 primarily due to lower grades processed.
Total Copper & Diamonds group sales revenues in 2007 increased by 20 per cent over 2006. Copper revenues increased by 17 per cent reflecting higher volumes at KUC and Escondida as well as higher prices. Gold revenue increased by 69 per cent with higher volumes at Kennecott Minerals and the Grasberg joint venture.
Diamond sales revenue increased by 22 per cent in 2007 against 2006 due to higher sales volumes and polished pink diamond tender prices as the result of tighter supply and higher demand.
