Overview

As part of our corporate governance, Rio Tinto has imposed rigorous controls on all aspects of its financial management. These extend into all of our financial transactions, but are particularly important when applied to short and long term borrowing, currency dealings, interest rates management, and other areas of funding our business.

Treasury management and policies
Treasury management
Treasury activities operate as a service to the business of the Rio Tinto Group and not as a profit centre. Strict limits on the size and type of transaction permitted are laid down by the Rio Tinto boards and are subject to rigorous internal controls. Corporate funding and overall strategic management of Rio Tinto's balance sheet is handled by the London based Group Treasury.

Interest rates
Rio Tinto's interest rate management policy is generally to borrow and invest cash at floating rates. Short term US dollar rates are normally lower than long term rates, resulting in lower interest costs to the Group. Furthermore, cyclical movements of interest rates tend to compensate, to an extent, for those of commodity prices. In some circumstances, an element of fixed rate funding may be considered appropriate.

Currency
Rio Tinto's assets, earnings and cash flows are influenced by a wide variety of currencies due to the geographic diversity of the Group's sales and the countries in which it operates. The US dollar, however, is the currency in which virtually all of the Group's sales are denominated. Operating costs are influenced by the currencies of those countries where the Group's mines and processing plants are located and also by those currencies in which the costs of imported equipment and services are determined. The Australian and US dollars are the most important currencies influencing costs.

Given the dominant role of the US currency in the Group's affairs, the US dollar is the natural currency for borrowing and holding surplus cash. Modest amounts of cash are held in other currencies for short term operational reasons.

Derivatives
Rio Tinto does not acquire or issue derivative financial instruments for trading or speculative purposes. Such instruments are used to separate funding and cash management decisions from currency exposure and interest rate management. The Group has used interest rate swaps in conjunction with longer term funds raised in the capital markets to achieve a floating rate obligation which is consistent with the Group's interest rate policy. Currency swaps have been used to convert debt or investments into currencies, primarily the US dollar, which is consistent with the Group's policy on currency exposure management.