Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Day (March 2003)
61 slides from Bhp's investor day presentation, March 2003
Slide 1: Diamonds & Specialty Products
DIAMONDS & SPECIALTY PRODUCTS 14th and 18 th March 2003 Analysts and Investors Briefing
Slide 2: Agenda
Agenda INTRODUCTION Marcus Randolph – President D&SP DIAMONDS Marcus Randolph Kowie Strauss – CDO D&SP EXPLORATION Tom Whiting – VP Exploration D&SP TECHNOLOGY, INTEGRIS, Marcus Randolph RICHARDS BAY MINERALS HSEC & FINANCIAL Marcus Engelbrecht – CFO D&SP PERFORMANCE Page 2
Slide 3: D&SP's Role in BHP Billiton
D & SP’s Role in BHP Billiton • 1 of 7 Customer Sector Groups • Produces 12 % of BHP Billiton EBIT ($173 m at half year) and strong cash generation • Includes two highly attractive business sectors (diamonds & titanium) containing world class but single asset businesses • Exploration and Technology
Slide 4: Diamond Operations
DIAMOND OPERATIONS Marcus Randolph – President
Slide 5: Diamonds – An Attractive Business
Diamonds – An Attractive Business Price trend comparison 350 ROCE: 300 Diamonds 25% Zinc 14% 250 Copper 12% 1970=100 200 150 Diamonds 100 Zinc 50 Copper 0 1970 1975 1980 1985 1990 1995 2000 Note: Price trend is in real terms (yearly average). Copper and zinc are LME cash prices. Diamond price index
Slide 6: Diamond Industry Structure
Diamond Industry Structure US$billion Production Rough Polished Jewellery Retail CY2002 Marketing Manufacture Manufacturing Jewellery Revenue & Marketing & Marketing 0.02 De Beers LV ANTI TRUST De Beers 3.6 5.2 Almazny Dvor, Alrosa-Neva 0.1 and Oryol Alrosa 1.3 1.0 0.15 AuriusTM & Canada MarkTM BHP
Slide 7: Diamonds – The Future Looks Bright
Diamonds – The Future Looks Bright Demand • Growing 2 - 3% p.a. – New markets (China, India) – Branding and promotion stimulating demand Supply • At full capacity. Need new discoveries to meet demand – Russian production declining (c.17% of supply) – Botswana stable (c.31% of supply) – Canada growin
Slide 8: Diamonds – Steady Growth
Diamonds – Steady Growth EkatiTM started on budget and schedule in 1998 The key changes since startup are: 1998 2003 Cost to Achieve Throughput Rate (tpd) 9,000 12,000 <US$20 million BHPB Ownership 51 % 80 % US$426 million BHPB’s Market rough 65 % 100 % 0 Page 8
Slide 9: Carats Produced – Growing with throughput
Carats Produced – Growing with throughput 6 5 4 Throughput (tpa) Millions 3 Carats Produced 2 1 0 FY99 FY00 FY01 FY02 FY03 FY04 Note: 100% basis Page 9
Slide 10: Cost per Carat – an Operating Excellence Success
Cost per Carat – an Operating Excellence Success 70 65 60 US$ / Carat 55 50 45 40 FY99 FY00 FY01 FY02 FY03 FY04 Note: Real 2003 US$ Page 10
Slide 11: Ekati – Excellent HSEC Performance
EkatiTM – Excellent HSEC Performance 4.0 LTIFR per million manhours 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 May-99 Nov-99 May-00 Nov-00 May-01 Nov-01 May-02 Nov-02 Community – 42% indigenous workforce Social – Recently named one of Canada's top 100 Employers in 2001 and 2002 by Mediacorp – 7-10% of product
Slide 12: Respected, Critical Part of the Local Community
Respected, Critical Part of the Local Community EkatiTM has been the only producing diamond mine and is the largest private employer in Canada’s Northwest Territories Page 12
Slide 13: Plant Site
Plant Site Title Koala Koala North Panda Page 13
Slide 14: Diamonds Strategy
Diamonds Strategy Convert a great single asset (EkatiTM) with a defined life into a BHP Billiton scale, sustainable business Page 14
Slide 15: Diamonds Marketing & Growth
DIAMONDS MARKETING & GROWTH Kowie Strauss Chief Development Officer
Slide 16: Diamonds – Growth Proposition
Diamonds – Growth Proposition… Exploration - Competitively advantaged with FALCON TM, Junior alliances & kimberlite geochemistry capabilities Opportunities - Through risk-mitigating JV & financial structures in Risky willing to invest in risky countries where Countries diamonds are likely to be deve
Slide 17: Growth thrust is in leveraging Exploration funds and Technology
Our Growth thrust is in leveraging Exploration funds and Technology… For example Kalahari Diamonds raised $21 M for a focussed programme in Botswana Falcon Gravity Gradient Synergistic commercial deal between Kalahari and BHP Billiton • Kalahari initial risk funding • BHPB technology and land packag
Slide 18: Diamond Opportunities are best in Riskier Countries
Diamond Opportunities are best in Riskier Countries…. Our response is to: World diamond run-of-mine production • Recognise that an isolated by value (2002e) diamond mine with low Other Angola infrastructure requirements greatly South Africa 6% 10% reduces risk 11% Australia 4% • Use debt and equity
Slide 19: Evolving from being just another Rough Producer
We are Evolving from being just another Rough Producer…. EkatiTM Yellowknife Mine Sorting & Valuation BHPB 80% NWT Manufacturers 7% C Fipke 10% S Blusson 10% Regular Customers 50% London Antwerp 35% DTC Marketing Office Window Customers 8% Extract for polished programs AuriasTM Branding Page 19
Slide 20: Exploiting Value Adding Opportunities
…to exploiting Value Adding Opportunities… Polished Diamonds “Programmed Sales” 15-20% to Retailers EkatiTM Sales through Regular Antwerp JV Manufacturing or Distribution Outlets Office Contract polishing of JV Partners Other Sources Branded Sales (CanadaMarkTM, AuriasTM) Balance Regular Rough Sales
Slide 21: Implementing a focussed Branding strategy
We are implementing a focussed Branding strategy… • Globally recognised by 75% of all consumers • “If a wool product carries our brand it carries our guarantee of product quality” • “If a Diamond product carries our brand it: – Is sourced from Canada – Carries our guarantee of quality • Co-branding
Slide 22: Exploration
EXPLORATION Tom Whiting – Vice President Exploration
Slide 23: Discoveries come at a cost
Discoveries come at a cost …. Annual Discoveries versus Exploration Expenditure 310 discoveries in total 1980 – 2001 40 5 World exploration spending (nominal US$billion) Discoveries 4 30 Number of Discoveries 3 20 2 Expenditure 10 1 0 0 1980 1985 1990 1995 2000 Page 23
Slide 24: Quality discoveries require more than money
Quality discoveries require more than money …. World Class and Large Discoveries versus Exploration Expenditure 13 World Class and 125 Large Deposits 20 5 World exploration spending (nominal US$billion) Large Discovery 4 15 World Class discovery Number of Discoveries 3 10 2 Expenditure 5 1 0 0 1980
Slide 25: World Class discoveries are becoming more expensive
World Class discoveries are becoming more expensive…. Exploration costs per discovery (5 year rolling average) 800 700 World class discoveries x10 600 Nominal US$ million 500 400 World class & large discoveries 300 200 All discoveries 100 0 1980 1985 1990 1995 2000 Page 25
Slide 26: Exploration trends
Exploration trends • Overall discovery rates remain consistent • No recent World Class discoveries • Exploration expenditure increases while discovery quality decreases with terrain maturity • World class discoveries are made: – New technology in covered extensions of known prospective terrains – Ne
Slide 27: Discoveries of the past years
Discoveries of the past 20 years 13 World Class 125 Large 172 Other Grasberg 80,000 Insitu Value US$ Millions 60,000 Escondida 40,000 Voiseys Bay Collahuasi Escondida Norte Sun 20,000 Ladolam (Lahir) Tampakan Reko Diq Red Dog Batu Hijau Yanacocha Ekati Aqqaluk (Red Dog district) Agua Rica Century Ca
Slide 28: Discoveries of the past years…high grade gems
Discoveries of the past 20 years…high grade gems 20,000 13 World Class 125 Large 172 Other Ladolam (Lihir) 16,000 Tampakan Red Dog Insitu Value US$ Millions Betze Post (Goldstrike) Batu Hijau Yanacocha 12,000 Ekati Century Kucing Liar Agua Rica Aqqaluk (Red Dog district) Diavik Pascua-Lama (Nevada)
Slide 29: Succeeding in exploration - our strategy
Succeeding in exploration - our strategy • Be first with large plays in unexplored prospective ground – Covered extensions of known prospective terrains – New prospective terrains • Support Alliance Partnerships through the public markets – BHP Billiton has buy back rights to World Class deposits –
Slide 30: Alliance partners
Alliance partners They have to meet certain criteria: • Technically competent • Undergo rigorous Commercial Due Diligence • Projects rank highly in global portfolio • Stringent HSEC requirements Examples of long term relationships: • Dunsmuir Ventures Limited • First Quantum Minerals Limited • Corri
Slide 31: FALCON – A competitive advantage
FALCON™ A competitive advantage that makes the difference HIGH RESOLUTION AIRBORNE MAG GDD Test Survey Boundary Jay Point Lake 100E -100E Misery Pipe 2 km 2 km Page 31
Slide 32: Kalahari Diamonds – A New Alliance
Kalahari Diamonds – A New Alliance 400 km BOTSWANA Maun ZIMBABWE Nata NAMIBIA Francistown ORAPA Ghanzi Palapye Kang GABORONE JWANENG Major diamond mine Known kimberlite SOUTH AFRICA Kalahari Licences Motapa Licences Page 32
Slide 33: Kalahari Diamonds – A New Alliance
Kalahari Diamonds – A New Alliance • Deal Structure – Kalahari Diamonds - 75% annual capacity of one FALCONTM system over a three year period – BHP Billiton - rights to buy back either 51% or 60% for 4 times the exploration expenditure – BHP Billiton funds Kalahari’s joint venture costs through pre-
Slide 34: Northern Chile JV – FALCON survey
Northern Chile JV – FALCON™ survey PERU 100 km Arica FALCON™ survey BOLIVIA C H I L E PACIFIC OCEAN CERRO COLORADO Iquique Non- BHPB Mineral claims Page 34
Slide 35: New discoveries through being first with large plays
New discoveries will be made through being first with large plays in immature, prospective ground • Covered extensions of known prospective terrains • New prospective terrains BHP Billiton exploration strategy combines technical and commercial capabilities to address the risk • New technology • Valu
Slide 36: Technology
TECHNOLOGY Marcus Randolph – President
Slide 37: Evolutionary Technology
Evolutionary Technology Continuous improvement through low risk, incremental improvements: • MAC – Dust Control • Escondida – Increase Cu recovery by 4% with tailings regrinding/reflotation • Cannington – Remove fluorine from concentrates • Company Wide – 3D structural mappings/modelling – Mine plan
Slide 38: Revolutionary Technology
Revolutionary Technology Revolutionary – Technology which fundamentally alters the cost structure or relative attractiveness of various minerals • Generally poorly managed in mining companies • Properly executed, can be a critical part of company growth • In R&D our focus is D not R Page 38
Slide 39: Revolutionary Technology – Bio Leaching
Revolutionary Technology – Bio Leaching Alliance Cu • 50/50 JV with Codelco using BHPB technology to leach concentrates • US$60 Million plant under construction Chalcopyrite Heap Leaching • Testing a multiple operations • Believe days of conventional concentration and smelting are numbered Atmospher
Slide 40: Revolutionary Technology – Titanium Metal
Revolutionary Technology – Titanium Metal • Currently producing 0.5 Kg per day at 40% of cost of current Ti metal production • In process of scaling up • Substantially alters relative attractiveness of light metals and should be competitive with high grade stainless steel Page 40
Slide 41: Technology – Technical Marketing
Technology – Technical Marketing Situation: • Iron ore and metallurgical coal blends do not perform as the average of the individual component inputs • Product value-in-use to the customer varies widely Response: Value-in-use technical marketing inside our customer’s steel mills • BHP’s steel-making
Slide 42: Integris
Marcus Randolph – President
Slide 43: Integris – Industry Environment
Integris – Industry Environment Business Metals Processing, Distribution & Service Role Key link between the producer & metal users; Key activities are slitting, leveling, polishing, cutting and inventorying a wide range of metal goods Assets Working Capital intensive (75% of total assets) Size US$5
Slide 44: Integris – Company Situation
Integris – Company Situation (100% Basis) Size 3 Processing centres, 60 distribution centres, 2500 employees Financial Revenues of US$1.6 Billion (Primarily from Stainless Steel Performance and Aluminium, EBIT $30 million) History Formed Nov 2001 from the 50/50 merger of BHPB and Alcoa businesses Po
Slide 45: Integris – NAMD-Rasco Merger Benefit Capture
Integris – NAMD-Rasco Merger Benefit Capture(1) US$m CY02 CY03 Purchasing 16.6 21.9 Headcount 12.8 16.7 Facilities --- 4.3 Alcoa IT Support --- 2.8 Subtotal 29.4 45.7 Restructuring (8.2) (1.5) NET 21.2 44.2 (1) 100% basis Page 45
Slide 46: Integris – Strategy
Integris – Strategy 1. Complete NAMD-Rasco merger benefit capture 2. Raise performance to industry leading levels • Inventory turns 6X (now 5X) • Margins of 6% (now 2%) • EBIT of $100 – 150 million 3. Progressively exit • IPO? • Trade sale? • Merger with public company? 4. Would participate in conso
Slide 47: Richards Bay Minerals
RICHARDS BAY MINERALS Marcus Randolph – President Page 47
Slide 48: Richards Bay Minerals – Overview
Richards Bay Minerals – Overview (100% Basis) Ownership 50% BHP Billiton / 50% Rio Tinto Production 1.00 million tonnes Slag Capacity 0.28 million tonnes Zircon 0.10 million tonnes Rutile Competitive Largest and lowest cost producer of chloride Position slag; ore reserves > 25 years Management Indep
Slide 49: Richards Bay Minerals – Current Strategy
Richard Bay Minerals – Current Strategy Maximise co-product sales (esp Zircon) Match production to demand • Slag production at 80% capacity in CY02 Price to maintain market share Result • RBM Value is optimised • Stockpiling unprocessed ilmenite • Feedstock market oversupplied and prices expected to
Slide 50: Richards Bay Minerals – Supply vs. Demand
Richards Bay Minerals – Supply vs. Demand Chloride Feedstock Capacity/Demand Forecast 4,500 Demand Supply with announced projects Volume ('000 tonnes TiO2 units) Supply with potential new projects 4,000 3,500 3,000 2,500 2,000 1997 1999 2001 2003 2005 2007 2009 2011 Page 50
Slide 51: HSEC & Financial Performance
HSEC & FINANCIAL PERFORMANCE Marcus Engelbrecht – Chief Financial Officer Page 51
Slide 52: Safety Performance - Lost Time Injury Frequency Rate
Safety Performance - Lost Time Injury Frequency Rate LTIFR Performance US Avg 13.0 (1) 6 5 per million man hours 4 BHPB avg LTIFR in 2002 LTIFR 3 2 1 0 1998 1999 2000 2001 2002 (1) Source: Australian Minerals Council Safety & Health Performance Report 2001 Page 52
Slide 53: Financial Performance – Steady Improvement
Financial Performance – Steady Improvement US$m Half Year to FY 2002 FY 2001 Dec 2002 EBIT(1) Diamonds 63 180 128 Other Business 110 168 182 Subtotal 173 348 310 Exploration & Technology (23) (76) (122) TOTAL 150 272 188 (1) Earnings before interest and tax (excluding exceptionals) Page 53
Slide 54: Strong Cash Generation
Strong Cash Generation US$m Half Year to FY 2002 FY 2001 Dec 2002 Operating Activities Diamonds 79 142 129 Other Business 110 169 178 Subtotal 189 311 307 Exploration & Technology (25) (83) (120) TOTAL 164 228 187 Note: Amounts shown are earnings before interest, tax, depreciation, amortisation and
Slide 55: Return on Capital – Excellent and Improving
Return on Capital – Excellent and Improving US$m 31 Dec 02 30 Jun 02 31 Dec 01 Net Operating Assets Tangible Assets 932 938 906 Joint Ventures 585 674 769 Working Capital / Other (33) 8 (3) Total Net Operating Assets 1,484 1,620 1,672 EROC(1) 19.3% 17.5% 17.5% EBIT Margin(2) 20.9% 18.4% 18.4% (1) Ea
Slide 56: Merger Benefits Captured
Merger Benefits Captured US$m Half Year to FY 2002 TOTAL Dec 2002 Merger Benefits Diamonds 1 14 15 Exploration & Technology 9 19 28 Total 10 33 43 Page 56
Slide 57: Earnings vs. Other Diamond Producers
Earnings vs. Other Diamond Producers US$m Turnover EBIT(1) EBIT(1) / Turnover BHP Billiton Diamonds(2) 393 180 46% Rio Tinto(3) 372 102 27% De Beers(4) 5,154 866 17% Al Rosa(5) 1,658 215(6) 13% (1) Earnings before interest, tax and exceptionals (2) Year Ended 30 June 2002 (3) Year Ended 31 December
Slide 58: Comparison of Minerals Exploration Spend – Top Three
Comparison of Minerals Exploration Spend – Top Three US$m Exploration(1) % EBITDA(2) BHP Billiton 62 1.3 % Anglo American(3) 97 2.0 % Rio Tinto(4) 86.5 2.2 % (1) Rio and Anglo Exploration budgets for 2002 sourced from M EG 2002 Survey (2) Earnings before interest, tax, exceptionals, depreciation and
Slide 59: Diamonds and Specialty Products – Our Strategic Fit
Diamonds and Specialty Products – Our Strategic Fit 1. Outstanding Assets – EkatiTM and Richards Bay World Class 2. Growth – Minerals Exploration and Revolutionary Technology key generators of growth. Diamonds options encouraging 3. Customer Centric Marketing – technical marketing in carbon steel; C
Slide 60: FALCON Innovation
-0.2 Anomalous Density (g/cc) Page 60 bhpbilliton
Slide 61: Diamonds & Specialty Products
DIAMONDS & SPECIALTY PRODUCTS 14th and 18 th March 2003 Analysts and Investors Briefing