Get more information onlineindustry-leading margins, and in 2016 marked 50 years since their first contracted shipment. Products Iron ore Iron ore is the key ingredient in the production

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2016 Annual report

riotinto.com/ar2016

Contents

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. These statements are forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, and Section 21E of the US Securities Exchange Act of 1934. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, “target”, “set to” or similar expressions, commonly identify such forward-looking statements.

Examples of forward-looking statements in this Annual report 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, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, 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 to the date of this Annual 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.

Performance highlights 1Group overview 2Chairman’s letter 4Chief executive’s statement 5Market environment 7Group strategy 8Business model 10Key performance indicators 12Risk management 14Principal risks and uncertainties 16Portfolio management 22Sustainable development 24Independent limited assurance report 31Product groups Iron Ore 32 Aluminium 34 Copper & Diamonds 36 Energy & Minerals 38Growth & Innovation 40Five year review 42

Contents 218Metals and minerals production 219Ore reserves 223Mineral resources 228Competent Persons 234Mines and production facilities 236

Contents 44Directors’ report 45Board of directors 50Executive Committee 53Corporate governance 55Remuneration Report Annual statement by the Remuneration Committee chairman 67 Remuneration Policy Report 70 Remuneration Implementation Report 78

Shareholder information 244UK Listing Rules cross reference table 250Financial calendar 251Contact details 252

Contents 109Group income statement 110Group statement ofcomprehensive income 111Group cash flow statement 112Group balance sheet 113Group statement of changes in equity 114Notes to the 2016 financial statements 116Rio Tinto plc Company balance sheet 195Rio Tinto financial information bybusiness unit 199Australian Corporations Act – summary of ASIC relief 204Directors’ declaration 205Auditor’s independence declaration 206Independent auditors’ report 207Financial summary 2007-2016 215Summary financial data 217

To be more environmentally friendly, Rio Tinto is reducing the print run of all publications. We encourage you to visit the website to learn more about the Group’s performance in 2016 and to view all available PDFs of this Annual report and the Strategic report.

riotinto.com/ar2016

Strategic report

01

Production, reserves and operations

218

Directors’ report

44

Additional information

244

Financial statements

109

Key

Page reference for more information within this report

KPI Denotes key performance indicators

This Annual report, which includes the Group’s 2016 Strategic report, complies with Australian and UK reporting requirements.

Copies of Rio Tinto’s shareholder documents – the 2016 Annual report and 2016 Strategic report, along with the 2017 Notices of annual general meeting – are available to view on the Group’s website at: riotinto.com/ar2016 and riotinto.com/agm2017

Performance highlights

Cash generation of US$8.5 billion and US$3.6 billion of shareholder returns

Rio Tinto’s 2016 results show that it has keptits commitment to deliver superior shareholderreturns, and maximise cash and productivity.At the same time, the Group strengthened itsportfolio and advanced its high-valuegrowth projects.

Rio Tinto enters 2017 in good shape and willdeliver US$5 billion of extra free cash flow overthe next five years from its mine-to-marketproductivity programme. The Group’s valueover volume approach, coupled with a robustbalance sheet and world-class assets, placesRio Tinto in a strong position to deliver superiorshareholder returns through the cycle.

2016 highlights– Generating strong operating cash flow of

US$8.5 billion.– Delivering underlying earnings of

US$5.1 billion.– Achieving US$1.6 billion of pre-tax

sustainable operating cashcost improvements. (1)

– Investing in three major growth projects inbauxite, copper and iron ore.

– Optimising the portfolio with disposals ofUS$1.3 billion announced or completed in2016 and up to US$2.45 billion announcedto date in 2017.

– Strengthening the balance sheet furtherwith net debt reduced to US$9.6 billion.

– Returning cash to shareholders withUS$3.6 billion announced for 2016:– full year dividend of 170 US cents per

share, equivalent to US$3.1 billion.– share buy-back of US$0.5 billion in

Rio Tinto plc shares over the courseof 2017.

– in total, representing 70 per cent of2016 underlying earnings.

– Generating free cash flow (2) ofUS$5.8 billion which included US$0.3 billionof sales of property, plant and equipment.

– Receiving US$0.8 billion in net proceedsfrom disposals in 2016, with up toUS$2.6 billion expected in 2017, includingthe Coal & Allied transaction for up toUS$2.45 billion.

Results at a glance

Year to 31 December 2016 2015 Change

KPI 112 Net cash generated from operating activities (US$ millions) 8,465 9,383 -10%KPI 130 Underlying earnings (3) (US$ millions) 5,100 4,540 +12%

Net earnings/(loss) (US$ millions) 4,617 (866) n/aKPI 128 Capital expenditure (4) (US$ millions) (3,012) (4,685) -36%

Underlying earnings per share (US cents) 283.8 248.8 +14%Basic earnings/(loss) per share (US cents) 256.9 (47.5) n/aOrdinary dividend per share (US cents) 170.0 215.0 -21%

At 31 December 2016 2015 Change

KPI 145 Net debt (5, 7) (US$ millions) 9,587 13,783 -30%

Gearing ratio (6, 7) 17% 24%

The financial results are prepared in accordance with IFRS.

(1) Operating cash cost improvements represent the difference between the current and prior year full cash cost of sales per unit based on the prior year volume sold.

(2) Free cash flow is defined as Net cash generated from operating activities less Purchases of property, plant and equipment (PP&E) plus Sales of PP&E. It is a key financial indicator whichmanagement uses internally to assess performance.

(3) Underlying earnings is a key financial performance indicator which management uses internally to assess performance. It is presented here to provide greater understanding of the underlyingbusiness performance of the Group’s operations. Net and underlying earnings relate to profit attributable to the owners of Rio Tinto. Underlying earnings is defined and reconciled to net earningson page 130. Additionally, underlying EBITDA is a key financial indicator which management uses internally to assess performance. It excludes the same items that are excluded in arriving atunderlying earnings.

(4) Capital expenditure is presented gross, before taking into account any disposals of property, plant and equipment.

(5) Net debt is defined and reconciled to the balance sheet on page 145.

(6) Gearing ratio is defined as net debt divided by the sum of net debt and total equity at each period end.

(7) These financial performance indicators are those which management use internally to assess performance, and therefore are considered relevant to users of the accounts.

2016 Annual report riotinto.com 1

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Group overview

Introduction to Rio TintoAt Rio Tinto, as pioneers in mining andmetals, we produce materials essential tohuman progress.

We have been in business for more than140 years and remain focused on the longterm. Our approach is driven by a clearstrategy, with the goal of delivering superiorvalue for our shareholders through the cycle(see page 8). Our strategy plays to ourstrengths: world-class assets, talentedemployees, a strong balance sheet andoperating excellence.

Our approach is underpinned by our values ofsafety, teamwork, respect, integrity andexcellence. Combined with the strengthprovided by our people and our assets, ourvalues help form the foundations of ourlong-term success.

We have a 51,000-strong workforce in around35 countries. We seek to foster a culturewhere our people keep their safety, and thatof their workmates, contractors andcommunities, at the top of their minds; whereevery person understands how they cancreate and preserve value for the business;where diversity and innovation are embraced;and where our values guide everything we do.

We find, mine, process and market mineralresources, producing a diverse suite ofminerals and metals that enable the world togrow and develop. These products give usexposure to markets around the world, andacross the economic development spectrum,from basic infrastructure needs, throughindustrial growth, to consumer-led demand.

Under our Group-wide organisationalstructure, our four product groups– Aluminium, Copper & Diamonds, Energy &Minerals and Iron Ore – are complementedby our Growth & Innovation group.Supporting these are our central supportfunctions, shared services, andheadquarters-based activities.

Our contribution to sustainable developmentis integral to how we do business. It is afundamental consideration in how wemanage the business, seeking long-termmutually beneficial outcomes for ourbusiness and our stakeholders. Find out moreon page 24.

Iron OreRio Tinto operates a world-class iron orebusiness, supplying the global seaborne ironore trade. We are well positioned to benefitfrom continuing demand across China and thedeveloping world. The Iron Ore product group’soperations are located in the Pilbara region ofWestern Australia, where it hasindustry-leading margins, and in 2016 marked50 years since their first contracted shipment.

ProductsIron oreIron ore is the key ingredient in the productionof steel, one of the most fundamental anddurable products for modern-day living, withuses from railways to paperclips.

Strategic advantages– Strong presence in key markets.– Proximity to key Asian markets.– World-class assets, comprising an

exclusive, integrated supply chain withextensive optionality.

– A premium product suite, which drivesstrong customer relationships, supportedby technical and commercialmarketing expertise.

– Low cost position with a Pilbara cash unitcost of US$13.7 in 2016.

– Strong mineral resources provide multiplehigh-quality, low-cost options to sustainand grow our Pilbara operations.

– Employees driving sustainable productivityimprovements: costs, quality and revenue.

– Industry leader in supply chainmanagement, responsible mining andtechnology and innovation.

Key production locations Key sales destinations

– Australia – China

– Japan

– South Korea

Full operating review 32

AluminiumBuilding on more than a century of experienceand expertise, Rio Tinto is a global leader in thealuminium industry. Our business includeshigh-quality bauxite mines, large-scale aluminarefineries, and some of the world’s lowest-cost,most technologically-advancedaluminium smelters.

ProductsBauxiteBauxite is the ore used to make aluminium. It isrefined into alumina which is smelted intoaluminium metal. Our wholly and partly ownedbauxite mines are located in Australia, Braziland Guinea.

AluminaAlumina (aluminium oxide) is extracted frombauxite via a refining process. Approximatelyfour tonnes of bauxite are required to producetwo tonnes of alumina, which in turn makesone tonne of aluminium metal. Our wholly andpartly owned alumina refineries are located inAustralia, Brazil and Canada.

AluminiumAluminium is a versatile modern metal. Light,strong, flexible, corrosion-resistant andinfinitely recyclable, aluminium is one of themost widely used metals in the world. Itslargest markets are transportation, machineryand construction. Our smelters are mainlyconcentrated in Canada. We also have smeltersin France, Australia, New Zealand, Icelandand Oman.

Strategic advantages– Access to the largest and best-quality

bauxite ore reserves in the industry,strategically located to serve growingChinese bauxite demand.

– One of the lowest-cost bauxite producers.– Outstanding hydropower position, which

delivers significant cost and otheradvantages in an energy intensive industryand today’s carbon-constrained world.

– Rio Tinto has a low first-quartile averagecost position for aluminium smelting, withindustry-leading smelting technology.


– Canada – Asia

– Australia – Americas

– Europe – Europe


2 riotinto.com 2016 Annual report

Copper & Diamonds (a)

Rio Tinto’s Copper & Diamonds product grouphas managed operations in Australia, Canada,Mongolia and the US, and non-managedoperations in Chile and Indonesia. By-productsof the group’s copper production include gold,silver, molybdenum and others such assulphuric acid, rhenium, lead carbonateand selenium.

ProductsCopperCopper makes a positive impact on many ofsociety’s challenges. It is the primary conductorin the world’s electrical infrastructure, andcarries voices, data and vital information to allcorners of the world. It is a key component ofgreen technologies, from wind energy and solarcollection to high-efficiency buildings andelectric vehicles.

DiamondsDiamonds are an important component in bothaffordable and higher-end jewellery. We areable to service all established and emergingmarkets as we produce the full range ofdiamonds in terms of size, quality andcolour distribution.

GoldGold is the ultimate store of value. It is used injewellery, as a financial instrument, andsupports the medical industry.

SilverAlso a precious metal, silver has the highestelectrical and thermal conductivity of anymetal and is used in many electronic devices. Itis also used in aerospace and medicalapplications, to make jewellery and asan investment.

MolybdenumMolybdenum enhances toughness,high-temperature strength and corrosionresistance when combined with other metals. Itis frequently used to produce stainless steeland other metal alloys.

Strategic advantages– A portfolio of high-quality copper assets.– Attractive copper growth opportunities.– Fully integrated global copper and diamond

exploration, mining, and sales andmarketing business.

– A strong and trusted supplier of copper anddiamonds in markets where we have anestablished presence and in those where weare developing new opportunities.

– Leading technology and processes forunderground mining.


– Australia– Chile– Mongolia– North

America– Indonesia

– Australia– China– India– Japan– North America– Europe


Energy & Minerals (a)

Rio Tinto’s Energy & Minerals product groupcomprises mining, refining and marketingoperations in 14 countries, across six sectors:borates, coal, iron ore concentrate and pellets,salt, titanium dioxide and uranium. Energy &Minerals also includes the Jadar lithium-borateproject in Serbia and the Simandou iron oreproject in Guinea.

ProductsBoratesRefined borates are used in hundreds ofproducts and processes. They are a vitalingredient of many building materials and areessential micro-nutrients for crops. They arealso commonly used in glass and ceramicapplications including fibreglass, televisionscreens, floor and wall tiles, andheat-resistant glass.

CoalCoal is a cost-effective and abundant energysource that plays an important role in theglobal energy mix. Thermal coal is used forelectricity generation in power stations. Thethermal coal from the Hunter Valley operationsfeatures the low ash and sulphur properties formodern lower-emissions power stations. Wealso produce high-value coking or metallurgicalcoal, which is mixed in furnaces with iron ore toproduce steel.

SaltSalt is one of the basic raw materials for thechemicals industry and is indispensable to awide array of automotive, construction andelectronic products, as well as for watertreatment, food and healthcare.

Titanium dioxideThe minerals ilmenite and rutile, together withtitanium dioxide slag, can be transformed into awhite titanium dioxide pigment or titaniummetal. The white pigment is a key componentin paints, plastics, paper, inks, textiles, food,sunscreen and cosmetics. Titanium metal islight weight, chemically inert and strong,making it ideal for use in medical applicationsand in the aerospace industry.

UraniumUranium is one of the most powerful energysources, and is used in the production of clean,stable, base-load electricity. After uranium ismined, it is processed into uranium oxide. Thisproduct is sold for processing into fuel rods foruse in nuclear power stations.

Other products from the Energy & Mineralsproduct group include high-purity ductile iron,steel billets, metal powders and zircon.

Strategic advantages– Industry-leading businesses operating in

attractive markets.– Demand-led, integrated operations that are

responsive to the changing externalenvironment.

– Minerals business poised to benefit frommid- to late-development-cycle demandgrowth as consumption increases inemerging markets.

– A lean, scalable operating model runningcash-focused businesses.


– NorthAmerica

– Australia– Africa

– North America– China– Japan– South Korea– Europe


Growth & Innovation (a)

The Growth & Innovation group operatesthrough the entire life cycle of Rio Tinto’smines and assets, optimising value from thetime of the initial exploration concept throughto when we close a mine or processing facility.

Growth & Innovation works in close partnershipwith Rio Tinto’s product groups, and isaccountable for finding, evaluating, developingand delivering a portfolio of Tier 1 growthoptions. It also provides technical support toRio Tinto operations to improve productivity,manage technical risk and drive innovation andautomation initiatives.Full operating review 40

(a) The Copper & Diamonds and Energy & Minerals productgroups, and the Growth & Innovation group, were formedin July 2016 in a reorganisation of Rio Tinto’scompany structure.


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Chairman’s letter

Dear shareholders,In 2016, your company delivered a strongperformance despite challengingmacroeconomic conditions and significantgeopolitical uncertainty, which led tocommodity price volatility throughout the year.

Change was a feature of 2016, both in theexternal environment and within the company.It is critical that, in uncertain times, a long-termperspective prevails.

It is pleasing to report we made progressagainst each of our strategic priorities during2016, delivering robust earnings and cashgeneration, while maintaining balance sheetstrength and progressing our high-valuegrowth options.

Strength through the cycleIn 2016, average prices for our products wereslightly down on the previous year, yet weachieved underlying earnings of US$5.1 billion,up 12 per cent on 2015. At US$8.5 billion,operating cash flow was, however, ten per centlower than in 2015, primarily due to interestpaid on bond early redemptions and workingcapital movements.

During the year, your company continued torealise considerable savings from its costreduction programme. The Group has nowachieved US$7.8 billion in pre-tax operatingcash cost improvements and reductions inexploration and evaluation expenditurecompared with 2012.

Returns to shareholdersLast year, in response to a deterioration in thepricing environment and exceptional volatility,we determined that it was no longerappropriate to maintain our progressivedividend policy. We announced a new dividendpolicy with a more flexible approach whichbetter reflects our underlying earnings profileand outlook.

It balances three factors: maintaining a strongbalance sheet; reinvesting for future growth;and rewarding shareholders. We expect totalcash returns to shareholders to be in the rangeof 40-60 per cent of underlying earnings inaggregate through the cycle.

In February 2017, we announced cash returnsto shareholders of US$3.6 billion with respectto 2016. This comprises total dividends ofUS$3.1 billion and a share buy-back ofUS$500 million in Rio Tinto plc shares,representing, in aggregate, 70 per cent of 2016underlying earnings.

Global growthAfter five years of global GDP growth belowthe long-term average, and with the impact ofinterest rate policy stimulus nearingsaturation, growth is now increasinglyinfluenced by geopolitical matters. The tectonicpolitical shifts in the UK and the US during2016 are yet to translate into clear globaleconomic impacts but there is no doubt thatthese events have contributed to a high levelof uncertainty across the globe.

However, if we look to the long term, webelieve there is plenty of opportunity. Over thenext 15 years the world is expected toconsume more copper than in the past

20 years, almost as much steel as in the past30 years, and almost as much aluminium as inthe past 40 years.

Consistent strategyGiven the increasing complexity anduncertainty in the external environment, we arefocusing more than ever on understanding themacro trends that may impact our companyand our industry in the future.

During the year, the board and managementreviewed these global trends and our strategyto address them. In September, the boardendorsed the company’s ten-year strategy. Thisremains consistent; our aim is to generate valueby focusing on assets that are long life, low costand expandable.

Economic and social contributionWhile delivering shareholder value is ourprimary objective, there is no doubt that weneed to get better at explaining the economicand social contribution we make to our hostcountries, particularly during uncertain times.

In 2016, your company paid US$4 billion intaxes and royalties worldwide, with paymentsover the past five years of more thanUS$32 billion. Over the past five years,Rio Tinto’s direct economic contribution hasexceeded US$235(a) billion of which almost halfwas through payments to suppliers for goodsand services.

Our stakeholders have an increasing interest inhow we are preparing for – and how wecontribute to – a low-carbon future. In responseto a shareholder resolution at our 2016 annualgeneral meeting, this month we will publish ourfirst climate change report, which providesinformation on our approach.

Board and managementOver the last 12 months, we made a number ofchanges at both the board and managementlevels. In May 2016, Richard Goodmansonstepped down as a non-executive director andin February of this year, we announced thatRobert Brown and Anne Lauvergeon will alsostep down from the board at the Rio TintoLimited annual general meeting on 4 May2017. Richard, Bob and Anne contributedsignificantly to the board over the years and wewish them well for the future.

In February 2017, we appointed three newindependent non-executive directors to theboard. Former Sasol Ltd chief executive DavidConstable and former Centrica plc chiefexecutive Sam Laidlaw joined on 10 February2017. Royal Dutch Shell plc chief financialofficer Simon Henry will join the board witheffect from 1 July 2017.

On 1 July 2016, Sam Walsh retired as chiefexecutive of Rio Tinto, and I thank him for thesignificant service and transformativeleadership he gave to the company during histhree-and-a-half-year tenure as chiefexecutive. Since taking over as chief executivein July, Jean-Sébastien Jacques has set aboutdriving a new era of productivity, performance

and growth. During the first eight months in hisrole, J-S and our newly shaped executive teamhave continued the focus on generating cash,while maintaining a disciplined approach tocapital allocation and balance sheet strength,and progressing our high-value growth options.

In 2016, your board visited Mongolia to see ourmanagement teams and employees in action.Site visits by the board allow us to meet withthe company’s dedicated employees and wecontinue to be greatly impressed by theirexpertise and commitment.

Regulatory mattersI cannot reflect on 2016 without acknowledgingthe events of the final months of the year. On9 November 2016, we announced, following aninvestigation supported by external counsel,that we had notified the relevant authorities inthe US, UK and Australia about contractualpayments totalling US$10.5 million made to aconsultant who had provided advisory servicesin 2011 on the Simandou project in Guinea.

On 1 December 2016, Rio Tinto confirmed thatit was co-operating with relevant authorities inconnection with an investigation into theimpairment included in the company’s accountsin 2012 in respect of Rio TintoCoal Mozambique.

The outcome of the regulatory investigations,and any potential litigation, is uncertain.There is unfortunately little more I can say atthis time, other than to assure you that theboard is giving these matters its full andproper attention, and that we are continuingto co-operate fully with the relevantauthorities. Under my chairmanship, we haveestablished a dedicated board committee tomonitor progress.

National pride, international spiritDespite the changes and uncertainties of thepast year, the world remains deeply connectedthrough bilateral agreements, shared culturalhistories and friendship. These factors will bethe foundations of future global growth.

National pride and international spirit havegone hand in hand since Rio Tinto’s formation144 years ago. That spirit continues today, aswe partner with our stakeholders to buildenduring businesses. On behalf of my fellowdirectors I would like to thank our hard-workingemployees and you, our shareholders, for yourongoing support.

Jan du PlessisChairman

1 March 2017

(a) Summarised on page 26.


Chief executive’s statement

Dear shareholders,It is a privilege to serve as chief executive of agreat company with world-class assets,talented employees and a commitment todelivering value to our shareholders over theshort, medium and long term.

Safety comes firstAt Rio Tinto, safety comes first. Our ambition isclear: all of our employees and contractorsmust return home safely at the end of eachand every day.

In 2016, most aspects of our safetyperformance improved, but this is still not goodenough.

It is a real concern that fatalities continue tooccur in the sector and at our operations. Thesedeaths are devastating losses for family,friends and colleagues.

In June, we had a tragic fatality at one of ouriron ore operations in Western Australia. One ofour colleagues was crushed while working on adrill rig. We completed a full investigation intothis event and have shared the learnings acrossRio Tinto to seek to prevent an incident like thisfrom happening again.

At the operations of our non-managed jointarrangements Alumar, Grasberg andEscondida, six people died during the year. Wehave shared our fatality prevention initiativeswith our joint-venture partners and learn fromtheir efforts as well.

During 2016, we deployed our critical riskmanagement (CRM) system across more than60 sites and completed more than 1.3 millionsafety verifications.

CRM is an important tool in our drive toeliminate fatalities across our organisation.

In 2016, our lost time injury numbersdecreased and we have reduced our all injuryfrequency rate by 64 per cent over the lastdecade.

We must continue to learn and shareinformation, for the benefit of our people, ourcontractors, and our partners.

For us, safety comes first and our drive toimprove continues.

Value over volumeIn 2016, your company delivered on itscommitments. Most importantly, we met ourcommitment to deliver superior shareholderreturns. In February 2017, we announced totaldividends for 2016 of 170 US cents per share,well in excess of the previously indicated110 US cents per share minimum, and a sharebuy-back of US$0.5 billion.

We maximised cash from our world-classassets and focused on value over volume. Wedelivered US$1.6 billion in cost savings, and weprogressed our three high-value growthprojects, Oyu Tolgoi underground, Silvergrassand Amrun, while maintaining tight control ofour capital expenditure, which in 2016 totalledUS$3.0 billion.

Our success in generating cash, controllingcapex, and actively strengthening the portfolio,meant that we closed the year with net debt ofUS$9.6 billion. This is a reduction ofUS$4.2 billion compared with December 2015.

This strong performance was delivered againsta backdrop of significant commodity pricevolatility and geopolitical uncertainty. We seethis continuing into 2017 which is why weintend to maintain our strong balance sheet,the foundation of a resilient business.

Our team around the world is focused on ourfour Ps – portfolio, performance, people andpartners. Relentless and consistent deliveryagainst each of these will underpin our aim todeliver superior shareholder returns throughthe cycle.

Profitable performance from ourworld-class assetsThe external environment for our businessesremained challenging in 2016. The goal of ourfinancial planning is to set objectives for yourcompany that are resilient against variousmacroeconomic and commoditypricing scenarios.

Notwithstanding a significant lift in somecommodity prices in the latter part of 2016,from a very low base, the average prices for theyear were slightly lower than in 2015.

Our aim is to maximise cash and productivityacross our entire portfolio of assets.

We made good progress during 2016 withunderlying EBITDA of US$13.5 billion,representing a margin of 38 per cent for theGroup, compared with 34 per cent in 2015.

In 2016, our Iron Ore business delivered cashfrom operations of US$5.6 billion and deliveredindustry-leading margins. This group deliveredcost savings of US$315 million for the year.

The Pilbara infrastructure investments ofrecent years are essentially complete. In June,we announced the US$338 million Silvergrassinvestment which will provide new ore later in2017, and complement our Pilbara blend.

Our Aluminium group has world-leadingpositions in bauxite, alumina and aluminium,and achieved a solid financial performance in2016, driven by productivity and cash costimprovements.

With its low-carbon footprint, our aluminiumbusiness is among the best positioned in theworld, but the price declines of the past yearcontinue to pose industry-wide challenges.

In Aluminium, all of our assets were free cashflow positive, despite lower realised prices inthe first half. This product group reducedoperating costs by more than US$480 millionagainst a full year target of US$300 million.

The Copper & Diamonds product groupdelivered cash from operations ofUS$987 million and had underlying EBITDAmargins from its operations of 31 per cent.

The Energy & Minerals product group matchedproduction with market demand, generatingsignificant free cash flow in 2016 ofUS$1.3 billion, due to improved prices in somecommodities, including coal.

The Australian coal portfolio, which hasdelivered a reduction in unit costs of more than40 per cent over the last four years, benefitedfrom higher coking coal prices.

Driving productivity

Our aim is to deliver strong performance underany market conditions. Since 2012, we havereduced our annual cost run rate by more thanUS$7 billion, and we are well on track to deliveron our promise of US$2 billion in cost savingsacross 2016 and 2017.

It is energising to be leading a business wherecontinuous improvement and efficiency arepart of the culture, and we are taking everyopportunity to generate value, from mineto market.

Cutting costs can only deliver so much – wemust also lift productivity. Increasing themine-to-market productivity of ourUS$50 billion asset base is the highest returnavailable to us. As such, we have promised todeliver an additional US$5 billion ofproductivity-driven free cash flow over the nextfive years.

We will boost productivity across the entireorganisation, through harnessing technologyand through improved operation and utilisationof our fixed assets, organisational resourcesand systems. We will continue focusing onvalue, not volume, and using our commercialexcellence to achieve premium pricing for ourquality products such as the Pilbara blend.

Our new centre of commercial excellence inSingapore is focused on generating more ofthese types of initiatives, with the aim ofmaximising value across our customer andsupplier chains throughout the business.

Investing in future growth

The competitive advantage of our strongbalance sheet has meant that our cost andproductivity drive is not at the expense ofgrowth, and we seek to continue to investwisely where we see opportunities forattractive returns.

In 2016, we progressed our three compellinggrowth projects, which play to the company’sstrengths. In line with our strategy, they are allmulti-decade in outlook and offer highlyattractive returns.

In May, work began on the undergrounddevelopment at Oyu Tolgoi in Mongolia.

First production is expected in 2020. When theunderground is fully ramped up in 2027, thecompany expects it to produce more than500,000 tonnes of copper a year. The mine alsobenefits from significant gold by-products, withan average gold grade of 0.35 grams per tonne.


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Chief executive’s statementcontinued

The new Silvergrass iron ore mine will take thetotal number of mines in the Pilbara to 16. Ourintegrated system also includes 1,700kilometres of rail and four ports to serve morethan 100 customers globally.

In Cape York, Australia, the Amrun bauxiteproject is progressing well, with 70 per cent ofthe US$1.9 billion spend to occur in 2017 and2018. It builds on our expertise as a reliablesupplier of quality bauxite from Cape York,which Rio Tinto first discovered in the regionover six decades ago.

As the next generation of deposits becomesmore difficult to find and develop, we continueour focus on exploration. Rio Tinto has one ofthe largest exploration programmes in theindustry, and in 2016 we were active in14 countries across a range of commodities.

Portfolio of world-class businessesAt Rio Tinto our strategy is centred onworld-class assets – those that are long life,low cost and expandable.

During the year, we strengthened our portfolio.We announced or completed disposals of morethan US$1.3 billion in the year, includingcompleting the sale of Lochaber in the UK inDecember. In January 2017, we announced thedivestment of our thermal coal business inAustralia for up to US$2.45 billion, which,subject to approvals, should complete laterthis year.

In June 2016, we announced a reorganisation ofour product group structure which saw theformation of the Copper & Diamonds group tohelp maximise our technical undergroundmining expertise. We also created the Energy &Minerals group which now holds a suite ofpremium coking coal and speciality mineralproducts and will act as an incubator foremerging opportunities.

The Iron Ore group is now focused on ouroperations in Western Australia, and theAluminium group retains its focus on valuecreation from its high-quality bauxite, aluminaand aluminium businesses.

The product groups are complemented by anewly shaped Growth & Innovation group, todrive our productivity agenda, project deliveryexpertise and the deployment ofnew technologies.

People with purposeMy new role has provided me with anopportunity to visit many sites and meet ourgreat teams around the world. Our people workhard for their families, their communities, andour company.

We know there is more to be achieved. I wouldlike to thank our 51,000 people for their effortsduring 2016 and their commitment to steppingup further in 2017.

Our employee engagement score, measured inour 2016 People Survey, was lower than wewould have liked, but we will use the insightsthis provides to improve our leadership anddirect our initiatives to build engagement.

We will focus on developing our employees in2017, building commercial and technicalexpertise, as these are key enablers ofour performance.

How we do things is as important as what wedo. Integrity and The way we work – our globalcode of business conduct – guide our actions,and, at Rio Tinto, commitment to them isnon-negotiable.

We renewed our focus on graduates in 2016 aspart of our broader commitment to grow ourdiversity and critical capability for the future.

We are a global organisation with all thestrengths this provides and we must do moreto attract the next generation, and people fromthe places where we are operating, to becomepart of our company.

In 2016, we made some changes to theExecutive Committee. The new team offers astrong and diverse perspective with deepindustry expertise and global knowledge.

Strengthening our partnershipsLast year, we celebrated a number ofsignificant milestones which testify to thelong-term nature of our investment,commitment and partnerships with localcommunities and governments.

During 2016, I met with many stakeholders,including visiting Australia, China, and Canadato meet customers and business partners.

Our Rössing uranium mine in Namibia andRichards Bay Minerals operation in South Africaboth celebrated their 40th anniversaries.

And in Australia, we marked the50th anniversary of the company’s firstcontracted shipment of iron ore from thePilbara to Japan.

These businesses were all pioneered onfoundations of partnership between ourcompany, government, business partnersand communities.

In 2017, we will also mark 30 years of theChannar Mining Joint Venture with China’sSinosteel Corporation in the Pilbara, and the145th anniversary of our borates operationsin the US.

Our operations take years to plan and decadesto deliver. The benefits of taxes, wages andprocurement are shared across generations.

In an increasingly complex and uncertain world,which brings significant risks to our ongoingsuccess, it is critical we partner expertly withcustomers, governments, communities and oursuppliers. Our operations and our people makea material difference in the communities inwhich we have the privilege to work and live.

Looking to the futureRio Tinto is in a strong position. Our robustbalance sheet, world-class assets, our focus onthe drivers of performance and our talentedemployees will keep us resilient in times ofvolatility.

We can, however, be confident about themedium and long term megatrends ofpopulation growth and urbanisation.

Combined with the large infrastructure deficitsthat exist in both advanced and emergingeconomies, the long-term view is positive forour industry.

Regardless of the pace of economic growth orchange in the years ahead, Rio Tinto’s purposewill continue to be to produce materialsessential to human progress, as we have donesince the company was founded.

In 2017, we will do all we can to improve safetyand our cash performance, drive ourproductivity agenda, and again deliver strongreturns to our shareholders.

Thank you for your ongoing support andconfidence in your company.

Jean-Sébastien JacquesChief executive

1 March 2017


Market environment

Global economyFor the fifth year in a row, global GDP growthunderperformed the long-term average,expanding at approximately three per cent in2016, yet still exceeded initial expectations.

At the start of the year, concerns over a secondwave of collapsing oil prices, negative interestrates in Japan and Europe, the possibility of ahard landing in China and revived expectationsof a US recession pushed market expectationsdown sharply. In the first few months the S&P500 fell by more than ten per cent from its2015 close and commodity prices hitfresh lows.

Meanwhile, an expansion was taking shape inChina as new fiscal support was released intandem with relaxed housing purchase andmortgage restrictions. The resulting propertymarket surge reversed the deflationaryconditions of the previous two years. Bymid-2016, job growth, rising real incomes andhigher corporate earnings in the US weresupporting a modest improvement in economicgrowth. Europe and Japan’s economicperformance also picked up, while thedownturn in many emerging markets appearedto bottom out. This levelling-off set the stagefor a sustained pick-up in commodity pricesand equities. It also provided room for theFederal Reserve Bank to raise the benchmarkrate later in the year and allowed a prolongedstrengthening of the US dollar.

China’s economic performance beat consensusexpectations, with full year growth of6.7 per cent. The end of deflation allowedChinese industrial profits to improvesubstantially, though production growthremained relatively weak. Improved balancesheets provided some support to investmentgrowth though it remains below trend. Whileconsumer price inflation remained modestduring 2016, surging commodity prices,particularly oil, drove a substantial reflation inproducer prices. The short-term property cycleappeared to have peaked by October. Even so,completion of projects under constructionprevented a sudden downward correction, andthe market has moved into a morebalanced position.

After signs of weakening momentum in thethird quarter, the global economy finished2016 with improved manufacturing andbusiness sentiment. The new USadministration’s plans for fiscal stimulus,corporate tax reform and reduced regulationalso helped to buoy market sentiment atyear-end. Europe also enjoyed a modestimprovement in demand, though bankingsector issues continue to constrain recovery.Though negative rates persist in Japan,inflation and growth appear to have improvedfollowing fiscal stimulus measures.

Despite the apparent improvement, otherevents signalled increasing risk. The Decemberincrease in the US benchmark rate drove upTreasury bond yields, with negative

implications for borrowing and credit. Higherrates pushed the dollar up against othercurrencies, a negative signal for commodityprices. Finally, the re-emergence of inflation inthe US, Europe and China supportsexpectations of further increases in USbenchmark rates.

Drivers of commodity pricesLong-term structural economic trends areimportant drivers of commodity prices throughtheir effects on demand. The economicdevelopment and urbanisation of emergingcountries goes through an initialinvestment-led growth phase, which benefitscommodities such as steel and copper used inconstruction and infrastructure. As economiesevolve, other commodities such as light metals,energy products and industrial minerals tend totake over as the main enablers ofconsumption-led growth.

The long-term nature of mining tends to resultin cyclical investment patterns, translating intocommodity price cyclicality. Over the pastthree years, the industry moved into the lowphase of the cycle. Investments made duringthe previous period of high prices and marginshave started to deliver new supply, into acontext of decelerating Chinese demand. Withmarkets for most metals and minerals movinginto oversupply, the industry has shifted fromcapital investment toward strategies focusedon strengthening balance sheets throughproductivity and cost reduction initiatives.

Commodity marketsMost commodity prices increased for the firsttime in a number of years in 2016, despitenumerous political and macro shocks to theglobal economy.

Iron ore prices started the year at aroundUS$40/dry metric tonne CFR (cost and freight)and ended the year around US$80. Following aweak start, China’s crude steel productionincreased in the second half of the year bynearly four per cent compared with 2015. Thishelped absorb new iron ore supply from RoyHill and Minas Rio. The improved demand wasunderpinned by an increased appetite forChinese steel demand as China’s governmentexpanded lending, eased monetary policy andsupported the property sector. China alsoeliminated inefficient steelmaking capacity,supporting steel prices and profitability.

Hard coking coal prices almost quadrupled toUS$310/tonne from January to November.Healthy Chinese steel demand contributed tothe spike, but the main driver was China’ssupply curtailment through theimplementation of the “276 Directive”,restricting coal mines to operating 276 days ofthe year. The thermal coal market was alsoaffected, with prices more than doubling toUS$110/tonne FOB (free on board) Newcastle.The directive was relaxed in the second halfand prices have since moderated.

Price increases for industrial metals were lessdramatic. Copper prices dipped belowUS$2/pound in early 2016 before rising25 per cent by year-end. Over one milliontonnes of new mine supply entered the market,and was accommodated through demandgrowth, lower scrap availability andmine curtailments.

Aluminium prices started 2016 belowUS$1,500/tonne and ended the year about15 per cent higher. Margins remained underpressure, however, as higher energy andalumina costs offset the price increase. Thealumina price rallied from less thanUS$200/tonne to US$350/tonne as refinerycurtailments caught up with the ten per centcutback of global smelting capacity announcedin 2015. Bauxite did not match these increases,with the average Chinese import price fallingmoderately to just under US$50/tonne as newsupply from Guinea, Australia and Brazilreplaced volumes lost to Malaysia’s export ban.

OutlookThe global economy starts 2017 with improvedmanufacturing conditions but also evidencethat cost pressures and tighter creditconditions in the US, the UK and China areaffecting corporate profit growth. Europe’seconomy has gained momentum, though thepick-up in household consumption remainsvery weak and is vulnerable to inflation.Meanwhile, Japan should benefit from aplanned fiscal policy expansion. China is facingthe wind-down of its short-term property cycleand renewed policy calls to constrain creditgrowth and push through heavy industryrestructuring and capacity reduction. At thesame time, the Chinese government is workinghard to keep growth relatively stable ahead ofthe 2017 mid-term leadership transition, withgrowth this year likely to be only slightlyweaker. The stronger dollar, higher interestrates and inflation will constrain the pace of USrecovery. However, should the new USAdministration follow through with fiscalexpansion, there is potential for higher USgrowth later in the year. Further strengtheningof the dollar and higher interest rates andinflation could ensue for the global economy.

Overall, the reflationary conditions thatdominated global commodity markets in 2016may be reaching their limits, though positivesentiment and further steel and coal capacitycuts in China may provide further support.Consensus now points to moderate downsiderisk for commodity prices in the short tomedium run. This context continues to favourproducers at the lower end of the cost curveand those that can improve productivity.Longer-term demand prospects remainpositive. The attractiveness of growthopportunities in some commodities is amplifiedby stronger mine depletion resulting fromrecent cutbacks in capital expenditure.


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Group strategy

Improved market conditions, butuncertainty remainsBy comparison with recent periods, themining sector enjoyed a relatively buoyantyear in 2016, with equity valuationsimproving considerably across large parts ofthe sector. Prices for a number ofcommodities improved during 2016, aided bya combination of fiscal stimulus in China,policy-driven capacity reductions and newsupply entering the market at a slower rate.This supportive environment allowed us togenerate strong cash flow and furtherstrengthen our financial position.

We continued to focus on productivity, costreductions and capital discipline in 2016, inorder to maximise our cash generation andthe return on every dollar we invest. Similarstrategic approaches played out across largeparts of the mining sector – allowing manycompanies facing financial distress at thebeginning of 2016 to pay down debt andregain some financial stability. However, ourearly and consistent action in these areas haspositioned us favourably, and allowed us tocontinue investing in our most attractiveorganic growth opportunities where othershave not been able to do so. We enter 2017 ingood shape.

Despite some renewed optimism for thesector during 2016, we remain cautious.Recent commodity price rises have beenhelped by discrete fiscal policy decisions thatcould quickly be unwound. In addition, thegeopolitical landscape remains uncertain, andmajor political transitions could impact ourmarkets and operating environments during2017. Elsewhere, we are seeing an increasedthreat of rent-seeking, resource nationalismand the adverse application of regulatorylaws to previously settled practices. Theseinclude Indonesia’s proposed revision to itsmining legislation, a mooted production taxincrease in Western Australia and theapplication of EU tax regulations oncompetitiveness. Accordingly, we willcontinue to adopt a conservative approach toour financial management and capitalspending.

A clear strategy to deliver value through the cycle

Superior cash generation

Performance

Operating excellence

People and partners

Capabilities

Portfolio

World-class assets

Capital allocation discipline

Balance sheet strength Compelling growthSuperior shareholder returns

A clear and effective strategy is critical for us to perform strongly under a range of industryconditions. Our goal is to deliver superior value for our shareholders through the cycle, and webelieve the best way to do this is to focus on the “four Ps”: portfolio, performance, people andpartners. We couple this with our disciplined approach to capital allocation. This ensures that everydollar we generate is applied to the highest-returning opportunity – whether that be formaintaining our balance sheet strength, investing in compelling growth opportunities or deliveringsuperior shareholder returns.

Superior cash generation1. Portfolio

At the heart of our approach is a portfolio ofworld-class assets – from our Pilbara iron orebusiness, to our Queensland bauxite orereserves, our Canadian aluminium smelters andour global suite of copper mines. These aremulti-decade assets that deliver attractivereturns throughout the cycle, while providingmaterial opportunities for growth over the longterm. We use a clear strategic framework toassess our existing assets and newopportunities – taking into account the industryattractiveness and the competitive advantageof each asset, and its capacity to deliver strongand stable returns.

In 2016, we:– Invested US$1.3 billion in compelling

growth opportunities.– Announced an increase to our Pilbara iron

ore reserves in Western Australia.– Agreed the sale of our aluminium smelter

and hydroelectric facilities at Lochaberin Scotland.

– Signed a non-binding agreement to sell ourinterest in the Simandou project in Guinea.

– Completed the sales of our Mount Pleasantthermal coal assets and of our interest inthe Bengalla coal joint venture.

2. Performance

Safety is our number one priority and is core toeverything we do. A well-run operation is asafe operation.

We seek to generate value at all stages of thevalue chain – from mine through to market. Weprioritise value over volume in all of ouroperating and investment decisions. We havedelivered substantial cost savings over recentyears and this remains a key focus area.

Beyond this, we continue to increase theproductivity of our existing assets, as asubstantial and low-risk source ofincremental returns.

We have established a leading position in thedevelopment and use of technology andinnovation – allowing us to deliver more tonnesmore cheaply and with less risk. As the industryfaces increasingly complex geological,environmental and cost pressures, ourtechnology advantage will be an increasinglyimportant value driver.

Our commercial activities ensure we reap themaximum value from each of our businesses.Our marketing teams work hand-in-hand withour operations, so that our resourcemanagement is fully aligned to the market.

Over the years we have leveraged ourunderstanding of customer needs to createnew markets for our products, includinghigh-temperature Weipa bauxite, andchampagne and pink diamonds. We deployindustry-leading capabilities in supply chainoptimisation and a variety of logistics solutionsacross the Group – and have in-house centresof excellence for value-in-use analysis, pricingand contracting strategies. Together, theseactivities allow us to manage risk and capturevalue in all market conditions.

In 2016, we:– Completed more than 1.3 million safety

critical control verifications in our criticalrisk management programme.

– Committed to generating US$5.0 billion ofadditional free cash flow over the nextfive years from mine-to-marketproductivity improvements.

– Achieved a further US$1.6 billion ofoperating cash cost reductions, as part ofour target of US$2.0 billion over 2016and 2017.


– Strengthened our organisational structure, byadjusting our product groups to better alignour assets with the business strategy, helpdrive further efficiencies andoptimise performance.

– Appointed executives responsible for Health,Safety & Environment and Growth &Innovation to our Executive Committee.

In 2016, we adhered to our disciplined capitalallocation framework, resulting in: sustainingcapital of US$1.7 billion, dividends of US$2.7billion, reduced net debt by US$4.2 billion andcompelling growth capital of US$1.3 billion.

Balance sheet strengthIn a cyclical and capital-intensive industrysuch as mining, a strong balance sheet isessential in order to preserve optionality andgenerate shareholder value at all points in thecycle. We have a guidance range for netgearing of between 20 and 30 per cent. At31 December 2016, we were below theguidance range at 17 per cent and intend toretain a conservative stance given theuncertain macroeconomic outlook.

In 2016, we:– Reduced our net debt from US$13.8 billion

to US$9.6 billion.– Reduced our gearing ratio from

24 per cent to 17 per cent.– Reduced our gross debt by US$5.4 billion.

Quality growthWe have a high-quality pipeline of near-termand longer dated projects across the portfolio.By reinforcing capital discipline and reshapingour projects, we have retained significant,high-quality growth despite further reducingour capital expenditure. Our project pipelinehas a compelling internal rate of return.

In 2016, we:– Reduced capital expenditure from

US$4.7 billion in 2015 to US$3.0 billion.– Approved US$338 million to complete the

development of the Silvergrass iron oremine in Western Australia.

– Approved US$5.3 billion capitalexpenditure to develop the undergroundcopper and gold mine at Oyu Tolgoi.

Superior shareholder returnsWe are committed to delivering superiorreturns to shareholders over the long term,and the cash returns we pay out toshareholders are a vital component of this. Ina cyclical industry such as mining, we believethe most prudent way to deliver strongreturns is to allow the overall level of returnsto vary with the cycle. Accordingly, we aim todeliver shareholders total cash returns of 40to 60 per cent of underlying earnings throughthe cycle. This policy is sustainable duringcyclical lows, and allows shareholders toparticipate more fully in the upside duringhigh points in the cycle.

In 2016, we:– Adopted a new shareholder returns policy,

designed to deliver superior cash returnsto shareholders over the long term.

– Paid US$2.7 billion in dividends toshareholders. In February 2017 weannounced shareholder returns ofUS$3.6 billion with respect to 2016.

Our 2017 strategic prioritiesThroughout 2017, we will continue to focus onthe four Ps and our value over volumeapproach, to generate superior cash flow andmaintain our balance sheet strength todayand into the future.

We will maintain our focus on safety as ournumber one priority – as measured both bythe elimination of fatalities and minimisingour all injury frequency rate and lost timeinjuries. Our strong focus on costs andperformance will continue in 2017, as we worktowards delivering operating cash costsavings of US$2.0 billion over 2016 and 2017.Beyond this, we will seek to extractproductivity gains across our entire valuechain, as part of our commitment to deliverUS$5.0 billion of incremental cash flow frommine-to-market productivity improvementsby 2021.

We will continue to shape our world-classportfolio of assets, ensuring that we focusonly on the highest returning assets in ourpreferred industry sectors and seeking to exitassets that do not fit these criteria. We willprogress our high returning growth projects,including the Amrun bauxite project, theunderground expansion at Oyu Tolgoi and ourSilvergrass iron ore mine. We expect to investaround US$5.0 billion in capital expenditureduring 2017.

Investing in our people and our partnershipswith external stakeholders will be a key focusduring 2017. We are investing more indeveloping employees at all levels of theorganisation – from our graduate intake to ourtop leaders. This is fundamental as we seek tobuild the technical and commercialcapabilities that will enable us to unlockmaximum value from our assets. In addition,we will continue building and maintainingstrong partnerships across all stages of thevalue chain, founded on trusted relationshipsand our reputation for doing things the rightway. Strong partnerships allow us to accessand execute new opportunities, maximisevalue from our existing assets and managelicence-to-operate risks.

We enter 2017 with a sense of cautiousoptimism. The long-term outlook for our keycommodities remains strong and ourworld-class assets, operating excellence andcommercial capabilities place us in a strongposition relative to peers. However, thenear-term environment is marked byuncertainty – with geopolitical risk at both amacro level and a local level, and governmentpolicies impacting supply and demand in anumber of key commodities. In this context, aconservative approach remains prudent andwe will maintain our balance sheet strengthand resilience to downside risks as corepriorities.

3. People

As our industry evolves, new capabilities will berequired and we must attract, develop and retainthe right people to meet this challenge. We arestrengthening our technical and commercialcapabilities in particular, and establishing centresof excellence around these areas. Beyond this, weare committed to building a diverse and inclusiveworkforce at all levels of the organisation.

In 2016, we:– Appointed a Human Resources Group

executive to our Executive Committee.– Announced we would be doubling our annual

graduate intake.

4. Partners

As a global company, the environment in whichwe operate is becoming more complex. In orderto secure access to new resources, whilemanaging the unique risk profiles of ourbusinesses across the globe, we must partnerwith a range of external stakeholders. Theseinclude our customers, suppliers, investors,governments and local communities (see“Delivering value for all of our stakeholders” onpage [11]).

Partnerships are relevant at all stages of thevalue chain and mining life cycle – fromexploration, through to operations, marketing andmine closure. Successful partnerships enable usto secure and maintain our licence to operate andare a key long-term success factor for ourindustry.

In 2016, we:– Extended our Channar Mining joint venture in

Australia’s Pilbara region and agreed tosupply up to 70 million tonnes of iron ore toSinosteel Corporation over the next five years.

– Marked 50 years since our first contractediron ore shipment left the Pilbara, destined fora customer in Japan.

– Appointed a Corporate Relations Groupexecutive to our Executive Committee,strengthening our focus on external & internalstakeholder engagement.

Capital allocation disciplineWe adopt a consistent and disciplined approachto capital allocation. Our first allocation is tosustaining capital. Secondly we fund dividends forour shareholders. Finally, we assess the best useof the remaining capital between compellinggrowth, debt reduction and further cash returnsto shareholders. At each stage, we applystringent governance and assessment criteria toensure that every dollar is spent in the right way.

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Business model

How we create value

Rio Tinto owns a global and diversifiedportfolio of world-class assets: the result ofinvestment decisions made in line with ourlongstanding strategy (see page 8).

We create value through the way we find,develop and operate these assets, how wemarket the minerals and metals theyproduce, and the legacy we leave at the endof their lives.

To optimise the value of our portfolio overtime, we pursue opportunities for productivityimprovements, cost reductions and focusedgrowth. We are committed to running andgrowing our business in ways that areincreasingly safer, smarter andmore sustainable.

Our competitive advantages stem from ourportfolio of world-class assets, our strongbalance sheet, and the operating and

commercial excellence achieved by ourexcellent teams.

Coupled with our framework for managingrisk effectively, these provide strength acrossthe cycle, and through the challenges that theexternal environment presents.

Our approach is described in our business lifecycle below, along with examples showingsome of the ways we differentiate ourselves.

Explore and evaluate Develop Mine and process

Our in-house exploration team has amulti-decade track record of discovery oforebodies in both greenfield and brownfieldsettings. To maintain our focus on targetsthat are important to Rio Tinto, we run mostexploration programmes ourselves, but wewill partner with others if it gives us access toskills or opportunities that we do notpossess in-house.

Our exploration teams are often the firstcontact with communities we may workalongside for decades, so we explorerespectfully and make sure we engage withthem from an early stage.

Using our orebody knowledge, we develop ourresources and position our products in themarketplace in ways that add value andsupport the Group’s investmentdecision-making. Our geological expertisegives us the confidence to keep looking forthe most elusive discoveries.

We have a strong tradition of developinginnovative technologies to resolve specificexploration challenges. We apply thesetechnologies, together with our tried andtested exploration techniques, to drive futurediscovery success.

Our approach is to develop orebodies so thatthey deliver value over the long term. Weapply rigorous assessment and reviewprocesses that aim to ensure we only approveinvestments that offer attractive returns wellabove our cost of capital. We assess thespectrum of risk and how we will manage it(see page 14).

Once we have confirmed the value of aresource and received internal and externalapprovals to develop it, the project movesinto the implementation phase. The productgroups work in partnership with Rio TintoProjects – part of the Growth & Innovationgroup (see page 40).

As we develop an operation, we plan the mostefficient configuration for mining the orebodyand getting the products to market. We workclosely with our customers to create demandthat maximises the value of the deposit overits lifetime. We also work in partnership withhost governments and communities,identifying ways in which we can delivermutual benefits from the development ofour operations.

We create value by operating our assetssafely and efficiently, and by building on ourleadership position in low-cost operations.With a global operating model, we can applystandard processes and systems across theGroup in areas such as health, safety,environment and communities, procurement,operations and maintenance. This extendsthe life of our equipment and optimises theextraction of ore, meaning higher production,lower costs and maximised value. Ouroperations bring benefit to local economies byproviding employment opportunities,procurement, and the transparent payment oftax and royalties.

Our commitment to technology andinnovation also sets Rio Tinto apart. It enablesus to take advantage of opportunities thatmay not be available to others, improves ourproductivity and helps us tailor our productsto customer needs. We can use our networkof partnerships with academia, technologysuppliers and other experts to tap intoknowledge and technical prowess thataugment our own capabilities.

Differentiation in action Differentiation in action Differentiation in action

Our Resistate Indicator Minerals technologyhelps us prioritise porphyry copperexploration and related commercialopportunities. At our facility in Bundoora,Australia, we have the capacity to generatehigh quality trace element analyses ofmineral grains, using high levels ofautomation. There is no equivalentcommercial facility able to generate thesetypes of data at this quality and at the rate orcost we can.

World-class capability in underground miningis critical for our successful, safe andproductive growth. The combination of ourcopper and diamonds businesses in 2016 isgiving us the opportunity to transfer bestpractices in underground mining and blockcaving. Growth & Innovation’s newunderground centre of excellence will supportour future mine developments, including theOyu Tolgoi underground project in Mongolia.

It has been 50 years since our first export ofiron ore from our Pilbara operations inWestern Australia. Our integrated network ofmines, rail, ports and related infrastructure isfully owned or managed by Rio Tinto for ourexclusive use, providing unique optionality,and we are supported by strong joint venturepartners. We are optimising our entire Pilbarasystem to deliver the best value, throughfocusing on revenue, operating cost andcapital expenditure.


Market and deliver Close down and rehabilitate Delivering value for all ofour stakeholdersTo be successful, we must continue to buildstrong partnerships at all stages of ourbusiness model. Through our global footprintand diverse portfolio, we are able to createvalue for our stakeholders in a varietyof ways.

CustomersWe supply our customers with the rightproducts at the right time, so they can addvalue by turning them into the end productsthat society needs to sustain and enhancemodern life.

ShareholdersOur primary objective is on deliveringsuperior shareholder returns through thecycle. We do this by balancing disciplinedinvestment with prudent management of ourbalance sheet and shareholder returns – asshown in our approach to capital allocation(see page 8).

CommunitiesOur operations create jobs for localcommunities and can open up new marketsfor local suppliers. Communities often benefitfrom the infrastructure we put in place andonce our operations are closed, we restorethe sites – for instance for community use,new industry, or back to native vegetation.

Our peopleWe invest in our people throughout theircareers, offering diverse employmentprospects, opportunities for development,and competitive rewards and benefits thathave a clear link to performance.

GovernmentsWe are often a major economic and socialcontributor to the local, state and nationaljurisdictions in which we operate. Our tax andsovereign equity contributions enablegovernments to develop and maintain publicworks, services and institutions. We helpcreate growth that endures far beyond theactive life of our operations.

SuppliersBy seeking the right balance of global,national and local supply capability, andsupporting local supplier developmentwherever possible, we drive value for ourshareholders and deliver economic benefitsfor the communities in which we operate.

Our business is based on the supply ofhigh-quality products that have beendeveloped to meet our customers’ needs. Theminerals and metals we supply – mostly toindustrial companies that process themfurther – are the building blocks ofvalue-added goods. Our diverse portfolioallows us to respond to demand throughoutcountries’ economic development cycles,including in infrastructure, transport,machinery, energy and consumer goods.

Rio Tinto’s marketing teams work with ouroperations to align our resource managementwith market needs and to make sure weimprove our products and services in a waythat maximises value to customers. We arestrengthening our commercial capabilities,including through creating a commercialcentre of excellence in Singapore, supportedby strong sales presence in each of themarkets we serve.

What we learn from our markets andcustomers helps us to refine our investmentdecisions. In many cases we deliver productsourselves, with logistics capabilities thatinclude our own networks of rail, portsand ships.

Closure planning is part of every asset’s lifecycle. We start planning for closure from theearliest stages of development to helpoptimise outcomes and minimise risk.

We aim progressively to rehabilitate where wecan, before closure. When a resource reachesthe end of its life, we seek to minimise itsfinancial, social and environmental impact byfinding sustainable and beneficial futureland uses.

We identify post-closure options that take intoaccount stakeholders’ concerns whilst fulfillingregulatory requirements.

Differentiation in action Differentiation in action

With the launch of our RenewAl™ brand,Rio Tinto became the first producer to marketcertified low carbon footprint aluminium. Ouradvanced AP Technology™ for aluminiumsmelting, and our largely carbon-free energyprofile afforded by our hydropower portfolio, lieat the heart of RenewAl™. Production ofRenewAl™ has a carbon dioxide footprint threetimes lower than the industry average.

Open-cut mining was completed at EnergyResources of Australia in 2012, but closureplanning began soon after the Ranger minestarted producing uranium in 1981. In 2016,Pit 1 – which has been backfilled with tailings– was capped with laterite, a type of claymaterial. A custom-built, 27-metre dredgealso completed commissioning and is nowtransferring tailings to Pit 3.


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Key performance indicators

Our key performance indicators(KPIs) enable us to measure ourfinancial and sustainabledevelopment performance. Theirrelevance to our strategy and ourperformance against thesemeasures in 2016 are explainedon these pages.

Some KPIs are used as a measurein the long-term incentivearrangements for theremuneration of executives.These are identified withthis symbol:

See the Remuneration Report67

All injury frequency rate(AIFR)

Total shareholder return(TSR) (a)

Net cash generated fromoperating activities (b)

Per 200,000 hours worked % US$ millions

Relevance to strategy Relevance to strategy Relevance to strategy

Safety is our number one priorityand is core to everything we do.Our goal is zero harm, including,above all, the elimination ofworkplace fatalities. We arecommitted to reinforcing ourstrong safety culture and a keypart of this is improving safetyleadership.

The aim of our strategy is tomaximise shareholder returnsthrough the cycle. This KPImeasures performance in termsof shareholder value. We alsomeasure relative TSRperformance against theEuromoney Global Mining Index ofpeers and the MSCI World Indexof large global companies.

Net cash generated fromoperating activities is a measuredemonstrating conversion ofunderlying earnings to cash. Itprovides additional insight to howwe are managing costs andincreasing efficiency andproductivity across the business.

Performance Performance Performance

KPI trend dataThe Group’s performance againsteach KPI, and explanations of theactions taken by management tomaintain and improveperformance against them, arecovered in more detail in latersections of this Annual report.Explanations of the actions takenby management to maintain andimprove performance againsteach KPI support the data.

20162015201420132012

0.44

0.59

0.67

0.65

0.44

20162015201420132012

(0.8 )

18.8

(15.6)

(32.6)

41.3

20162015201420132012

14,286

15,078

8,465

9,430

9,383

Notes:(a) The data presented in this table

accounts for the dual corporatestructure of Rio Tinto. In 2016, theapproach used to weight the twoRio Tinto listings, and produce a GroupTSR figure, was adjusted. This approachis consistent with the methodology usedfor the Performance Share Plan (PSP).The figures in this table are in somecases slightly different to equivalenttables presented in prior years’ reports.

(b) The accounting information in thesecharts is extracted from the financialstatements.

(c) Underlying earnings is a key financialperformance indicator whichmanagement uses internally to assessperformance. It is presented here as ameasure of earnings to provide greaterunderstanding of the underlyingbusiness performance of the Group’soperations. Items excluded from netearnings to arrive at underlying earningsare explained in note 2 to the 2016financial statements. Both net earningsand underlying earnings deal withamounts attributable to the owners ofRio Tinto. However, IFRS requires thatthe profit for the year reported in theincome statement should also includeearnings attributable to non-controllinginterests in subsidiaries.

Our AIFR has improved by 34 percent over the last five years. At0.44, our AIFR remained the samein 2016 as in 2015. However, wedid not meet our goal of zerofatalities and one of ourcolleagues died while working atRio Tinto managed operationsin 2016.

Rio Tinto’s TSR performance from2012 to 2016 was impacted byweakness in commodity prices.Rio Tinto plc and Rio Tinto Limitedshare prices recovered during2016, supported by animprovement in the global macroenvironment and risingcommodity prices, particularly inthe second half of the year. TheGroup recorded a TSR of41.3 per cent in 2016 andoutperformed the EuromoneyGlobal Mining Index of peers overthe four-year period by17 percentage points butsignificantly underperformed theMSCI World Index over thesame timeframe.

Net cash from operating activitiesof US$8.5 billion was ten per centlower year-on-year. 2015benefited from a significantworking capital reduction while2016 saw a rebound inreceivables driven by higherprices at the end of the year. Inaddition, there was an increase ininterest paid of US$0.5 billion toUS$1.3 billion in 2016, mainlyrelated to early redemption costsassociated with the bondpurchase programmes.

Definition Definition Definition

AIFR is calculated based on thenumber of injuries per200,000 hours worked. Thisincludes medical treatment cases,restricted work-day and lost-dayinjuries for employeesand contractors.

TSR combines share priceappreciation and dividends paid toshow the total return tothe shareholder.

Net cash generated fromoperating activities represents thecash generated by the Group’sconsolidated operations, afterpayment of interest, taxes, anddividends to non-controllinginterests in subsidiaries.

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26 to 27 95 112


Underlying earnings (b)(c) Net debt Capital expenditure (b) Greenhouse gas (GHG)emissions intensity

US$ millions US$ millions US$ millions Indexed relative to 2008 (2008being equivalent to 100)

Relevance to strategy Relevance to strategy Relevance to strategy Relevance to strategy

Underlying earnings givesinsight to cost management,production growth andperformance efficiency on a like-for-like basis. We are focused onreducing operating costs,increasing productivity andgenerating maximum revenuefrom each of our assets.

Net debt is a measure of how weare managing our balance sheetand capital structure. A strongbalance sheet is essential toremaining robust through thecycle and creating the ability todeliver appropriate shareholderreturns.

We are committed to adisciplined and rigorousinvestment process – investingcapital only in assets that, afterprudent assessment, offerattractive returns that are wellabove our cost of capital.

We are committed to reducingthe energy intensity of ouroperations and the carbonintensity of our energy, includingthrough the development andimplementation of innovativetechnologies. Our GHGperformance is an importantindicator of this commitmentand our ability to manageexposure to future climate policyand legislative costs.

Performance Performance Performance Performance

20162015201420132012

10,217

9,269

9,305

4,540

5,100

20162015201420132012

12,495

18,055

9,587

19,192

13,783

20162015201420132012

8,162

13,001

3,012

17,615

4,685

20162015201420132012

79.7*

81.7

94.1

83.2 74.1

Underlying earnings ofUS$5.1 billion wereUS$0.6 billion higher than 2015,with the impact of lower prices(US$0.5 billion post-tax) morethan offset by cashcost improvements.

Net debt decreased fromUS$13.8 billion to US$9.6 billion,principally as net cash generatedfrom operating activitiesexceeded capital expenditureand cash returnsto shareholders.

Total capital expenditure ofUS$3.0 billion in 2016 includedUS$1.7 billion of sustainingcapital expenditure.Development capitalexpenditure focused on threegrowth projects, the Silvergrassiron ore development, OyuTolgoi underground copperproject and the Amrunbauxite project.

There was a seven per centreduction in GHG emissionsintensity in 2016 versus 2015.This is largely a result of fullproduction at our modernisedKitimat smelter, and efficiencygains at Rio Tinto Kennecott andthe Oyu Tolgoi copper-goldmine. We are on track to meetour target of a 24 per centreduction in total GHG emissionsintensity between 2008and 2020.

* Number restated from 78.9 following theapplication from 1 January 2015 of updatedglobal warming potentials from the IPCC’sfourth assessment report

Definition Definition Definition Definition

Items excluded from netearnings to arrive at underlyingearnings are explained in note 2“Operating segments” to the2016 financial statements.

Net debt is calculated as: the netborrowings after adjusting forcash and cash equivalents, otherliquid investment and derivativesrelated to net debt. This isfurther explained in note 24“Consolidated net debt” to the2016 financial statements.

Capital expenditure comprisesthe cash outflow on purchases ofproperty, plant and equipment,and intangible assets.

Our GHG emissions intensitymeasure is the change in totalGHG emissions per unit ofcommodity production relativeto a base year. Total GHGemissions are direct emissions,plus emissions from imports ofelectricity and steam, minuselectricity and steam exportsand net carbon creditspurchased from, or sold to,recognised sources.

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Risk management

Rio Tinto is exposed to a variety of risks thatcan have financial, operational and complianceimpacts on our business performance,reputation and licence to operate. The boardrecognises that creating shareholder value isthe reward for taking and accepting risk. Theeffective management of risk is thereforecritical to supporting the delivery of theGroup’s strategic objectives.

Risk management frameworkRio Tinto’s risk management frameworkreflects our belief that managing riskeffectively is an integral part of how the Groupcreates value, and fundamental to the Group’sbusiness success. The responsibility foridentifying and managing risks lies with all ofRio Tinto’s employees and business leaders.They operate within the Group-wide frameworkto manage risks within approved limits.

The framework includes clearly definedoversight responsibilities for the board and theExecutive Committee, who are supported bythe Risk Management Committee and centralsupport functions including Group Risk andGroup Internal Audit, to enable effective riskidentification, evaluation and managementacross Rio Tinto.

This approach reflects a “three lines ofdefence” model for the management of risksand controls:

– First line of defence: ownership of risk byemployees and business leaders.

– Second line of defence: control of riskframework by central support functions andthe Risk Management Committee.

– Third line of defence: assurance of systemsof internal control by Group Internal Audit.

The key risk management responsibilitiesthroughout the Group are outlined below.

ApproachThe Group’s approach to risk management,underpinned by the Risk policy and standards,is aimed at embedding a risk-aware culture inall decision-making, and a commitment tomanaging risk in a proactive and effectivemanner. This includes the early identificationand evaluation of risks, the management andmitigation of risks before they materialise, anddealing with them effectively in the event theydo materialise. Accountability for riskmanagement is clear throughout the Groupand is a key performance area ofline managers.

To support risk understanding andmanagement at all levels, the Group Riskfunction provides the necessary infrastructureto support the management and reporting ofmaterial risks within the Group, and escalateskey issues through the management team andultimately to the board where appropriate.Group Risk also supports the Risk ManagementCommittee in its review of risk.

The process for identifying, evaluating andmanaging material business risks is designedto manage, rather than eliminate, risk andwhere appropriate accept risk to generatereturns. Certain risks, for example naturaldisasters, cannot be managed using internalcontrols. Such major risks are transferred tothird parties in the international insurancemarkets, to the extent considered appropriateor possible.

The Group has material investments in anumber of jointly controlled entities. WhereRio Tinto does not have managerial control, it isnot always able to ensure that managementwill comply with Rio Tinto policiesand standards.

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pursuit of strategic objectives– Provide oversight across the risk management process

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Board committees – The Audit Committee monitors and reviews at least annually the maturity and effectiveness ofmanagement processes and controls designed to identify, assess, monitor and manage risk

– The Audit and Sustainability Committees review periodic reports from management: identifyingthe Group’s material business risks within the committees’ scope; and the risk managementstrategies and controls applied

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Documents

Get more information onlineindustry-leading margins, and in 2016 marked 50 years since their first contracted shipment. Products Iron ore Iron ore is the key ingredient in the production