Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Day (July 2002)
49 slides from Bhp's investor day presentation, Jul 9, 2002
Slide 1: Energy Coal CSG Investment Community Briefing
Energy Coal CSG Investment Community Briefing July 9, 2002 Sydney, Johannesburg and London 1
Slide 2: Objective
Objective To provide an overview of BHP Billiton’s Energy Coal business and an update of our strategy, markets, assets and growth opportunities 2
Slide 3: Agenda
Agenda • Energy Coal CSG overview Mike Oppenheimer • Markets Jon Dudas • Assets Mike Oppenheimer • Financials David Lamont • Industry and growth John Smith • Wrap up Mike Oppenheimer 3
Slide 4: Our Energy Coal business
Our Energy Coal business • Servicing power markets globally • 96 mtpa of coal, more than 2000 PJ of energy • Number 1 energy coal exporter • Major supplier to domestic markets • Multi-source supply capability • Diverse operations and markets • Headroom for growth 4
Slide 5: A key part of BHP Billiton
A key part of BHP Billiton Energy Coal 11% of Revenue Energy Coal 16% of EBIT Total Revenue $13.6bn 9 months to 31 Mar, 2002 Total CSG EBIT $2.8bn 9 months to 31 Mar, 2002* • Earnings diversity • Growth potential • Major exposure to non-oil energy markets • Leverages upstream and market links across
Slide 6: Business overview
Business overview 33 Mtpa Traded Traded 22Mtpa Mtpa 12 Mtpa New NewMexico Mexico 14 Mtpa 14 Mtpa ≈1 Mtpa Kalimantan Kalimantan 99Mtpa Mtpa Colombia Colombia QLD/NSW QLD/NSWCoal Coal 77Mtpa Mtpa 44Mtpa Mtpa Hunter HunterValley Valley Ingwe Ingwe 55Mtpa 55 Mtpa 55Mtpa Mtpa BHBP seaborne trade Operated
Slide 7: Led by an experienced management team
Led by an experienced management team Jon Jon Dudas Dudas Marketing Marketing Director Director Dallas Dallas O’Brien O’Brien VP VP Marketing Marketing Asia Asia Noel Noel Halgreen Halgreen Asset Asset Leader Leader Colombia Colombia Derek Derek Nightingale Nightingale Chief Chief Operating Operatin
Slide 8: Aggressive actions to create world class business
Aggressive actions to create world class business BHP Billiton Merger Sale of Matla/Glisa to Black Empowerment Intercor acquisition Rietspruit Boschmanskrans Kwagga closure approved approved Positioned to deal Mt Arthur North in convergent Carbocol approved Lake Mines European energy acquisition div
Slide 9: Continued portfolio improvement
Continued portfolio improvement FY00 FY02 FY07 Domestic Domestic Export Sales 59% Domestic Export Export 50% 50% 54% 46% 32% Indonesia 9% Relative indices Unit Earnings* 100 110 146 Unit Cash Cost* – Plan 100 94 84 – 2% Target 100 96 87 * Normalised to FY00 FX/Price/Inflation 9
Slide 10: Focused strategy
Focused strategy Asset Export Domestic Innovation Portfolio Markets Markets & Leveraged Growth Extract full Grow share of Grow in Leverage value from high value selected knowledge asset & project markets domestic and global portfolio markets position World class Market Global Energy Specialist asset
Slide 11: Aligned with BHBP strategy value drivers
Aligned with BHBP strategy value drivers Corporate Outstanding Customer Growth Value -centric Innovation Assets Projects Drivers Marketing Mount Arthur HSEC strategy North Marketing hubs Structured coal Energy Portfolio quality San Juan marketing deals Coal Network offices Underground Initiatives Op
Slide 12: Strategy to deliver value adding growth
Strategy to deliver value adding growth Production profile Indicative earnings growth FY02 120 Historical Forecast Indonesia Marketing Hunter Valley 100 Concept/Pre-feasibility Colombia Feasibility New 80 Mount Arthur North Mexico Ingwe San Juan U/G Ingwe Projects FY07* 60 Concept/ Mt Pre-feasibilit
Slide 13: Energy coal markets
Energy coal markets Jon Dudas - Marketing Director 13
Slide 14: Coal has a future
Coal has a future Cons Electricity and generation fuel demand CAGR 1999 = 100 (1999-2020) • Climate change issues 220 Market Share 3.8% • Gas perceived as being a ‘clean’ fuel 200 Coal Gas Gas Pros 180 1999 36% 18% 2.7% Electricity • Competitive 160 2020 32% 26% • Low price volatility 140 Other Fuel
Slide 15: Energy coal market growth to continue
Energy coal market growth to continue Total energy coal market ~ 3100 mtpa* Europe ≈ 0% China US Rest of Asia 1.5% 5% 5% Australia 1% South Africa 1% Seaborne market (384 mtpa) Domestic market Power generation coal market growth (2000/05 CAGR) Source: McCloskey’s Steam Coal Forecaster, IEA ; * Exclu
Slide 16: Europe – A market undergoing considerable change
Europe – A market undergoing considerable change European Energy Coal • Demand declining – imports growing slowly 450 CAGR 400 Import Domestic (1990-2000) • Kyoto already influencing market 350 • EU subsidy reduction program 300 • Energy market convergence 250 – Power generation growth from gas Mt 2
Slide 17: BHPB participates in all areas of an evolving market
BHPB participates in all areas of an evolving market • Established over past 3 years derivatives market • Volume will exceed physical trading this year 4 75% power 1% commoditised direct sales 1 generators 3 exchange • Declined from 90% • GlobalCoal to 75% over 5 years 2 24% non-commoditised coal tr
Slide 18: Asia - Strong demand growth
Asia - Strong demand growth Asian Energy Coal CAGR 200 (1990-2000) • Increasing flexibility in coal purchasing (5.7%) – China penetration 10.7% – spot purchases 150 • Lack of pipeline gas alternatives 14.0% • LNG competitiveness 100 Mt • Nuclear concerns • Slowly embracing deregulation 50 • Asian ma
Slide 19: China will play a key role
China will play a key role Domestic - Circa 1,000mtpa - Forecast growth of 5% pa Exports* - High value - Strong power demand & GDP growth 72MT 2001 - Industry efficiency improvements - Down 12.2% May ’02 YTD - Poor safety record - Growth incremental MT** 79MT 72MT 74MT 120 45MT 29MT Imports* - 1.8 M
Slide 20: Today’s market
Today’s market South African spot price (FOB RBCT, 6000 NAR) 40 • Simultaneous slowdown in US and European growth Historical (*) 35 • Warm winters in the US and Europe forward curve (**) • Record UK gas availability in 2001, low gas prices 30 US$/mt • Prolonged economic malaise in the East 25 ‘histo
Slide 21: Different fuels continue to compete
Different fuels continue to compete UK spark spread 30 Power 20 Coal • Gas and coal competing head on $/MWh 10 Gas • Deregulated gas market 0 -10 Fuel Oil -20 Jan-01 Apr Jul Oct Jan-02 Apr German spark spread 40 Power 30 • Coal still favoured 20 Coal $/MWh 10 • Regulated gas market in the 0 process
Slide 22: Customer focused marketing
Customer focused marketing Santiago Newcastle Jakarta Energy Coal Assets The Hague Singapore hub hub Energy Coal CSG Mumbai Johannesburg Tokyo Seoul Beijing 22
Slide 23: Example - Customer centric marketing
Example - Customer centric marketing The deal ‘Just in time’ coal service Close purchasing dept Customer value Risk free sourcing Reduced inventory costs Supply partnership BHPB value Multisource optionality commodity $ Freight arbitrage + service $ Benefits transferable Participation in customer ex
Slide 24: Marketing strategy: ‘Coal plus’
Marketing strategy: ‘Coal plus’ Drivers • Liberalising markets in Europe changing customer needs • Energy market convergence in Europe • Increase share of growing Asian market share • Asian market model evolving Strategy • Utilize BHP Billiton profile • Customer solutions • Differentiated products •
Slide 25: Energy Coal assets
Energy Coal assets Mike Oppenheimer - President 25
Slide 26: World class asset portfolio
World class asset portfolio Operated production* 74 mtpa Non-operated production* 11 mtpa Agency marketing 11 mtpa Reserves** 4 bt * 100% production for operated assets, equity production for non-operated assets 26 ** Reserves for producing assets only
Slide 27: Low cost supply position
Low cost supply position Delivered cash cost - US$/t $45 Europe Optimum Douglas Carbones del Cerrejon 35 Market 123 Mt Middleburg Cerrejon Norte Koornfontein Rietspruit (2002) 25 Venezuela USA Colombia South Africa 15 0 Mt 74 $45 Asia Delivered cash cost - US$/t Future Mount Bayswater 35 Arthur Nort
Slide 28: Major focus on enhancing competitive position
Major focus on enhancing competitive position HSEC • 10 point safety plan – Leadership, behaviours, fatal risk management • Community relations integral to business success Operating Excellence • Actively identifying and improving global business processes • Six Sigma Plus improvement methodology –
Slide 29: Ingwe, South Africa
Ingwe, South Africa GAUTENG PRETORIA Value Drivers Middelburg • World class, low cost assets Douglas JOHANNESBURG Optimum • Leverage domestic supply position Khutala Koornfontein • Shareholding in Richards Bay Terminal Rich ards VEREENIGING Bay Rai l Lin Strategic Focus e • Multi-product mining MPUM
Slide 30: Hunter Valley, Australia
Hunter Valley, Australia Muswellbrook Gloucester Bayswater Mount Arthur North Value Drivers Koorangang • Bayswater/Mount Arthur North integration Port Waratah • Low cost supply into growth market Newcastle • Increasing production footprint • Leverage domestic supply position Strategic Focus SYDNEY •
Slide 31: New Mexico, US
New Mexico, US Ute Mountain Indian La Plata Reservation Mine San Juan San Juan Generating Station Mine ta Ha ulro ad Value Drivers Pla La • Long term stable contracts Farmington • Mine mouth generation Four Corners Power Plant • Western regional electricity market position Navajo Mine Navajo • Resou
Slide 32: Colombia
Colombia Porto Bolivar Carbones Cerrejon Zona Norte del Cerrejon (Carbocoal & Intercor) La Guajira e l Lin Uribia Rai Riohacha Maicao COLOMBIA VENEZUELA Cerrejon Coal Value Drivers Strategic Focus • Unique positioning for US and Europe • Integrate acquisitions • Significant and scaleable operation •
Slide 33: Energy Coal financials
Energy Coal financials By David Lamont 33
Slide 34: EBIT earnings analysis by asset and driver
34 US$ Million 200 300 400 500 600 March 2001 YTD 266 89 Ingwe 84 Indonesia Colombia 23 Hunter Valley 21 3 Third Party Products EBIT by Asset Earnings analysis 9 months to 31 March New Mexico (15) (9) Divisional Activities March 2002 YTD 462 200 US$ Million 300 400 500 600 March 2001 YTD 266 Price 1
Slide 35: Substantial earnings improvement to date
Substantial earnings improvement to date 600 New Mexico Coal Ingwe Indonesia 35 Hunter Valley Colombia 30 500 25 400 EBIT US$ million EROC 20 ROC (%) 300 15 200 10 100 5 0 0 1999 2000 2001 2002 9 months to 31 March 35
Slide 36: Sensitivities – FX and price impacts on EBIT
Sensitivities – FX and price impacts on EBIT EBIT Sensitivity Cash Cost of Production (2%) Export Price (US$1) Exchange (0.2 RAND:USD) Exchange (US$0.01:AUD) (40) (30) (20) (10) 0 10 20 30 40 US$M 36
Slide 37: Energy coal industry and growth
Energy coal industry and growth John Smith – Chief Development Officer 37
Slide 38: Industry structure has significantly improved
Industry structure has significantly improved Industry Consolidation Comparisons 90 80 • Producer gains Production from top four firms (%) 70 – Economies of scale and efficiency 60 – Cost structure change 50 40 – Rational investment decisions 30 • Consumer gains 20 – Price stability 10 – Security of
Slide 39: Evidence of more rational supply side behaviour
Evidence of more rational supply side behaviour Announcements during downward cycle* $40 40 April 2001 - May 2002 27 mtpa in announced 35 expansions 6 mtpa in new production 30 $35 8 mtpa in closures 25 FOB RBCT US$/t 20 $30 15 Mt 10 $25 5 0 $20 -5 April 1996 - April 1997 111 mtpa in announced expan
Slide 40: World seaborne coal supply/demand balance
World seaborne coal supply/demand balance Seaborne supply and demand Total Demand ‘GAP’ Australian projects Indonesia, RSA, Colombia Supply/Demand Projects China Brownfields / Capacity creep Existing supply 2000 2005 2010 2015 2020 Year 40 Source: Barlow Jonker, AME, ABARE
Slide 41: Development projects update
Development projects update US US San San Juan Juan Underground Underground Colombia Colombia Intercor Intercor integration integration South South Africa Africa Australia Australia Development Development projects projects Mount Mount Arthur Arthur North North 41
Slide 42: Boschmanskrans & Kwagga, Ingwe, South Africa
Boschmanskrans & Kwagga, Ingwe, South Africa Boschmanskrans $118M % complete Start Date: December 1999 Production: 6.5 mtpa (2002) On budget Years Kwagga $42M % complete Start Date: January 2003 Production: 10 mtpa (2004) On budget Years 42
Slide 43: San Juan Underground – New Mexico, US
San Juan Underground – New Mexico, US $146M % complete Start Date: October 2002 Production: 6 mtpa (June 2003) On budget Years 43
Slide 44: Mount Arthur North - Hunter Valley, Australia
Mount Arthur North - Hunter Valley, Australia $411M Start Date: March 2002 % complete Production: 12 mtpa (2006) On budget Years 44
Slide 45: Cerrejon Coal - Colombia
Cerrejon Coal - Colombia 40 Phase 2 Mt Phase 1 20 Optimise Years 45
Slide 46: Growth opportunities
Growth opportunities Strategic Strategicpositioning positioningat at China China key key points points inin logistics logistics •• MOU MOU with with Yanzhou Yanzhou value value chain chain •• High High value value seed seed investments investments •• Trading Trading opportunities opportunities Bowen
Slide 47: Project pipeline potential of $1 billion
Project pipeline potential of $1 billion Energy Coal NPV US$ 1 bn NPV US$m Base Approved projects Feasibility Concept/ Pre- Year 5 feasibility 47
Slide 48: Wrap up
Wrap up • Unique platform for value delivery • Market innovation critical • Premier asset portfolio • Focus on asset competitiveness & project delivery • Strong market driven growth potential • Organised for success 48
Slide 49: Questions and Answers
Questions and Answers 49 Richards Bay Coal Terminal