Comalco 1997 Annual Results.

LONDON--(BUSINESS WIRE)--Feb. 23, 1997--

-- On an equity accounting basis, Comalco reported a net profit for the year of A$220.2 million after adjusting for an abnormal tax credit.

-- Joint venture basis operating profit after tax was A$197.6 million, a significant increase from the A$40.9 million reported in 1996. (These figures are after superannuation adjustments.) The net

profit on a joint venture basis was A$220.2 million.

-- A final dividend of Australian 13 cents per share was declared

(Australian 3.2 cents per share franked) making the total dividend

for the year Australian 20 cents (1996 total dividend of

Australian six cents; Australian three cents franked and

Australian three cents unfranked).

Rio Tinto plc (NYSE: RTP) today announced that Comalco's 1997 operating profit after tax on a joint venture basis rose to A$197.6 million, an increase of A$156.7 million on the 1996 result of A$40.9 million.

In summarizing the results, Comalco's Chief Executive, Mr. Terry Palmer, said, "While there is still room for improvement, Comalco's turnaround in 1997 was nonetheless impressive. Indeed, the improvement of performance was better than foreshadowed a year ago.

"The result reflected a disciplined and sustained cost reduction program and the additional aluminium produced, in particular from the newly completed line at the Boyne Island smelter. These fundamentals will help to underpin the company's performance even at the low points of the commodity cycle.

"Our challenge is to drive our smelter costs further down the world cost curve and achieve greater efficiencies. The improvement program will continue in 1998 and beyond.

"The smelter expansion and upgrade programs resulted in a record 565,000 tons of aluminium being available to Comalco for export and domestic markets. In 1998, with a full year of production from line 3 at Boyne Island, I expect that the amount of aluminium available to Comalco will be closer to 650,000 tons.

"The agreement reached with Alcan over the Ely bauxite reserve earlier this month will ensure stable production at Weipa for many years to come. We are now well down the track on upgrading the Weipa operations.

"At the end of 1997, we purchased additional equity in the Eurallumina refinery in Italy, giving us increased alumina supply. We are continuing our investigations into a new alumina refinery in Queensland or Malaysia."

Despite the uncertainty in Asia, world aluminium demand and supply are likely to remain in balance in 1998 with continued strong performance of European and US economies. Comalco does not expect the problems currently being experienced in Asia to affect its 1998 results significantly, provided that there is no further deterioration in that region. The longer term outlook for aluminium is sound.

SUMMARY OF FINANCIAL RESULTS ON A JOINT VENTURE BASIS

Comalco's audited consolidated results on a joint venture basis for the year to December 31, 1997, including its equity in the results of consortium companies, are shown below along with comparative results for 1996.

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                                     1997                      1996
                               A$ million                A$ million

Sales revenue                     1,858.1                   1,515.0

Earnings before interest, tax,
depreciation and amortization       555.4                     249.2

Operative profit after tax
 before abnormals                   197.6                      40.9

Abnormal items net of tax            22.6                    (57.7)

Net profit                          220.2                    (16.8)

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Sales Revenue

The increase in sales revenue primarily reflected a greater volume of aluminium produced and sold, as well as slightly higher LME prices and increased sales of alumina to smelter participants.

Operating Profit

Operating profit before abnormal items was A$197.6 million, an increase of A$156.7 million from the 1996 figure of A$40.9 million. The main factors in the improved result were lower operating costs, increased volumes and slightly higher prices.

Abnormal Item

An abnormal net profit of A$22.6 million was recorded on account of a tax credit received from the Federal Government related to the development of the new line 3 at Boyne Island.

Dividend

Directors declared a final dividend of Australian 13 cents per share of which Australian 3.2 cents per share is franked at the tax rate of 36%. Together with the interim dividend of Australian seven cents which was franked to the extent of Australian 1.8 cents at the tax rate of 36%, this brings the total dividend for 1997 to Australian 20 cents per share (1996 total dividend of Australian six cents per share; Australian three cents franked and Australian three cents unfranked).

The final dividend will be paid on March 26, 1998 to shareholders registered at 5:00 pm (or 10:00 pm in respect of holdings on the CIIESS Subregister) on 12 March 1998.

Shareholders recorded as domiciled in New Zealand will be paid their dividends on March 26, 1998 in New Zealand currency at the Bank of New Zealand's telegraphic transfer buying rate for Australian currency on March 12, 1998.

The 1997 annual report will be mailed shareholders in late March 1998 and the annual general meeting will be held at the Heritage Hotel, Edward Street, Brisbane, Australia, at 10 am on Friday, April 24 1998.

FUNDING

Net Operating cash flow

Net operating cash flow amounted to A$387.0 million (1996 A$203.2 million). This increase was due mainly to improved operating profit, partly offset by increased working capital associated with the commissioning of the third line at the Boyne Island smelter. Operating cash flow in 1996 included A$54.6 million as a result of the realization of working capital following the sale of Comalco's downstream businesses in 1995.

Capital expenditure

Total capital expenditure for the year was A$315.9 million (1996 A$671.2 million). Expenditure on new projects in 1997 was A$206.0 million, most of which was for the Boyne Island smelter expansion and environmental improvements at the Bell Bay smelter. The balance of capital expenditure was used to maintain and improve existing operations.

Debt

Net debt (including short term funding) increased to A$1,417.6 million at December 31 1997 from A$1,215.3 million at December 31, 1996. This increase was due mainly to the impact of the devaluation of the Australian dollar against the US dollar from the Australian 80 cents at December 31 1996 to Australian 65 cents at December 31, 1997.

Net debt, as a percentage of total capital(net debt plus shareholders' equity) was 47.0% at December 31, 1997, up marginally from 45.7% at December 31, 1996.

PRICES AND INTERNATIONAL INDUSTRY CONDITIONS

Western world consumption of primary aluminium grew by 5.3% in 1997 as strong demand in the US and Europe was moderated by a slowdown in economic growth in Asia. Global consumption of primary aluminium exceeded production by about 200,000 tons in 1997 despite restarts of over one million tons of idled smelting capacity. At year end, LME stocks stood at 624,800 tons, down 34% from December 1996 and the lowest level since January 1996.

The 1997 average LME three-month price for aluminium was US$1,619 per ton (US 73 cents/lb) compared with the 1996 average price of US$1,535 per ton (US 70 cents/lb). Prices traded in a relatively narrow band of US$1,450 - 1,650 per ton during the year. There was some softening of prices and product premiums in the last quarter of 1997 in response to weaker conditions in Asian markets.

The 1997 average US$:A$ exchange rate was US 74 cents compared with US 78 cents average in 1996. The exchange rate softened markedly in the fourth quarter, closing the year at US 65 cents.

A one US cent change in the annual average aluminium price results in a change in profit after tax of about A$12 million for a full year, based on annual sales of 650,000 tons of primary aluminium. Similarly, a one US cent change in the annual average value of the Australian dollar against the US dollar results in a change in after tax profit of about A$9 million per year.

OUTLOOK

Aluminium consumption is expected to grow at a reduced rate in 1998 with continued economic strength in the US and Europe offsetting softening in the Asian region. The market is expected to remain in balance.

REVIEW OF OPERATIONS

Minerals & Alumina

Increased sales of alumina to the Boyne Island smelter, cost reductions and a weaker Australian dollar contributed to improved performance for Comalco Minerals & Alumina.

Bauxite shipments were lower than in 1996, impacted by lower production at Queensland Alumina Limited (QAL). Throughout 1997, bauxite mining at Weipa concentrated in the Andoom area following the implementation of the alternating grade strategy in November 1996.

Work began on the Weipa mine upgrade including replacement of the haulage fleet, an upgrade of the Andoom mine loadout station and refurbishment of the beneficiation plant. The upgrade work will be completed during the first half of 1998.

Record production levels were achieved at the Eurallumina refinery in Italy.

In late December 1997, Comalco increased its equity in the Eurallumina refinery from 26.9% to 56.2%. This will increase Comalco's annual alumina entitlement from Eurallumina to about 514,000 tons. Comalco has a contract to supply the bauxite requirements for the refinery in 1998 and beyond.

Smelting

Comalco Smelting's performance improved with lower costs, improved environmental efficiencies and increased production at all three smelters.

Comalco Smelting's entitlement from its three smelters was 565,186 tons - up 19% from 1996. About 70% of Comalco's aluminium output was exported within the Asia Pacific region. Capacity for value added products, such as billet and foundry ingot, was increased to about 460,000 tons at the smelters.

The Boyne Island smelter lines 1 and 2 operated at the best ever efficiencies despite the construction and commissioning activities of line 3. New capacity from line 3 added 230,000 tons of primary aluminium per year. This A$1 billion project was successfully completed and commissioned on budget and six months ahead of schedule. Comalco's share of output from line 3 in 1997 was 51,858 tons.

Performance of the New Zealand smelter improved through the year as upgrade commissioning problems were overcome and costs were reduced.

The Bell Bay smelter operated at record levels in 1997 due to increased electricity available under the renegotiated power contract. Performance was better than in 1996 due to increased production, lower costs and lower cell reconstruction expenses.

Consistent with the strategy of focusing on upstream assets, in 1997 Comalco sold the powder and paste business and closed the Southern Aluminium wheel plant.

Gladstone Power Station

The Gladstone Power Station (GPS) refurbishment program, aimed at improving the station's long term viability, was completed in 1997.

Negotiations are continuing with the Queensland Government, directed at restructuring the terms of operation of GPS in the deregulated electricity market.

Research & Technology

Activities continued over a broad range of areas in bauxite, alumina and aluminium production technologies. In the context of Comalco's cost reduction program, research and development expenditure was A$28.1 million (1996 A$40.9 million) reflecting the fact that several development projects were completed in 1997. There is now an increased emphasis on process improvement and market support for the operations.

Comalco Alumina Project

Comalco continued to study the feasibility of a greenfield refinery based on Weipa bauxite. Work conducted by the Comalco Alumina Project team in 1997 focused on optimization of engineering and process work and further development of energy and fiscal options related to the two short-listed sites of Gladstone in Queensland, Australia and Bintulu in Sarawak, Malaysia.

Note to editors: Rio Tinto has a 67 percent interest in Comalco.

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