“Although the rate of growth in the major economies slowed somewhat in the first half of this year, we are still seeing strong markets for our products. In particular, demand from China remains strong. Low inventories and the time lag in the supply-side response to increasing demand is likely to keep markets tight in the short to medium term,” chairman Paul Skinner said.

Both coking and thermal coal continued to perform well for Rio, and the ramp-up of Hail Creek in Queensland contributed to higher coking coal volumes.

During the first quarter an enhanced Hail Creek expansion project was approved. The project will remain at eight million tonnes per annum, but the enhancement will allow further expansions in-line with market demand and port and rail capacity. The revised capital expenditure for the increase in annual capacity from 6Mt to 8Mt was $A223 million.

Rio Tinto Coal Australia posted underlying earnings of $A228 million, $A156 million above the first half of 2004.

Available port and rail capacity constrained export shipments from Australian coal operations, with the impact of Dalrymple Bay Coal Terminal’s queue management system only being felt in latter part of the period.

The global coking coal market remained strong, driven largely by increased Chinese steel production. Rio said with export thermal coal volumes from Australia and South Africa constrained by infrastructure, the partial withdrawal of Chinese supply from the export thermal coal market was balanced by increased Indonesian and Colombian supply, ensuring prices remained relatively stable during the half.

US coal production increased marginally during the first half of the year, in-line with the increase in US power generation. However, western coal (Powder River Basin) gained market share over eastern production.

Rio US subsidiary Kennecott Energy’s first half 2005 underlying earnings of $A68 million were $A12 million below the first half of 2004.

Second quarter production was marginally below the first quarter of the year as Kennecott’s shipments were disrupted by two train derailments on its main transport line in May, in addition to ongoing railroad maintenance. Increased railroad maintenance, which is expected to continue through the summer and possibly later into the year, will continue to adversely affect Powder River Basin coal shipments.

Earnings were also adversely affected by higher fuel costs.