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Before I turn to our numbers, let me start with strategy. Rio Tinto strategy of investing in Tier 1 assets gives us a strong base for earnings power and resilience to the short-term buffeting of the global market volatility. As well as keeping a tight rein on the businesses in these uncertain times we continue our program of disciplined investment in high returning projects to position ourselves for long-term demand growth.This investment decision takes into account our aim in maintaining a strong balance sheet and single A credit rating and our commitment to a progressive dividend. We've seen some of the best quality projects in the world and the flexibility of phasing our investment plans. And during the first half, capital expenditures in these projects increased to $7.6 billion in line with our full-year CapEx forecast of $16 billion. Many of our high-quality projects are getting close to completion and will start to generate returns over the next 12 to 18 months. By the end of 2013, we’ll have 50 million tons of new capacity at Pilbara taking us to 283 million tons. The second phase taking us to 353 million tonnes by mid 2015 is also underway. Commercial production from Oyu Tolgoi will start in the first half of 2013. Early in this year, after more than five years of aggressively increasing our interest, we moved for majority stake management control of Ivanhoe mines, now renamed Turquoise Hill Resources. We've taken further actions this year to shape our portfolio through divestments, joint ventures and one acquisition. Now I would like to give you a snapshot of our first half results. We continue to deliver strong earnings and cash flows despite the challenging global economic environment. Our industry has experienced lower commodity prices almost across the board, and this of course is the main reason for the fall in our earnings. Our consistent view has been that market volatility would endure and we have seen these difficult economic conditions over the past six months.
Our Pilbara iron ore operations continue to be the standoff and join one of the highest margins in the industry and where we've set new first half records for both sales and production. Net earnings were higher than underlying due to the one-off tax accounting item related to the new resources tax in Austria which Guy will explain shortly.And finally but importantly, our interim dividend has increased by 34% as a consequence of the board's decision to increase our progressive dividend six months ago and we completed our $7 billion share buyback in the first half. So now let's take a deeper dive in each our businesses and I'll start with our industry leading Iron Ore Group. Our business in Pilbara continues to set new and higher standards of performance and has generated world-class returns. Once again we have improved productivity through low capital debottlenecking or scaling up our step change mine in the future program. These integrative and innovative technologies are delivering returns now and they will allow us to transition to a much higher capacity business in the near future. Our underlying iron ore earnings were the second highest for a first half period and this was achieved despite lower prices as the market came off historic highs. Of course even in these challenging markets, we realize an average price for our Pilbara Blend Fines product of $133 per tonne. Our results were boosted by first half production leading to increased sales volumes as we increased annual capacity by 5 million tonnes to 230 million tonnes. Work is advancing or on ahead of schedule on the major Pilbara expansion program. As we prepare for this substantial growth in volumes, I was particularly pleased that costs have remained well under control. Costs in Western Australia continue to escalate above Australian CPI and are currently increasing at about 6.5% per year. We are setting the stage for the whole of the sector with our focus on productivity improvement and cost management to our mine and the future program.
This is delivering real performance improvements on the ground as we speak. It’s also setting us up for a planned growth in annual capacity of 353 million tonnes in 2015 and for further major debottlenecking gains beyond that level. So once again, we have delivered on outstanding results in iron ore, it is a good place to be.Turning now to copper which remains a highly attractive business given the ongoing supply constraints that persist in the sector. These challenges have shown no signs of abating. Recently some developers have reviewed their expansion plans due to concerns of their escalating capital and operating costs, the weakening macroeconomic environment and financing challenges. Existing mine production has struggled to grow due to declining grades and production disruptions. As a result, the copper market has remained in deficit and global exchange inventories have continued to decline. As expected, our copper production was lower in the first six months of 2012. At Kennecott Utah Copper, the relocation of the unfit conveyor at the mine and the 26-day smelter shutdown were scheduled to coincide with the period of lower grades. Both were successfully completed in the first half. At Escondida copper grades began to improve with mined copper production 29% higher half on half. During the period, we approved projects that are Tier 1 Brownfield assets to maintain production into the future. At Kennecott Utah Copper we are extending the life of the mine by another 10 years to 2029. And at Escondida, a new mill will replace Los Colorados and allow access to higher grade ores. In addition to brownfield volume growth, we will see first commercial production coming from Oyu Tolgoi in the first half of next year. After acquiring our majority stake in Turquoise Hill we agreed to support the comprehensive financing plan and nominated new team of Rio Tinto management led by Kay Priestly. After over two years of construction, I'm looking forward to seeing Oyu Tolgoi coming on stream in the very near future.
Moving on to aluminum, our aluminum business is better positioned compared to its industry peers, but we have experienced increasingly challenging market and operational conditions. I'm confident that we are pursuing the right course with our focus on EBITDA improvement, concentrating the portfolio on Tier 1 assets and completing strategic investments and modernization projects. But we do need to do more and particularly to aggressively achieve further cost reduction and EBITDA improvements. This will require us to take some tough decisions across the global aluminum portfolio with these businesses that continue to lose cash in the current environment.Read the rest of this transcript for free on seekingalpha.com