Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Day (October 2007)
75 slides from Bhp's investor day presentation, Oct 28, 2007
Slide 1: BHP Billiton Iron Ore is an outstanding business with tremendous growth opportunities
BHP Billiton Iron Ore is an outstanding business with tremendous growth opportunities Analyst Site Visit 28-30 October 2007 Perth – Newman – Port Hedland
Slide 2: Important Notices
Important Notices Reliance on third party information The views expressed here contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information
Slide 3: Competent Persons
Competent Persons • The information in this presentation that relates to Ore Reserves and Mineral Resources is as at 30 June 2007 and is based on information prepared by the relevant Competent Persons. The Competent Persons agree with the form and context of the Mineral Resources and Ore Reserves pr
Slide 4: An outstanding business with tremendous growth opportunities
An outstanding business with tremendous growth opportunities Ian Ashby President Iron Ore
Slide 5: Hear from some of the key members of our leadership team
Hear from some of the key members of our active, experienced leadership team Future focus: our growth plans, strategies and priorities Ian Ashby Peter Toth Day 1 President Iron Ore Marketing Director CSM John Slaven Phil Stewart Hart Murray Tim Carl Binning Chief Montgomery CFO Smith Crossley VP Sus
Slide 6: Key global trade flows
Key global trade flows Continuing demand for high grade seaborne ore Seaborne iron ore was only 50% of the China market in CY2006 (Fe equivalent Mt) 15 10 40 China seaborne imports = 320 Japan seaborne 75 10 domestic = 320 imports = 130 20 230 90 20 5 20 10 145 BHP Billiton Iron Ore Analyst Site Vis
Slide 7: Focusing on growth markets: WAIO sales destinations
Focusing on growth markets: WAIO sales destinations Australia China Europe 7% 20% 4% Taiwan 7% Japan 44% Korea 18% From FY2002… Europe Australia Taiwan 2% 3% 6% China Korea 49% 14% Japan BHP Billiton Iron Ore Analyst Site Visit 26% … to FY2007 Page 7 28-30 October 2007
Slide 8: BHP Billiton Iron Ore Production FY2007
BHP Billiton Iron Ore Production FY2007 BHP BHPBilliton BillitonIron IronOre Ore Total TotalOre OreShipped Shipped114.8 114.8Mt Mt WA WAIron IronOre Ore Samarco Samarco Total Ore Shipped Total Ore Shipped Total Total OreShipped Ore Shipped 106.7 106.7Mt Mt 8.1 Mt* 8.1 Mt* Yandi JV Mt Newman JV Golds
Slide 9: Excellent business, strong performance, exciting future
Excellent business, strong performance, exciting future Increase sales to secure share of growth market • We have the resources to underpin our Growth expansion plans and global investment Options Project Pipeline • Delivering growth projects Financial Strength and Discipline • Continued outstanding
Slide 10: Securing the maximum sustainable benefit from market opportunities and growth options
Securing the maximum sustainable benefit from market opportunities and growth options • Strong iron ore demand forecast Growth • Resources underpinning expansion plans Options • Securing the ‘next generation’ of resources Project Pipeline • Mt Nim ba Concept Study • Significant volume growth expecte
Slide 11: Maximising the productivity of our existing assets
Maximising the productivity of our existing assets; safely and in line with environmental responsibilities • Outstanding financial results • Actively controlling costs • Delivering on targeted production volumes Financial Strength and Discipline • Business improvement initiatives The BHP Billiton Wa
Slide 12: Maximising the output from our existing assets
Maximising the output from our existing assets; safely and in line with environmental responsibilities • Established license to operate • Focus on collaborating with key stakeholders • Engaging Indigenous contractors • Investing in housing and communities • ‘Closing the gap’ identified by workforce
Slide 13: We will increase sales to secure share of the growing market
We will increase sales to secure share of the growing market Peter Toth, Marketing Director Carbon Steel Materials
Slide 14: Global steel production is at the outset of a new period of accelerated growth
Global steel production is at the outset of a new period of accelerated growth BRICS: Mt Global Steel Production (Mt) urbanisation & industrialisation 1400 CAGR = 7.0% 1200 Oil shocks & Fall of World Berlin Wall China CAGR = 1.0% 1000 Post-WWII 800 reconstruction CAGR = 6.9%pa 600 Great Depression &
Slide 15: The magnitude and speed of China's development is huge
The magnitude and speed of China’s development is huge. China is likely to develop 20 large economic zones… …involving 358 cities, of which 11 cities have 15 million people, 18 cities have 10 million people Drivers of steel consumption 2006 Potential Heilongjian 2 g 1 Cities > 1.5m 45 147 3 Jilin In
Slide 16: Second phase of infrastructure development only just beginning
Second phase of infrastructure development only just beginning… Beijing – subway plans Beijing 2008 Tokyo Beijing 2050 Paris BHP Billiton Iron Ore Analyst Site Visit Page 16 28-30 October 2007
Slide 17: China's steel intensity on a path towards other Asian country levels
China’s steel intensity on a path towards other Asian country levels Per capita steel consumption, kg 1200 1000 Taiwan South Korea 800 Japan 600 USA 400 200 China 0 1990 1995 2000 2005 2010 2015 2020 2025 Source: BHP Billiton, World Bank, OECD (GDP at Purchasing Power Parity), IIS I BHP Billiton Iro
Slide 18: Significant expansions of iron ore supply from traditional ore basins
Significant expansions of iron ore supply from traditional ore basins have been required to satisfy China’s development Mt Seaborne Iron Ore Supply 900 ’00-’07 CAGR 800 Other 3% 700 South 600 Africa 6% 500 India 400 12% 300 Brazil 9% 200 Australia 100 8% 0 1996 1997 1998 1999 2000 2001 2002 2003 200
Slide 19: Chinese imports of iron ore are expected to remain strong
Chinese imports of iron ore are expected to remain strong Mt 1400 1200 1000 Total Chinese Iron Ore Demand 800 600 Seaborne Iron Ore 400 Chinese Domestic Ore Supply 200 0 Source: China Customs Statistics, BHP Billiton BHP Billiton Iron Ore Analyst Site Visit Page 19 28-30 October 2007
Slide 20: Chinese iron ore demand currently relies on high cost supplies
Chinese iron ore demand currently relies on high cost supplies 2002 2007e 190mt Steel 500mt Steel US$/t fines 270mt Iron Ore 750mt Iron Ore $150 CFR $120 CFR $105 CFR Other Brazil CFR CFR $75 CFR Australia Import CFR Spot $50 FOB Cost Domestic Import Spot LTC Domestic Captive Mt Iron Ore 63.5% equiv
Slide 21: The spot market is a strong indicator of the real supply and demand balance
The spot market is a strong indicator of the real supply and demand balance US$/dmt Tangshan (CFR Equivalent) China Spot Avg (CFR Equivalent) 170 India CFR Price Australian Fines CFR China 160 Brazil Fines CFR China 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Jan Apr Jul Oct Jan Apr Jul Oct
Slide 22: Liquidity
Evolution of a bulk commodity index: the energy coal story Financial swaps enable ‘price risk’ to be managed separately from ‘supply risk’ Liquidity OTC Financial Prices set by Swap negotiation OTC Forward Delivery Benchmark Counter-parties trade directly pricing with each other. globalCOAL NEWC sta
Slide 23: A deep portfolio of resources and growth options underpins our expansion plans
A deep portfolio of resources and growth options underpins our announced expansion plans and future Brownfield and Greenfield capacity growth John Slaven, Chief Development Officer Image: Aeromagnetic image of Mt Nimba project area
Slide 24: We have a wealth of high grade, low cost potential close to existing infrastructure
We have a wealth of high grade, low cost potential close to existing infrastructure in the Pilbara Our existing tenements can sustain our growth programme for decades! BHP Billiton Iron Ore Analyst Site Visit Page 24 28-30 October 2007
Slide 25: Further scope to expand Samarco operations
Further scope to expand Samarco operations… Fully integrated production process Mine Beneficiation Plant Pipeline Pellet Plant Port Samarco 3 scheduled for completion in 2008 • Amongst the world’s lowest cost 2008 – 3rd Pellet Plant seaborne pellet producers expansion to 22M tpa 25 • Leader in conce
Slide 26: Deep inventory of growth projects
Deep inventory of growth projects Brownfields US <$2Bn US $2Bn+ RGP 4 RGP 3 Samarco 4 RGP 5 Quantum 2 Samarco 3 CY 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Nimba Africa Quantum 1 Exploration Greenfields BHP Billiton Iron Ore Analyst Site Visit Page 26 sizes Bubble 28-30are October 2007only.
Slide 27: The next generation of iron ore deposits are likely smaller, lower grade
The next generation of iron ore deposits are likely smaller, lower grade & quality and in more challenging environments Low Lowgrade, grade, high high cost, cost, Freight Freightdisadvantaged, disadvantaged, freight freightdisadvantaged disadvantaged environmental environmentalimpacts, impacts, diff
Slide 28: We are active in the most prospective parts of the world
We are active in the most prospective parts of the world… …. progressing several high potential opportunities BHP Billiton Iron Ore Analyst Site Visit Page 28 28-30 October 2007 Note: dot size is for display purposes only. It is not indicative of potential.
Slide 29: Mount Nimba Concept Study is being completed
Mount Nimba Concept Study is being completed Intensive drilling program underway • Guinea, West Africa • Mining concession owned by SMFG: – BHP Billiton (41.3%) • Drilling to date has identified high grade and very high quality mineralisation (low Al2O3 and P) – desirable product for both European a
Slide 30: Capacity growth will occur through a full range of activities
Capacity growth will occur through a full range of activities Business Development activities are focussed on creating options for the future by securing additional low cost, high quality resources Emerging opportunities Africa Brazil Pilbara Today 50 -100 years BHP Billiton Iron Ore Analyst Site Vi
Slide 31: We are committed, and will continue to deliver on our planned expansions
We are committed, and will continue to deliver on our planned expansions Phil Montgomery, Vice President Expansion Projects Image: View over current expansion activities at Finucane Island (2007)
Slide 32: We have consistently increased production and continue to develop new mines
We have consistently increased production and continue to develop new mines RGP 4 will see production doubled since 2003 120 100 Production History (Mt) Area C Goldsworthy 80 (Continuation is in pre- feasibility stage) 60 Yandi 40 Jimblebar OB23/25 Beneficiation 20 Whaleback + OB18/29 0 2008 F 1966
Slide 33: All projects have been delivered successfully
All projects have been delivered successfully … Approved Project Announced Actual / Schedule Tonnes Investment Latest (Mt) US$M Forecast* 2002 Area C & PACE 564 Under budget 2 months early 15 2003 Accel. Expansion 50 Under budget On time 7 2004 RGP1 111 On budget On time 10 2004 RGP2 575 Under budge
Slide 34: All projects meet or exceed design capability
All projects meet or exceed design capability Area C (MAC) Production (Ore for Rail Mtpa) 30 20 Design Rate 10 0 F Y2004 F Y2005 FY2006 FY2007 FY2008 Ship Loader 4 Gross Loading Rate 10000 Car Dumper 4 Net Dumping Rate Design Rate 6000 Design Rate 8000 4000 6000 4000 2000 2000 0 0 FY2004 FY2005 FY20
Slide 35: RGP 3 and 4 are tracking to plan
RGP 3 and 4 are tracking to plan RGP 3 final RGP 4 early execution commissioning • 20Mtpa incremental MACTM • 26Mtpa incremental tonnage - product predominantly Newman JV • Load commissioning commenced • Major re-build of Car Dumper No 2 Sept 2007 at Area C completed per plan in October • Ramp up to
Slide 36: Impact of escalation and exchange rate movements
Impact of escalation and exchange rate movements: Iron Ore projects in Western Australia FY2002 – FY2007 Capital costs have increased threefold Escalation AUD 85% US$303 Escalation & Exchange Rate 203% USD Q2 FY02 Q4 FY07 US$100 Exchange Rate Q2 FY02 Q4 FY07 USD per AUD 64% Q2 FY02 Q4 FY07 Source: B
Slide 37: Aggressive expansion programme to achieve installed capacity of 300 Mtpa by 2015
We will deliver an aggressive expansion programme to achieve installed capacity of 300 Mtpa by 2015 (100% share) Anticipated investment of more than US$15 billion in addition to RGP4 300 Mt Growth Pipeline (RGP5 and beyond) Mine and infrastructure optimisation Approved Capacity Expansion (RGP3 & 4)
Slide 38: Project Scope – installed capacity of 300Mtpa by 2015
Project Scope – installed capacity of 300Mtpa by 2015 Long term business value remains the key focus amongst the short term opportunities Strong demand outlook • Maximising utilisation of high capital value for key Asian growth equipment delivers volume, opex and markets environmental benefits 300 M
Slide 39: Towards achievement of our WA growth program: Challenges
Towards achievement of our WA growth program Challenges • Achieving approval milestones – Environment – Heritage – State Agreement and tenure – Native Title • Maintaining integrity while compressing timelines • Managing environmental and community impact • Resourcing – significant additional workfor
Slide 40: Strategic Advantages: capability to deliver our expansion programme
Growth options Project Pipeline Strategic Advantages: We have the Financial Strength and Discipline The “ BHP Billiton Way” capability to deliver our expansion programme World Class Assets License to Operate People • Proven track record • Strong project delivery group in place for over five years •
Slide 41: Our financial position is strong
Our financial position is strong and we will continue to generate outstanding results and cash flows Stewart Hart, Chief Financial Officer
Slide 42: Iron Ore financial highlights
Iron Ore financial highlights Record EBIT result 9% higher, and WAIO costs escalation slowed to only 3%(1) in second half of FY 2007 Reflects strong operating performance with record iron ore production and sales, successful start-up of RGP2 and strong cost control evident throughout the year Year e
Slide 43: WA Iron Ore financial highlights
WA Iron Ore financial highlights Year ended June (US$ Millions) 2007 2006 % Change Revenue (with JV share of revenue) 4,906 4,187 17 EBIT – Profit from operations 2,446 2,204 11 Net operating cash flow 2,711 2,261 30 Capital Employed 3,015 2,188 38 Return on Capital (%) 81.1 100.7 -19 BHP Billiton I
Slide 44: Samarco financial highlights
Samarco financial highlights Year ended June (US$M) 2007 2006 % Change Pellet Sales Volumes (Mt) 7.0 6.8 4 JV share of revenue 599 593 1 Underlying EBIT 289 349 -17 Dividends 300 195 54 Capital Employed 623 273 128 Return on Capital (%) 46.5 127.8 -64 Note: EBIT / EBITDA excludes Brazil Business Dev
Slide 45: WA Iron Ore EBIT performance year on year
WA Iron Ore EBIT performance year on year 3,000 WAIO EBIT 2,500 US$ Millions 2,000 1,500 • Higher prices 1,000 • Record production and 500 • Business improvement initiatives 0 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 Offsetting increases in 30.00 WAIO EBIT / Tonne ― Contractor rates 25.00 ― Seaborne
Slide 46: WA Iron Ore Return on capital employed
WA Iron Ore Return on capital employed Keeping the momentum … Investing to meet demand Building & Commissioning Building & Commissioning RGP2, 120% RGP1, MAC & PACE Building RGP3 & RGP4 3,500 100% 3,000 2,500 80% US$ million 2,000 60% 1,500 40% 1,000 20% 500 0% 0 FY 2002 FY 2003 FY 2004 FY 2005 FY 2
Slide 47: WA Iron Ore Outstanding cash flows in excess of growth
WA Iron Ore Outstanding cash flows in excess of growth Cash flow from operations reflects our financial strength 3,000 2,500 2,000 US$ Millions 1,500 1,000 500 0 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 Cash Flow From Operations Investment in Capital Projects BHP Billiton Iron Ore Analyst Site Visi
Slide 48: WA Iron Ore Focusing on what we can influence
WA Iron Ore Focusing on what we can influence Movement in US$ / tn Operating Costs before depreciation 14% 12% We have achieved an underlying 10% improvement in Unit Operating Cost 8% despite the impact of: 6% 4% • Contractor Rate Increases 2% • Labour Rates 0% -2% • Consumables Prices Dec-05 Jun-06
Slide 49: WA Iron Ore Managing costs in a period of high demand
WA Iron Ore Managing costs in a period of high demand Unit Cost Performance – Relative A$/t Movement 140 What’s next? 130 • Aggressively pursue pipeline of improvement initiatives Index 2002 = 100 120 110 • Efficiency - hold fixed costs 100 • Maximise infrastructure 90 • Optimise the use of contract
Slide 50: Managing the cost of sustaining goods and services
WA Iron Ore Managing the cost of sustaining goods and services Indicative Breakdown of Other Operating Costs Tyres Labour & Contractor Related Costs Margins Other Equipment Mining Depreciation + Ore costs Contractors Financing Charges Indicative Energy – Maintenance Contract Diesel & Electricity Min
Slide 51: WA Iron Ore Freight movement and CFR sales
WA Iron Ore Freight movement and CFR sales Increasing CFR sales, with rising cost of freight absorbed in freight revenue 6,000 50% 45% 5,000 40% 35% 4,000 US$ Millions 30% 3,000 25% 20% 2,000 15% 10% 1,000 5% - 0% FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 IO Revenue Freight Revenue CFR Sales %
Slide 52: Business Improvement generating sustainable benefits
Business Improvement generating sustainable benefits Investment Investment Operational Operational Business Business + - Excellence Excellence = $86M $86M $89M $89M $34M $34M $37M $37M US$M 100 9 People 80 24 Maintenance 60 40 56 Contractors 4 Towage 20 13 Fuel & energy 17 Demurrage 0 Significant in
Slide 53: Maximising safety, productivity and value from our integrated business system
Maximising safety, productivity and value from our integrated business system (mine, rail and port) Tim Crossley, President & COO, WA Iron Ore
Slide 54: World class infrastructure and capabilities
World class infrastructure and capabilities • 3rd largest iron ore producer with over 106 Mtpa sales • Seven open cut mining operations • Nearly 1,000 kilometres of railway track • Rail fleet comprising 91 locomotives and 3,950 ore cars Consid ered the most productive single track heavy haulage rail
Slide 55: Operations: FY2007 Highlights
FY2007 Highlights HSEC • Continuing to improve safety performance • Meeting volumes (Shipping Challenge) Operations • Contractor to owner change at Mt Whaleback • Merger of OB18 with Jimblebar • Progressive haul in of costs • RGP2/car dumper 4 start up Growth • RGP3 commissioning • RGP4 commenced Pe
Slide 56: WAIO safety performance trend into FY 2007
WAIO safety performance trend into FY 2007 • Significant reduction in our 23.7 Iron Ore TRIFR injury rates 20.6 • Downwards CIFR 12 month 12.0 7.4 trend 9.0 • Boodarie Iron decommissioning FY2004 FY2005 FY2006 FY2007 Jul-07 Aug-07 Sep-07 progressing safely • Energy reduction project commenced initia
Slide 57: WA Iron Ore production FY2007
WA Iron Ore production FY2007 WAIO WAIOtotal totalore oreshipped shipped106.7 106.7Mt Mt Yandi JV Mt Newman JV Goldsworthy JV 41.1 Mt 41.5 Mt 24.1 Mt 85% BHP Billiton, 8% Itochu, 7% Mitsui 85% BHP Billiton, 10% Mitsui-Itochu, 5% Itochu 85% BHP Billiton, 8% Itochu, 7% Mitsui Mining Operations Infrast
Slide 58: How did WA Iron Ore perform in Q1 FY2008?
How did WA Iron Ore perform in Q1 FY2008? Monthly production record for Yandi New record loading rate for three 4Mt ore produced in August shiploaders at Port Hedland Focus on getting as much ore to Development of RGP3 port as possible infrastructure on schedule BHP Billiton Iron Ore Analyst Site Vi
Slide 59: Integrated planning and system analysis ensure focus is on the true bottlenecks
Integrated planning and system analysis ensure focus is on the true bottlenecks We operate as ‘One business’. We are increasing the productivity of our existing infrastructure by removing bottlenecks BHP Billiton Iron Ore Analyst Site Visit Page 59 28-30 October 2007
Slide 60: We are investing in Asset Reliability
We are investing in Asset Reliability; increasing our capacity to exceed our volumes and cost targets Reliable people + reliable processes = reliable assets = reliable production • Mine, rail, port assets performing at optimal levels Institutionalise Phase 4 asset • Spending A$11m in FY2008 to manag
Slide 61: BLASOR - Advanced resource development planning
BLASOR® - Advanced resource development planning • BLASOR® provides the capability New operating philosophy to “optimise” each hub • Lower reliance on high strip ratio • Complex optimisation algorithm Whaleback through beneficiation • Determining ore/waste definition for plant optimisation; and spec
Slide 62: Delivering significant value through business improvement programs
Delivering significant value to our operations through business improvement programs FY2007 FY2008 7 Mine Benefits Capture MAC OHP1 Whaleback Ow ner Improv ement Projects Mining Projects Lease of 8th Tug Product Moisture to A$36.9m Smaller scale (<$5M) A$24.2m A$40M Target A$25.3M A$14M Jimblebar Co
Slide 63: Significant strategic advantages
Growth options Project Pipeline Financial Strength and Discipline The “ BHP Billiton Way” Significant strategic advantages World Class Assets License to Operate People • Strong health and safety culture and history of continuous improvement • Tremendous endowment of low cost, high quality resources
Slide 64: We continue to drive leadership and culture to attract and retain the best people
We continue to drive leadership and culture to attract and retain the best people Murray Smith, Vice President Human Resources
Slide 65: WA Iron Ore workforce overview
WA Iron Ore workforce overview Workforce Statistics Workforce distribution by occupational group • Employees: 2,097 Executive M anagers • Contractors: 6,115 • Average Age: 41 Professional Operational • Indigenous: 9.6% (as at 30 June 2007) Line • Female: 17% Supervisors WAIO people experience 18 (av
Slide 66: Engaged people: our priorities
Engaged people: our priorities We are driving deeper and achieving good results from our leadership and culture program Key Challenges Resourcing – Workforce planning data improved / scenarios run – 5, 10 years – Good initiatives underway – Centralised recruiting commenced Employee Relations – Stron
Slide 67: The Culture Program builds long term capability
The Culture Program builds long term capability Investing in a structured leadership development program targeting managers and future leaders across the business Future Future Leaders Program Leaders BHP Billiton Programs High Blue Leadership Performing Diploma and Cert IV Programs Leaders (Frontli
Slide 68: Workforce planning is strengthening
Workforce planning is strengthening – Retention is better than industry benchmarks Focussing on closing the gap between existing supply and future labour demand with workforce planning 2500 • Targeted recruitment from other Demand labour pools Impact of new initiatives • New and invigorated recruitm
Slide 69: Housing improvements are a key to attraction & retention
Housing improvements are a key to attraction & retention 83% of employees interviewed say housing is a key factor in choosing a role 78% more likely to stay with BHP Billiton than go to an employer with poor housing • A$340M approved in the past three years for over 500 new houses and refurbishments
Slide 70: International recruiting ramping up
International recruiting ramping up • Focus on recruiting engineers from Brazil and Canada • Regional Labour Agreement in place for project workforce • Bursary scheme providing opportunities for graduates in mining in Guinea • “Greenshoots” program recruiting graduates from developing markets BHP Bi
Slide 71: Strong succession coverage for the top roles
Strong succession coverage for the top 67 roles We have a strong, global process to identify & review talent • Focussed development of High Potentials & Future Leaders • > 60% of critical roles/vacancies filled internally • Global people pipelines available to us facilitating awareness, development
Slide 72: 90% of workforce on individual contracts
90% of workforce on individual contracts • 80% with 5 year life • No lost time since 2000 • Greater flexibility • Key elements – Direct relationships – Competitive remuneration – Culture program – Leadership training Image: BHP The Iron Billiton BHPOre Billiton Iron Ore Analyst Siteindividual Visit
Slide 73: We have the capabilities and assets to continue to outperform
We understand the opportunities and challenges and we have the capabilities and assets to continue to outperform Ian Ashby President Iron Ore
Slide 74: We understand the challenges and are focussed on achieving
We understand the challenges and are focussed on achieving: SAFETY PRODUCTION COST GROWTH We have the capabilities and the assets to continue to outperform… PEOPLE EQUIPMENT RESOURCES BHP Billiton Iron Ore Analyst Site Visit Page 74 28-30 October 2007
Slide 75: End of Day 1
End of Day 1