REG - Rio Tinto - Rio Tinto 2016 full year results <Origin Href="QuoteRef">RIO.L</Origin> - Part 4

Rio TintoAnnouncement

08/02/2017 07:00

- Part 4: For the preceding part double click  ID:nRSH3110Wc 

infrastructure ownership and funding affected the Group's view of the carrying
value of the project and a net impairment charge of US$1.1 billion was
recorded. 
 
Other impairment charges in 2015 were in certain uranium, aluminium, copper
and coal businesses. 
 
(b)      Net gains on disposal and consolidation of interests in businesses in
2016 related mainly to the sale of Rio Tinto's 40 per cent interest in the
Bengalla Joint venture on 1 March 2016 and the sale of the Lochaber assets in
Scotland on 23 November 2016.  This was partially offset by a loss on disposal
of the 100 per cent interest in Carbone Savoie on 31 March 2016. 
 
In 2015, the balance related mainly to the reduction in shareholding of
SouthGobi Resources Ltd during 2015, the sale of the Group's interest in
Murowa Diamonds and Sengwa Colliery on 17 June 2015 and the Aluminium product
group divestments of ECL on 9 July 2015 and Alesa on 24 November 2015. 
 
Reconciliation of net earnings/(losses) to underlying earnings (continued) 
 
(c)      Net exchange gains in 2016 comprise post-tax foreign exchange gains
of US$123 million principally on external US dollar denominated net debt in
non-US dollar functional currency companies (on borrowings of approximately
US$17.6 billion), and US$393 million gains on intragroup balances mainly as
the Canadian dollar strengthened against the US dollar.  The Group took
further steps during 2016 to reduce the income statement exposure on
retranslation of intragroup balances. 
 
Net exchange losses in 2015 comprise post-tax foreign exchange losses of
US$1,197 million on external US dollar denominated net debt in non-US dollar
functional currency companies (on borrowings of approximately US$23.1
billion), and US$2,085 million losses on intragroup balances, as the
Australian dollar, Canadian dollar and the Euro all weakened against the US
dollar. 
 
(d)      Valuation changes on currency and interest rate derivatives, which
are ineligible for hedge accounting, other than those embedded in commercial
contracts, and the currency revaluation of embedded US dollar derivatives
contained in contracts held by entities whose functional currency is not the
US dollar. 
 
(e)      Valuation changes on commodity derivatives, including those embedded
in commercial contracts, that are ineligible for hedge accounting, but for
which there will be an offsetting change in future Group earnings. 
 
(f)       A review of the infrastructure capacity requirements in Queensland,
Australia, has confirmed that it is no longer likely that Rio Tinto will
utilise the Abbot Point Coal Terminal and associated rail infrastructure
capacity contracted under take or pay arrangements. On 31 October 2016,
agreement was reached with Adani, the owner of the port, to relinquish that
capacity. Accordingly, an onerous contract provision has been recognised based
on the net present value of expected future cash flows for the port and rail
capacity discounted at a post-tax real rate of two per cent, resulting in a
post-tax onerous contract charge of US$329 million. 
 
(g)      The increase in closure provision (non-operating sites) relates to
the Gove alumina refinery in Northern Territory, Australia where operations
have been curtailed since May 2014.  The provision has been updated based on
the current cost estimates from the studies which are expected to be finalised
mid-2017. 
 
Future revisions to the closure cost estimate during the study periods
(including the next stage of feasibility study) are expected to be excluded
from underlying earnings as the site operating assets have been fully
impaired. 
 
(h)      Tax provision includes amounts provided for specific tax matters for
which the timing of resolution and potential economic outflow are uncertain. 
 
In particular, the Group is currently in discussions with the Australian
Taxation Office (ATO) in relation to the transfer pricing of certain
transactions between Rio Tinto entities based in Australia and the Group's
commercial centre in Singapore for the period since 2009. These matters were
raised by Rio Tinto with the ATO through advance ruling requests or are under
discussions pursuant to our co-operative compliance agreement. 
 
(i)      Other credits and charges that, individually, or in aggregate, if of
similar type, are of a nature or size to require exclusion in order to provide
additional insight into underlying business performance. 
 
Availability of this report 
 
This report is available on the Rio Tinto website (www.riotinto.com). 
 
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