A Corporate Perspective - The Rio Tinto-Zinc Corporation PLC

INTRODUCTION In April 1988 discussions were about to start with BP on the possibility of buying their- mineral interests, and it took a long time to arrange a deal. I will talk about RTZ without BP Minerals, look at the new RTZ with BP Minerals, discuss the outlook for metal prices, and review the problems in South Africa and develop the case against sanctions on that country. RTZAT THE END OF 1988 Late in 1987, after completing a worldwide review of our strategic thrust, we decided: 1. That the business focus would be to remain a major diversified natural resource group with interests in related industries. 2. To divest non-core and low growth businesses. 3. To develop a logical acquisition plan. 4. To emphasise organic growth and, most importantly, to enhance shareholders' wealth by capital increase and a progressive dividend policy. Subsequently, we concluded that we should sell our oil and gas business and dispose of several assets for which we saw little growth potential. The disposal programme raised some U.S.$ 1,600 million, representing a significant capital gain on our various investments. All transactions were carried out by our small Head Office staff in London, without the help of merchant banks and lawyers, and we were able to safeguard the employment of our staff in all these operations. The most interesting disposal was of our oil and gas interests. Before the 1987 strategic review, we had ambitions to develop our oil and gas interests and to become the leader in the second division of European oil companies. Our interests, which were purely in exploration and production of oil and gas, consisted of the 100% owned RTZ Oil and Gas company, and 29% of LASMO, a publicly quoted U.K. oil and gas company with extensive worldwide interests. LASMO, in turn, owned 25% of Enterprise Oil, one of the more successful of the North Sea oil exploration and production companies. Prior to the end of 1987, our intention was to acquire control of both LASMO and Enterprise. However, when we evaluated the net asset value of these two companies based on our oil price assumptions, which were pessimistic for the next five years or so, we concluded that they were both trading in the market at significant premiums. This, taken with the additional premium required for acquisition and the high cost of exploration, led us to conclude that, since funds could undoubtedly be used to better effect, we should sell our interests. Turning to the other major achievements in 1988, we commissioned, and built up to design levels in a very short period of time, the Morro do Ouro gold mine in Brazil. This mine reached its design output of 100,000 ounces of gold per year within three months of start-up, which was on time and under budget. We are now considering a possible expansion of this property. In South America, Utah International, Mitsubishi and RTZ arranged non-recourse finance, with post completion guarantees, for the giant Escondida Project in Northern Chile. Financing came from a group of banks in Japan, Germany and Finland -- the countries to which most of the concentrates will be sold -- and from the LEC. The average output of the mine for the