Chairman's Address Comalco Annual General Meeting Thursday April 20, 2000.

Business Editors

LONDON--(BUSINESS WIRE)--April 20, 2000

I'd like to commence today's proceedings by making some comments about the company and its performance.

At last year's Annual General Meeting, I said that we expected 1999 to be a challenging year. Just a couple of weeks before last year's AGM the London Metal Exchange (LME) cash price for primary aluminium had reached a five year low, and LME stocks had reached just over 820,000 tonnes.

I am very pleased to report that market conditions improved over the balance of 1999.

The World Markets

The London Metal Exchange (LME) price increased by 43 per cent from its low in March 1999 of US51.7 cents per pound to end the year at US74.0 cents per pound.

The price recovery was in line with firming demand as the Asian recovery gathered momentum, reducing aluminium stocks and concerns of a possible raw material shortage following an explosion at Kaiser's Gramercy alumina refinery in the USA in July 1999.

World demand for aluminium increased by approximately 6 per cent in 1999. Aluminium demand in Western Europe and the United States remained positive. Economic recovery progressed in most Asian countries; however Japan still holds the key due to the size of its economy and intra regional trade. Export demand and public sector spending have assisted the Japanese economy, but their domestic market remains tentative.

Despite the strong recovery of the aluminium market during the year, the average LME cash price for primary aluminium in 1999 of US61.8 cents per pound was only US0.3 cents per pound higher than that in 1998.

Unusually and importantly for Comalco's profit, the increase in the value of the Australian dollar, especially when compared to the US dollar, was less than the increase in aluminium prices would have led us to expect.

Comalco's 1999 Result

Comalco's net profit after tax and before abnormals for 1999 was $308 million, up $72 million (31 per cent) on 1998. Increased sales volumes, lower costs and slightly higher prices more than offset the effect of a stronger Australian dollar and taxation on the increased profit.

Net profit after tax and abnormals for 1999 was $371 million. An abnormal item of $63 million was recorded to reflect the effect of the reduction in the Australian corporate tax rate on the deferred tax balance. There were no abnormal items in 1998.

An unfranked final dividend of 19 cents per share was declared, taking the total dividend for 1999 to 28 cents unfranked, an increase of 5 cents per share over 1998.

Comalco did not pay income taxes in the past two years following the major investment programmes at the Boyne Island and NZAS Smelters but we will begin paying taxes again in 2000. As a result, it is anticipated that sufficient franking credits will be available to fully frank dividends again, beginning with the 2000 interim dividend.

Comalco's share of aluminium produced in 1999 rose by 4 per cent to 678,000 tonnes, reflecting record production at all three smelters. Sales into Asia increased by over 80,000 tonnes in 1999. As a result, exports to USA and Europe fell to 5 per cent of total sales.

Cash flow has been strong. The gearing ratio (net debt to net debt plus shareholders' funds) was reduced from 38 per cent at the end of 1998 to 24 per cent at the end of 1999.

The performance enhancement process had, by the end of 1999, delivered cost savings and revenue enhancements totalling $251 million per annum. Further gains are expected as the process is rolled out across the business and integrated with the annual business planning process.

Health, Safety, Environment and Communities

Whilst we strive for excellence in the management of all aspects of our business, we recognise the critical importance of health, safety, the environment and community relations. If we are to create sustainable shareholder value we must develop and maintain relationships characterised by open communications, mutual trust and partnership with our employees and the communities in which we operate.

This year we decided to issue our report on health, safety, environment and communities as a companion volume to the annual report. We have sought to provide, in an open manner, a comprehensive description of our activities, our policies and programs and our record of performance in each of these areas. Whilst considerable improvements have been made, there are areas where we have room for improvement.

Our mission for the future is based on the belief that:

Every injury......

every case of occupational illness......

every safety incident.....

every environmental incident.....

is preventable.

We want every Comalco employee to understand and to share these beliefs and to commit to the actions required to achieve them.

We have and will continue to set challenging targets for improvement. In addition to the ongoing operational and cost improvement performance targets, we have also set a target to reduce the number of lost time injuries by at least 50 per cent in each of the next two years. Lost time injuries are the sum of injuries which cause the injured to lose a day or more of work and injuries which cause the injured to be restricted in performing work duties. In 1999, the lost time injury frequency rate fell by 42 per cent compared to 1998.

Comalco Alumina Project

In 1999, Comalco continued to evaluate the feasibility of a new greenfield alumina refinery based on Weipa bauxite.

Early this month, it was announced that Gladstone has been selected as the site for the final feasibility study. The initial stage of the refinery is expected to cost in the order of A$1.4 billion, for a refinery producing 1.4 million tonnes per year and an electricity cogeneration plant. The refinery could be expanded in stages to over 4 million tonnes per year. The final feasibility study, which we expect to be completed this year, will address the project's long term viability including commercial, technical and environmental aspects.

I would like to acknowledge the encouragement and support of both the Queensland and Commonwealth Governments and the communities and local governments of Gladstone and Calliope, without which the project could not have reached its current stage.

Industry Outlook

Comalco is well positioned for the future.

At this time the prospects appear good for a strong world economy in 2000. The Asian economies are expected to continue strengthening. Primary aluminium consumption is projected to grow by four to five per cent in 2000, a very good figure by historical standards.

The aluminium market is expected to be broadly in balance in 2000, despite Alcoa's announced restart of 209,000 tonnes of idled primary aluminium capacity.

Consistent with strong metal prices and a weak A$, Comalco's earnings for the first quarter of 2000 have been strong. If current metal prices and exchange rates were to prevail for the remainder of this year, Comalco's earnings this year would be significantly ahead of the results for 1999.

However a word of caution is in order. The markets are experiencing a high level of volatility. The cash price for primary aluminium reached a peak at US79 cents per pound in late January. The price has since fallen about 20%. Over the same time the A$ has weakened about 8%.

Nevertheless, Comalco continues to strengthen its future by attention to the fundamentals. The performance enhancement process and our health, safety and environmental initiatives will continue to yield gains. Whilst achieving the gains will become progressively more challenging, we are confident that they will continue to be made.

Our employees deserve full credit for the achievements we have made to date, for their ideas, for believing improvement could be achieved and for their diligent efforts in making it happen. Our people will continue to be the key to success as we strive to become the world's best primary aluminium company.

Rio Tinto Offer

As you are probably aware, on February 24, 2000, Rio Tinto (NYSE: RTP) announced that it proposed to make an offer of A$9.50 per share for all of the shares in Comalco Limited that it does not already own. On April 12, 2000, Rio Tinto announced a scrip alternative to the cash offer comprising 1 Rio Tinto Limited share or 1 Rio Tinto plc share for every 3 Comalco shares.

Rio Tinto's formal offer document was received by Comalco on April 12, 2000. We are advised that this will be mailed to you today.

As required by the Corporations Law, your independent directors, Mr David Hoare and Mr SEK Hulme, have commissioned Grant Samuel & Associates Pty Limited as the independent expert to evaluate the offer and report to shareholders on whether the offer is fair and reasonable.

Grant Samuel's report is expected within the next few days. Soon after that, a copy of the Grant Samuel report will be sent to shareholders together with the Company's statement. This will incorporate any recommendation to be made by the independent directors.

John Morschel Chairman

Notes: Comalco is 72.4 per cent owned by Rio Tinto. Unless otherwise indicated, all dollars are Australian dollars.