Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Day (April 2002)
70 slides from Bhp's investor day presentation, April 2002
Slide 1: BHP Billiton Aluminium
BHP Billiton Aluminium April 2002
Slide 2: Introduction and Strategy
Introduction and Strategy Mike Salamon
Slide 3: Presentation objectives
Presentation objectives • BHP Billiton context • Aluminium strategy and positioning • Industry and competitive review • Aluminium performance • Prospects
Slide 4: Presentation outline
Presentation outline Introduction & Strategy Mike Salamon Industry Paul Everard South America “ Australia “ Southern Africa Mahomed Seedat Marketing Rod Kinkead-Weekes Finance Alex Vanselow Conclusion Mike Salamon
Slide 5: BHP Billiton - Diversification
BHP Billiton - Diversification Year end 31 December 2001 Revenue - Geographic Origin EBIT - CSG Southern Rest of Carbon Base World Africa Metals Steel Steel 15% 6% Aluminium 3% Materials 8% 13% 26% South Africa 12% Stainless Australia Steel & Other 42% North 3% America Energy Petroleum 13% Europe Co
Slide 6: Role of Aluminium in BHP Billiton
Role of Aluminium in BHP Billiton • Critical mass and cost competitive • Cash generative and gearing capacity • Value growth • Portfolio balance • Trading and financing capability • Base for innovation
Slide 7: Aluminium: Growth in low cost capacity
Aluminium: Growth in low cost capacity Fiscal Year Mozal 2 & Hillside 3 1600 Hillside Mozal starts up starts up 1400 1200 Billiton acquired from Shell 1000 ‘000t 800 Alusaf stake 600 acquired 400 200 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Slide 8: Alumina: Growth in low cost capacity
Alumina: Growth in low cost capacity Fiscal Year Worsley acquisition 4500 Worsley expansion 4000 3500 Billiton acquired from Shell 3000 ‘000t 2500 2000 1500 1000 500 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Slide 9: Strategy
Strategy • BHP Billiton Aluminium • And our aims today – Embedded growth options – – Lowest unit cash cost mainly exercised producer of alumina and aluminium – New opportunities – mostly outside existing asset base – Greatest rate of profitable growth in industry – Alumina – good industry for low co
Slide 10: Value Drivers – The focus of Aluminium
Value Drivers – The focus of Aluminium VALUE DRIVERS STRATEGIC IMPERATIVES PERFORMANCE MEASURES What distinguishes us from others What we have to get right How the market should judge us Outstanding assets “Zero harm” Safety and environment –Worsley Operating excellence Low cost –Hillside Productivi
Slide 11: Global cash alumina refining costs in 2003
Global cash alumina refining costs in 2003 Sao Luis 200 Paranam Cash Cost (US$/t) 150 Tonnes Worsley Cost ($/t) (mt) 100 BHPB 89 4 Alcoa (WMC) 122 15 50 Alcan 130 4 Global 145 58 0 0 10000 20000 30000 40000 Source Brook Hunt Production (k/t)
Slide 12: Global cash aluminium smelting costs in 2003
Global cash aluminium smelting costs in 2003 1600 Santa Cruz Bayside Sao Luis 1200 Cash Cost (US$/t) Hillside Mozal Cost ($/t) Tonnes 800 (mt) BHPB 865 1.2 Alcoa (WMC) 1,110 3.6 400 Alcan 975 2.3 Global 1,020 25 0 0 5000 10000 15000 Source Brook Hunt Production (k/t)
Slide 13: BHP Billiton Aluminium's growth options
BHP Billiton Aluminium’s growth options The world’s best upstream aluminium company V New Projects a Greenfield M&A l Embedded u Mozal 2 / Hillside 3 and Upstream focus Worsley e Suriname /Alumar Significant growth potential Restructuring Value creation set to maintain momentum Scale
Slide 14: Industry Environment
Industry Environment Paul Everard
Slide 15: The industry
The industry • Dimensions • Characteristics – Mature – Demand 33mt of which secondary 8mt – Wide-ranging applications – Capital intensity and scale – Economic bauxite scarce – Power intensity – Industry capitalisation $150bn of which – Historically integrated upstream about 50% – High upstream entry
Slide 16: The industry – key issues
The industry – key issues • Demand – Automotive – can aluminium trump steel? – China – Rapid smelting growth and growing alumina deficit • Supply – Power – PNW a “once-off” – Smelting technology – AP 50 and Alcoa’s inert anode – Recycling – Greater growth than primary – Environment – More value for
Slide 17: Industry structure – the value chain
Industry structure – the value chain • Value chain • Our view – Bauxite and alumina – Core element of strategy – Alumina concentrated – Steepening cost curve – Bauxite access constraints – Smelting – “Two tier” cost curve providing – Fragmented stranded power rent – Terminal market pricing – Downstr
Slide 18: Brazil
Paul Everard el bhpbilliton
Slide 19: Aluminium assets in Brazil
Aluminium assets in Brazil Capacity BMSA Share Share MRN 11.3 Mt 1,7 Mt 14.8% Alumar 1270 Kt 457Kt 36.0% Refinery Alumar 365 Kt 175 Kt 46.3% Smelter VALESUL 92 Kt 42 Kt 45.2% MRN ALUMAR SANTA ISABEL ? São Paulo VALESUL ? MACHADINHO
Slide 20: Operating performance
Operating performance Production Quantity (Kt) 500 400 300 Alumar Refinery Alumar Smelter 200 Valesul 100 # of Employees 1800 0 1600 1400 98 94 96 91 93 00 92 95 97 99 01 1200 19 19 19 19 19 20 19 19 19 19 20 Alumar Refinery 1000 800 Alumar Smelter 600 Valesul Smelter 400 Cash Cost($/t) 200 1800 0 1
Slide 21: Developments
Developments • Actual – MRN bauxite mine – From 11.3 to 16.3mt to be completed in 2003 – Capital expenditure $190M (BHPBA share $28M) – Valesul smelter – Machadinho hydro power station – Valesul has 8.8% of investment and 7.3% firm energy take – Start-up 2002 • Potential – Alumar refinery expansion
Slide 22: Key issue – power for Alumar smelter
Key issue – power for Alumar smelter • Alumar power contract expires in 2004 • Consortium formed to bid (100% basis) for: – Santa Isabel 1,087MW and US$600M * – Estreito 1,200MW and US$775M – Serra Quebrada 1,328MW and US$825M • Consortium: CVRD (43.85%), BHPB (20.6%), Alcoa (20.0%), Votorantin (10.
Slide 23: Suriname
Paul Everard el bhpbilliton
Slide 24: Alumina industry in Suriname
Alumina industry in Suriname Paranam • Joint ventures with Alcoa as follows (Suriname) • Bauxite 76% BHPBA and Alcoa 24% • Alumina 45% BHPBA and Alcoa 55% • Production • BHPBA 855kt • Alcoa 1,045kt
Slide 25: Continuous improvement
Continuous improvement 900 Number of Employees Alumina Production 1500 (ktpa BMS share) Refining JV 800 1000 Mining JV 700 500 600 1990 1990 2000 1990 1990 2000 Alumina Cash Cost (‘02$/t) Restructuring efforts and 200 continuous improvement processes enhance 100 competitiveness 1990 1990 2000
Slide 26: Key issue - bauxite continuity
Key issue - bauxite continuity * Nearby • + / - 10 years at 100% feed * • concessioned to both partners West Suriname East Suriname • sufficient for refinery for 3 decades • Alcoa concessions • under review by BHPBA and Alcoa • sufficient for further development Scope studies prove viability of vari
Slide 27: Australia
Paul Everard el bhpbilliton
Slide 28: South West Western Australia
South West Western Australia Perth Kwinana Indian Ocean Pinjarra Boddington Wagerup Bauxite Mine Worsley Collie Bunbury
Slide 29: Western Australia refinery production
Western Australia refinery production 10 WORSLEY 8 6 WAGERUP mt 4 PINJARRA 2 KWINANA 0 63 70 72 76 79 84 88 90 95 2002 1963 Kwinana commenced production 1972 Pinjarra commenced production 1984 Worsley and Wagerup commenced 1995 Combined production approximately 8mt 2002 Combined production approxima
Slide 30: Worsley performance
Worsley performance • 3.1mt in 2002 and 3.5-3.7mt in 2008 • Bauxite reserves at 1 January 2002 – Proven and probable 441mt – Minimum 40 year mine life at 3.1mtpa • Employee relations history – 1994 onwards – staff contracts (98.7% take-up) – single class employee relationship • Liquor burner a socia
Slide 31: Cash operating costs in constant dollars
Cash operating costs in constant dollars (2002) 210 200 190 Trend –2% AUD/tA 180 170 160 150 1990 1992 1994 1996 1998 2000 2002
Slide 32: Southern Africa
Southern Africa Mahomed Seedat
Slide 33: Southern African smelters
Southern African smelters Ÿ Richards Bay
Slide 34: Primary aluminium smelter capacities
Primary aluminium smelter capacities 900 800 METRIC TONS PER ANNUM 700 600 HILLSIDE 500 400 MOZAL 300 BAYSIDE 200 100 0 10 20 30 40 50 60 70 80 90 100 110 120 SMELTERS
Slide 35: Bayside improvement plans
Bayside improvement plans • From: – Old smelter seen as needing significant capital to stay alive – Non integrated marketing / casthouse plan , resulting in poor “net premiums” – Low productivity levels - 2850 FTE’s • Current: – Middle of cost curve – Good systems, structures, and people • New energ
Slide 36: LME cash breakeven
LME cash breakeven US$/t 1200 1000 800 600 400 200 0 '99 '00 '01 Est '03 '04 '05 '06 '07 02
Slide 37: Hillside Aluminium
Hillside Aluminium • First metal produced in June 1995 • All first generation cells have now been changed-out • Current production capacity : 532 000tpa (466 000tpa) • Current LME cash breakeven cost of around $725/ton • Expansion project officiallly commenced in April 2002 at a cost of $450M ( $340
Slide 38: LME cash breakeven
LME cash breakeven US$/t 900 800 LME CASH BREAKEVEN 700 600 500 400 300 200 100 0 Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- 96 97 98 99 00 01 02 03 04
Slide 39: Hillside Expansion - construction progress
Hillside Expansion - construction progress 7.0% 120.0% 6.0% 100.0% 5.0% % Complete per Month 80.0% Cum % Complete 4.0% 60.0% 3.0% 40.0% 2.0% 1.0% 20.0% 0.0% 0.0% Feb-02 Feb-03 Feb-04 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Apr-02 Aug-02 Oct-02 Aug-03 Aug-04 Apr-03 Oct-03 Apr-04 Period Ending Target Perio
Slide 40: Mozal – New facilities
Mozal — New facilities Compressor House Extension Extonsion Main Substution \\ Lande iendt Tube Cleaning Stop Cunthoure Extension \ ¥ Anode Baking Furnace Ha 2 4 New Sabestation Anode Handling and Storage PIGUNE 22h NEW FACILITIES Potting 2 él bhpbilliton
Slide 41: Mozal
Mozal • First metal produced in June 2000 • Specific capital cost of $3900/ton of installed capacity • Designed for 250 000tpa • Currently producing at a rate of 262 000tpa • Current LME cash breakeven of $740/ton • Expansion project commenced in July 2001 at an approved cost of $859M ( $3270/ ton)
Slide 42: LME breakeven
LME breakeven US$/t 900 800 LME CASH BREAKEVEN 700 600 500 400 300 200 100 0 00/01 01/02 02/03 03/04 04/05 05/06 06/07
Slide 43: Mozal Expansion - construction progress
Mozal Expansion - construction progress 8.0% 100.0% 80.0% 6.0% % Complete per Month Cum % Complete 60.0% 4.0% 40.0% 2.0% 20.0% 0.0% 0.0% Jun-01 Feb-02 Jun-02 Feb-03 Jun-03 Oct-01 Dec-01 Dec-02 Oct-03 Dec-03 Apr-01 Aug-01 Oct-02 Aug-03 Apr-02 Aug-02 Apr-03 Period Ending Plan Increment Actual Incremen
Slide 44: AP30 Smelter Comparisons
AP30 Smelter Comparisons Smelter Amps. Cur.Eff. D.C. Fe kA % kWh/t ppm Mozal 333,0 96,8 12 967 668 Hillside 1 330,0 93,8 13 081 1 250 Hillside 2 325,0 96,2 12 920 1 297 4 308,5 93,3 13 451 2 270 5 336,3 94,0 13 160 1 223 6 326,6 94,5 13 181 717 7 332,7 94,4 12 959 745 8 333,8 90,8 13 624 1 220 9 330
Slide 45: Southern African primary aluminium capacity to 1.4mtpa
In just 10 years BHPB will have grown its Southern African primary aluminium capacity to 1.4mtpa 1600000 Hillside Exp 1400000 Mozal Exp 1200000 Mozal 1000000 Hillside 800000 Bayside 600000 400000 200000 0 1994 1996 2001 2003 2004
Slide 46: Marketing
Marketing Rod Kinkead-Weekes
Slide 47: Marketing – a key component of the organisational structure
Marketing – a key component of the organisational structure Strategy, Corporate Governance Portfolio composition, M&A Corporate Central & Global Marketing Function Marketing The Singapore Hague CUSTOMER SECTOR GROUPS – the business units Base Carbon Carbon Stainless Stainless Energy Aluminium Alumin
Slide 48: BHP Billiton's aluminium operations
BHP Billiton’s aluminium operations Alumar 175kt (dom & exp) Hillside 515kt Valesul Mozal 125kt 43kt (dom) Bayside 180kt (dom & exp) Equity shipments > 1mt Total book > 1.5mt
Slide 49: Aluminium marketing strategy
Aluminium marketing strategy STRATEGY • Market diversification to maximise premium returns • Build on strong physical base… • plus more active trading (metal and instruments) • Understand, manage and control risks at all times • Maximise value from BHPB Group to provide innovative customer solutions
Slide 50: Primary aluminium - Sales destinations
Primary aluminium - Sales destinations (Equity export) 100% 75% USA Far East 50% Japan Europe 25% 0% Jan-00 July-00 Jan-01 July-01 Oct-01 Mar-02
Slide 51: BHP Billiton's alumina operations
BHP Billiton’s alumina operations Suriname 850kt Alumar Alumar internal export Worsley 420kt 2.7mt 40kt Equity shipments 4mt Total book today > 5mt
Slide 52: Alumina marketing strategy
Alumina marketing strategy STRATEGY • Supply increasing internal requirements • Position for further growth in low cost refining capacity (including bauxite) • Capabilities to supply new markets, e.g. China, Russia • Provide innovative customer solutions • Risk and option management systems and cont
Slide 53: Attractive low-cost supplier for 3rd party customers
Attractive low-cost supplier for 3 rd party customers 10,000 • Further market expansion • Long-term supply potential 5-9mt pa 8,000 ‘000 t 6,000 4,000 2,000 0 1997 2000 2005 2010 2015 2020 2025
Slide 54: Chinese annual alumina imports – the future?
Chinese annual alumina imports – the future? 10000 8000 6000 ‘000t 4000 2000 0 1990 1994 1998 2002 2006 2010
Slide 55: Market update
Market update • Aluminium – Improving demand in Europe, Korea, Taiwan and US, but… – the consumer lagging – Increasing LME stocks impede price recovery, although… – total reported stocks lower than in past recessions – Further smelter restarts anticipated; PNW to remain a swing producer • Alumina –
Slide 56: Finance
Alex Vanselow el bhpbilliton
Slide 57: Net Operating Assets – at 31 December 2001
Net Operating Assets – at 31 December 2001 Reflection of rapid growth over recent years Total: USD 4.7b (81% - Worsley, Hillside and Mozal) Alumar Suriname RefineryMarketing 2% 3% 3% Hillside 25% Bayside 4% Worsley 42% Alumar Smelter Mozal Valesul 6% 14% 1%
Slide 58: Capital Expenditure
Capital Expenditure 1,412 800 Sustaining Growth Acquisition 700 600 $M 500 400 300 200 100 0 1999 2000 2001 2002 2003 2004 2005
Slide 59: EBIT – half year to December 2001
EBIT – half year to 31 December 2001 Dominated by 3 major assets Total: USD 192M Alumar Refinery Marketing Suriname 1% 5% 3% Hillside 28% Worsley Bayside 36% 5% Alumar Mozal Valesul Smelter 12% 1% 9%
Slide 60: EBIT – Half year 2001 versus half year 2000
EBIT – Half year 2001 versus half year 2000 400 EBIT 350 300 250 $M 200 150 100 50 0 Dec 2000 Volume Exchange LME Depreciation Other Dec 2001 EBIT Price EBIT
Slide 61: Aluminium cash costs
Aluminium cash costs Other Dollar Based Costs 21% Alumina 35% Other Local Based Costs 13% Labour 7% Power 24%
Slide 62: Alumina cash costs
Alumina cash costs Bauxite 20% Other Dollar Based Costs 38% Caustic Soda 20% Other Local Labour Based Costs 13% 9%
Slide 63: Real cash cost index - Alumina
Real cash cost index - Alumina Normalised to 1999 Exchange Rates 2001-2005 100 2.3% pa decline 80 60 % 40 20 0 1999 2000 2001 2002 2003 2004 2005
Slide 64: Real cash cost index - Aluminium
Real cash cost index - Aluminium Normalised to 1999 LME Price and Exchange Rates 2001-2005 3.2% pa decline 100 80 60 % 40 20 0 1999 2000 2001 2002 2003 2004 2005
Slide 65: EBIT aluminium price sensitivity
EBIT aluminium price sensitivity Fiscal 2003 1,500 1,000 500 EBIT $M 0 -500 -1,000 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 LME Price
Slide 66: EBIT US$/A$ exchange rate sensitivity
EBIT US$/A$ exchange rate sensitivity Fiscal 2003 630 580 530 EBIT $M 480 430 380 330 1.00 0.83 0.71 0.63 0.55 0.52 0.50 0.45 0.42 0.38 0.36 0.33 Exchange Rate - A$/US$
Slide 67: EBIT Rand/US$ sensitivity
EBIT Rand/US$ sensitivity Fiscal 2003 560 540 EBIT $M 520 500 9.50 10.00 10.50 11.00 11.50 11.70 12.00 12.50 13.00 13.50 14.00 14.50 Exchange Rate - ZAR/US$
Slide 68: Value drivers – Aluminium
Value drivers – Aluminium • Reduce costs by > 2% pa real in planning period – normalising LME linkages • Improved EBIT and increasing free cash flow (before cap-ex) • Deliver minimum $1.5bn in value adding projects by 2006 – 15% of Group total • 2006 forecast nominal EBIT returns – LME $1,350/t (200
Slide 69: Conclusions
- Mike Salamon el bhpbilliton
Slide 70: Conclusions
Conclusions • Vision – To be the world’s best upstream aluminium company • Within this envelope we will: – Develop embedded and greenfield growth options – Pursue opportunistic M&A – Exploit outstanding cost competitive position – Pursue innovative marketing … – and finally, be creative across all a