Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Presentation (September 2003)
68 slides from Bhp's investor presentation, September 2003
Slide 1: BHP Billiton Stainless Steel Materials
BHP Billiton Stainless Steel Materials Presentation to the Investment Community September 2003
Slide 2: Introduction and Strategy
Introduction and Strategy Chris Pointon President Stainless Steel Materials
Slide 3: Overview of Today's Briefing
Overview of Today’s Briefing Introduction Chris Pointon – President SSM Industry & Customers Chris Campbell – Marketing Director SSM Financial Performance Brendan Gill - Chief Financial Officer SSM Samancor Chrome Chris Pointon Cerro Matoso Chris Pointon QNI Tim Netscher - President QNI Pty Ltd Oppo
Slide 4: The Stainless Steel Materials CSG Purpose
The Stainless Steel Materials CSG Purpose: To be the leading integrated supplier of raw materials to the Stainless Steel Industry • We supply primary nickel and ferrochrome products to the Stainless Steel industry – the fastest-growing major use of metals. • Our focus is on providing a value proposi
Slide 5: SSM has an established production and marketing presence
SSM has an established production and marketing presence QNI Yabulu Refinery 32ktpa nickel Cerro Matoso Colombia 50ktpa nickel South Africa Samancor Chrome LEGEND 1Mtpa Ferrochrome Operations Maj or Project Ravensthorpe Project BHP Billiton Marketing
Slide 6: SSM strategy – robust markets, nickel supply gap, quality operations
SSM strategy – based on robust and growing markets, an emerging nickel supply gap, and quality operations • Continuous improvement of existing Nickel and Chrome operations based on: – Competitive operations – A value in use offering to customers – A strong market position in a high growth market – A
Slide 7: Our Customers and the Industry Context
Our Customers and the Industry Context Chris Campbell Marketing Director – Stainless Steel Materials
Slide 8: Stainless Steel Value Chain
Stainless Steel Value Chain (at current market prices and volumes – Aug 2003) Raw Materials Consumption by Grade Product Form End Use Stainless 74% Austenitic 70% 5.1 Mt US$ 4.6 Bn Steel Scrap AISI 300 Flat products 30% Process series Plant Sheet/Strip/ 18% Cr 13 Mt Plate 750 kt 10% Building & Prima
Slide 9: Stainless Steel is the fastest growing major use of metals
Stainless Steel is the fastest growing major use of metals, and is expected to continue to grow strongly 35 CAGR 1992 – 2002 CAGR 2002 – 2012 30 4.5% >5% 25 20 (mt) 15 Historical growth (30 years) 10 CAGR 1970 – 2000 4.6% 5 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Slide 10: Austenitic Stainless growth; primary nickel and chrome inputs grow faster
Austenitic Stainless has maintained a strong growth trend. Primary Nickel and Chrome inputs will grow proportionately faster as scrap supply is constrained CAGR Primary Growth - Rising to 5%pa Historic Projected kt Secondary Growth - Exceeding Primary 1989-2002 2003- 6,000 2010 7.5% >3.5% 5,000 3.8%
Slide 11: Asian region nickel growth outpaces traditional markets
Asian region growth has outpaced that of traditional Nickel markets in the past decade, with trend expected to continue, especially in China 450 +56% Total Demand 400 1990 2002 350 300 250 +18% -85% 200 kt Ni 150 -9% +89% +208% +405% +154% 100 50 0 W. USA Japan Russia S. Korea Taiwan China Others Eu
Slide 12: China apparent consumption & expected production of stainless steel
China apparent consumption & expected production of stainless steel 10,000 CAGR (2002 – 2012) Resurgent Growth? 9,000 Demand: 9 % Saleable Production: 24 % Phase 3 8,000 Consolidation Phase 2 7,000 Initial surge Phase 1 6,000 5,000 (kt) 4,000 3,000 2,000 1,000 Saleable Production Demand 0 1998 1999
Slide 13: China – increasing market for seaborne nickel and chrome imports
China – increasing market for seaborne imports of Nickel and Chrome 400 Nickel 350 Net Imports Production Demand CAGR (2002 – 2008) 300 Production: 9% (kt) 250 Demand: 14.5% 200 Net Imports: 20% 150 100 50 0 98 0 02 04 06 08 01 012 1 2 2 2 2 2 2 2 1,800 Ferrochrome Net Imports Production Demand 1,40
Slide 14: A primary nickel supply gap is set to emerge
A primary nickel supply gap is set to emerge over the present decade Mt 1.7 Nickel reserves Nickel production 1.6 Use Sulphide 25% Sulphide 60% Laterite 75% Laterite 40% 1.5 “Supply Gap” 1.4 Ravensthorpe 1.3 Voisey’s Bay Market surplus Goro 1.2 Brownfield expansions 1.1 Source : Brook Hunt, USGS, BH
Slide 15: High financial and technical barriers to entry in nickel
The primary nickel supply business has high financial and technical barriers to entry High Capital Tenure of the right Barriers to entry Intensity, Technical quality resources Complexity HIGH Capital Efficient Growth Supplier power Industry rivalry Buyer power HIGH MODERATE TO HIGH MODERATE TO HIGH
Slide 16: Cash margins positive for competitive producers
Cash margins are positive for competitive producers, but in the 1990’s many producers did not cover their cost of capital Real terms 2003 US$/lb 12.00 10.00 LME cash price 8.00 median C1 6.00 operating median C3 cost operating cost 4.00 2.00 Source : Brook Hunt 0.00 1980 1985 1990 1995 2000
Slide 17: Ferrochrome demand growth outlook is robust
Ferrochrome demand growth outlook is robust – supply side is the issue 14,000 12,000 Ferrochrome Demand (kt) 10,000 8,000 6,000 4,000 Source : ICDA, BHP Billiton analysis 1990- 1995- 2000- 2005- 2010- 1995 2000 2005 2010 2020 2,000 No. of additional 120 kt 1.3 1.0 1.6 2.4 3.8 furnaces required per a
Slide 18: South Africa dominates primary Ferrochrome sector
South Africa dominates the primary Ferrochrome sector and will have the major share of future expansions World South Africa 70% Chrome Ore Reserves Zimbabwe 19% Kazakhstan 7% Other 4% Asia 12% Others 8% World Primary Samancor (BHP Billiton/Anglo) 16% Chrome Supply Xstrata 20% ASA 1% 2002 Ferralloys
Slide 19: SSM Customer Centric Marketing Strategy
BHP Billiton Strategic Value Driver No 3 SSM Customer Centric Marketing Strategy We will: Sell more product … at higher margins … by meeting the needs of our customers … whilst reducing risk
Slide 20: Integrated Customer focused marketing
Integrated Customer focused marketing (Strategic Value Driver) Volume Margin Needs Risk • Regain customer relationship, eliminate agents 9 9 9 9 • Improve marketing-production integration. 9 9 9 • Implementation of product portfolio management. 9 9 9 • Extension of quantifiable performance metrics.
Slide 21: Resultant opportunities to create value
Resultant opportunities to create value • Clear focus on benchmark, not only history • Customer recognition as a preferred supplier • Margin improvement (premia and costs) • Improved supply chain management • Cross BHP Billiton CSG opportunities • Ability to add more volume and products to portfolio
Slide 22: Sales growth and improved operating performance
Sales growth and improved operating performance kt Sales Volume 1,500 Source : BHP Billiton 100 1,400 1,300 90 1,200 80 1,100 1,000 70 900 800 60 700 50 600 500 40 FY01 FY02 FY03 Chrome (LHS) Nickel (RHS) kt Working Capital 180 160 140 120 WC Days 100 80 60 40 20 0 FY02 FY03 Source : BHP Billiton Ch
Slide 23: Financial Performance
Financial Performance Brendan Gill Chief Financial Officer – Stainless Steel Materials
Slide 24: Nickel safety performance benchmarks favourably with peers
Nickel safety performance benchmarks favourably with its peers. Samancor Chrome is undertaking a major improvement initiative. BHP Billiton Stainless Steel Materials 10 8 6 LTIFR 4 8.6 2 4.5 3.7 3.0 3.2 2.5 0 1998 1999 2000 2001 2002 2003 Industry comparison 2001 - 2002 10.0 8.0 6.0 LTIFR 4.0 2.0 0.
Slide 25: EBIT Variance FY03 to FY02
EBIT Variance FY03 to FY02 (Actual) – influence of price, FX and inflation, but a significant contribution from increased efficiencies SSM - EBIT Variance Analysis US$M 250.0 202 (38) 200.0 (29) 150.0 150 (45) 11 40 100.0 50.0 6 3 0.0 e e on e s n s um IT ric ng ie io st ti EB nc at P ha ol co fla I
Slide 26: BHP Billiton nickel is cost competitive on a full cost basis
BHP Billiton nickel is cost competitive on a full cost basis, but further improvement in margin is essential 4.00 Cash Operating Costs (C1) FY2003 3.50 3.00 US$/lb (C1 Co sts 2003) 2.50 2.00 SSM Nickel 1.50 1.00 0.50 4.00 Total Operating Costs (C3) FY2003 0.00 3.50 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
Slide 27: Samancor remains competitive in the Ferrochrome market
Samancor remains competitive in the SA dominated Ferrochrome market, and is aggressively reducing costs 55 Cash Operating Costs (C1) 50 **New producers in ramp-up excluded 45 40 35 (US$c/lb) 30 25 20 15 Samancor 10 5 0 30% 60% 90% 100% 10% 20% 40% 50% 70% 80% 0% (ex-plant basis based on projected 20
Slide 28: Samancor Chrome – Re-engineering the business
Samancor Chrome – Re-engineering the business to achieve a low cost position
Slide 29: Samancor Chrome (60% Ownership): Re-engineering
Samancor Chrome (60% Ownership) : Re-engineering to regain a leading competitive position PRODUCTION FACILITIES SOUTH AFRICA Reserves : 40Mt @ 42.4% Cr Resources : 570Mt @ 43.3% Cr NB based on 38% Cr cut-off ! ! ! ! Chromite Mines Ferrochrome Smelters Achievements Critical Issue Enterprise restructu
Slide 30: Restructuring of Samancor Chrome by a 3 Horizon Strategy
Restructuring of Samancor Chrome by a 3 Horizon Strategy Reposition in Future Industry Optimise value through prudent Context Manufacturing mindset to investment reposition chrome at the •BEE as an opportunity bottom of the cost curve •High IRR capacity creep projects. •Anticipate customers’ future
Slide 31: Re-engineering cost drivers and smelter cost benchmark
Re-engineering - variable cost drivers + FeCr unit cost benchmark show positive trends for smelters. Smelter Cost (Rand/t Real 2003) Chrome LTIFR 1800 1773 7 1750 1714 1705 6 1700 1681 5 1650 LTIFR 4 1600 1589 3 1550 1480 1455 2 1500 1450 1415 1 1400 0 FY 00 FY 01 FY 02 FY03 1999 2000 2001 2002 2003
Slide 32: Cerro Matoso SA - Lowest Cost mainstream Ni producer
Cerro Matoso SA - Lowest Cost mainstream Ni producer, with a premium low-carbon FeNi product
Slide 33: Cerro Matoso is the world's largest ferronickel producer
Cerro Matoso nickel mine and smelter in Colombia is the world's largest and most competitive ferronickel producer
Slide 34: Cerro Matoso SA – 3 Horizon Strategy
Cerro Matoso SA – Improvement and expansion under a 3 Horizon Strategy Long term sustainability and Brownfields expansion extension of mine life Maximise cost-efficiency • Stabilisation • Exploration for additional reserves • Stabilisation • Construction and commissioning of • Continuous improvement
Slide 35: Cerro Matoso has been de-bottlenecked and expanded
Cerro Matoso has been de-bottlenecked and expanded, and is a high quality operation 50,000 Production History 45,000 40,000 Tonnes Ni 35,000 30,000 25,000 20,000 15,000 Reserves : 53.7Mt @ 1.81% Ni 10,000 Resources : 58.1Mt @ 1.78 % Ni 5,000 NB based on 1.1 % Ni cut-off 0 83 88 93 98 2000 2001 2002
Slide 36: Cerro Matoso is the lowest cost major nickel producer
Cerro Matoso is the lowest cost major nickel producer, with a premium product. Operating improvements will continue. 2.50 US$/lb Ni (Real 2003) 2.00 1.50 Source: BHP Billiton 1.00 1998 1999 2000 2001 2002 2003 Year Ending June C1 Cost C3 Cost Achievements Critical Issues - 1990’s : Production stabil
Slide 37: QNI - A platform for capital efficient, low risk growth
QNI - A platform for the next phase of capital efficient, low risk growth Tim Netscher President – QNI Pty Ltd
Slide 38: The QNI 3 Horizon Strategy
The QNI 3 Horizon Strategy – creating a robust platform for capital efficient growth Central Refinery Strategy Optimise Yabulu margins • Phase I: • Incremental value-added Develop Ravensthorpe as Stabilise Yabulu operation “front end” and expand product development. • De-bottlenecking to increase Ni
Slide 39: Horizons + 2: improved safety and production performance
Horizons 1 + 2: Establishing the foundation - improved safety and production performance 34,000 9 32,000 8 7 30,000 6 Tonnes Ni LTIFR 28,000 5 26,000 4 3 24,000 2 22,000 1 20,000 0 2000 2001 2002 2003 Year Ending June Tonnes Ni LTIFR Source : BHP Billiton
Slide 40: Horizons + 2: improved cost efficiencies at Yabulu
Horizons 1 + 2: Establishing the foundation - improved cost efficiencies demonstrate Yabulu robustness 3.50 US$/lb Ni (Real 2003) 3.00 2.50 Ni Price C3 Cost C1 Cost 2.00 FY00 FY01 FY02 FY03 Year Ending June 3.25 Yabulu Site Cash Cost of Production after Cobalt Credits 3.00 US$ / lb 2.75 Normalised t
Slide 41: Horizon 3: The Yabulu Strategy
Horizon 3: The Yabulu Strategy combines a low cost / low risk central refinery with an efficient mine and leach operation Cost position 3rd Quartile Current Position Production 32 ktpa Ore Capital Cost - Yabulu
Slide 42: Horizon 3: The Yabulu Strategy – Phase 1
Horizon 3: The Yabulu Strategy combines a low cost / low risk central refinery with an efficient mine and leach operation Cost position 2nd Quartile Phase 1 Production 70 – 80 ktpa Capital Cost Ore US $1B Yabulu Expansion Ravensthorpe
Slide 43: Yabulu Central Refinery Strategy and Ravensthorpe Project
Yabulu Central Refinery Strategy and the Yabulu Expansion – Ravensthorpe Project Ravensthorpe Yabulu Mining 0.8%Ni Releach Beneficiation Ni Co 1.9% Ni separation Autoclave AL (PAL) Co Chemgrade Ni>99% 1400 tpa 44,000 tpa CCD Inter mediate 40% Ni
Slide 44: Nickel – Opportunities for further capital efficient growth
Nickel – Opportunities for further capital efficient growth Steve Roberts Chief Development Officer – Stainless Steel Materials
Slide 45: Development – a portfolio of development programmes
Development – a portfolio of development programmes Lac Ga yot Mid Continent San Felipe Philippines Indonesia Mithril Alliance Ravensthorpe Streaky Bay Early Stage Sulphide Exploration Early Stage Laterite Projects Advanced Stage Laterite Project
Slide 46: The Yabulu Strategy – Phase 2
The Yabulu Strategy combines a low cost / low risk central refinery with an efficient mine and leach operation Bottom of Cost position curve Phase 2 Production 70 – 80 ktpa Intermediate Capital Cost US $0.5 Yabulu Expansion Ravensthorpe
Slide 47: Yabulu Expansion-Ravensthorpe project benchmarks well
Yabulu Expansion-Ravensthorpe project benchmarks well and enhances the competitiveness of Yabulu Central Refinery July 03 Falco Estimate excluding Capital Intensity – US$ per annual lb of Ni production US$/lb Estimate power plant 18.00 16.00 14.00 Capex estimate to 12.00 concentrate only. 10.00 8.00
Slide 48: Technology
Technology Process Technology ? Maxim ising Margin through best fit selection: -Environmental Impact -Operability -Maintainability -Capital Cost -Operating Cost •Technology choices tuned to ore body are key success factors of nickel projects, especially laterites. •Significant front end loading cost
Slide 49: SSM Way Forward
SSM Way Forward C. Year 2003 2004 2005 2006 2007 2008 2009 2010 CMSA Line 2 Expansion QNI Ravensthorpe/Yabulu Expansion Phase 2 Expansion Chrome M&A Growth As opportunities arise New Projects Facilities Debottlenecking/Improvement Initiatives Brownfields Growth, including development phase Potential
Slide 50: Conclusion
Conclusion The Nickel market - Constrained supply - Price bias will be to the upside for some years, but constrained by price-elastic demand A robust set of assets providing a platform for further growth in nickel - Capital efficiency - Continuous improvement - A value proposition to customers Our g
Slide 51: Ohpodilliton
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Slide 52: Appendix
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Slide 53: SSMs Improving Financial Performance
SSMs Improving Financial Performance US$M FY03 FY02 FY01 Turnover 1106 868 994 EBIT CMSA 167 72 95 Yabulu 24 -6 25 Samancor 8 -20 -2 Profit from Operations 199 46 117 Development -10 -10 -9 Corporate -6 -7 -5 Fair Value Amortisation -22 -21 -10 Other -11 -6 -20 EBIT before Exceptionals 150 3 74 NB:T
Slide 54: CMSA Financial Performance
CMSA Financial Performance US$M FY03 FY02 FY01 Production Tonnes 46,863 40,393 31,756 M lb Ni 103 89 70 Sales Tonnes 47,074 41,619 30,290 M lb Ni 104 92 67 Turnover $M 338 239 222 EBITDA $M 189 93 119 Depreciation $M 22 21 24 EBIT $M 167 72 95 Turnover - EBITDA $M 149 146 103 $/lb Production 1.44 1.
Slide 55: QNI Financial Performance
QNI Financial Performance US$M FY03 FY02 FY01 Ni Production Tonnes 31,166 28,451 28,969 M lb Ni 69 63 64 Ni Sales Tonnes 33,008 29,009 27,267 M lb Ni 73 64 60 Ni Turnover $M 234 169 190 EBITDA $M 48 13 44 Depreciation $M 24 19 19 EBIT $M 24 -6 25 Turnover - EBITDA $M 186 156 146 $/lb Production 2.71
Slide 56: Samancor Chrome Financial Performance
Samancor Chrome Financial Performance US$M FY03 FY02 FY01 Chrome Alloys Production 000 Tonnes 990 837 909 Chrome Alloys Sales 000 Tonnes 1,073 961 885 Chrome Alloys Turnover $M 459 348 374 EBITDA $M 34 13 37 Depreciation $M 26 33 39 EBIT $M 8 -20 -2 Turnover - EBITDA $M 425 335 337 Turnover - EBIT $
Slide 57: SSM – Nickel EBIT Variance Analysis
SSM – Nickel EBIT Variance Analysis US$M 175.0 140 (38) 11 0 (16) 150.0 27 142 (5) (8) 125.0 100.0 75.0 50.0 8 25.0 23 0.0 e e s on n s e s er ric um et ng io st ie th IT ti IT at nc s co P ha ol fla O EB as EB or ie V d c In pl of ic 02 ke Ex 03 f Ex Ef le lin 20 20 sa d ne ne e on ric Ju Ju ss P /
Slide 58: SSM – Chrome EBIT Variance Analysis
Ju 0.0 US$M -30.0 -20.0 -10.0 10.0 20.0 30.0 40.0 ne 20 02 EB (20) IT Source : BHP Billiton V ol um e (2) P P ric ric e e 62 d lin ke d co 0 st s Ex c ha ng e (24) In fla ti on (37) SSM – Chrome EBIT Variance Analysis Ef f ic ie nc P ie s 13 ro Ex fit /l o pl ss or at on io n 0 sa le of as s 2 et s
Slide 59: Depleting secondary supply from stainless steel scrap
Depleting secondary supply from Stainless Steel Scrap is also aggravating the growing Ni supply shortage Historical External Austenitic Scrap Ratio* vs Theoretical Scrap Ratio* (1960-2030) Stainless steel production grows at 5.0% p.a. from 2000 onwards 50% 45% Historical External 40% Theoretical Ext
Slide 60: Stainless Steel Production and IP
Stainless Steel Production and IP 40.0% 8.0% 30.0% 6.0% 20.0% 4.0% 10.0% 2.0% 0.0% 0.0% -10.0% -2.0% WW Stainless Steel % change (left scale) -20.0% WW IP % change (right scale) -4.0% Source: Macquarie -30.0% -6.0% Jan-93 Jan-94 Jul-96 Jul-97 Jan-98 Jan-99 Jul-02 Jan-92 Jul-92 Jul-93 Jul-94 Jan-95 J
Slide 61: Stainless Steel is the fastest growing major use of metals
Stainless Steel is the fastest growing major use of metals, and will continue to grow strongly Stainless Slab Production – million tonnes 25 20 China 15 Russia Other 10 Japan W. Europe 5 0 USA 1970 1975 1980 1985 1990 1995 2000 Source: Heinz Pariser
Slide 62: Ferrochrome falling price trend is a continuing challenge
Ferrochrome falling price trend is a continuing challenge to the industry USc/lb (Real) 160 CAGR Price (80 - 00) = -3.24% Largest risks to cost 140 •Reductants •Electricity 120 100 80 60 40 CAGR Cost (80 - 00) = -4.3% Source: CRU, Samancor Analysis 20 80 85 90 95 00 19 19 19 19 20
Slide 63: SSM Marketing
SSM Marketing Nickel & Cobalt Sales Volume by Product Ferronickel 57% (47,074t) QN Higrade Nickel 1% (627t) Nickel Intermediate 10% (8,499t) Specialty Nickel 1% (1,203t) QN Nickel Compacts 28% (22,680t) ChemGrade Cobalt 3% (1,969t) Source: BHP Billiton
Slide 64: SSM Marketing
SSM Marketing Ferrochrome Sales Volume By Product Charge Chrome 89% (958 mt) Medium Carbon FeCr 7% (69mt) Low Carbon FeCr 4% (46mt) Source: BHP Billiton
Slide 65: SSM focus on the higher growth Stainless Steel Market
SSM focus on the higher growth Stainless Steel Market Global primary nickel market by first use 1990s average growth 3% Stainless Steel Materials 65% p.a. (2% ) was reduced by Russian decline 2% Non-ferrous alloys 12% 1% Alloy steels 5% 1% Foundry 5% 1% Plating 7% Future Growth 5% Batteries 4% High
Slide 66: SSM Mid-ranked size allows room for growth
SSM Mid-ranked size allows “room for growth” BHP Billiton 5% WMC 4% Eramet 4% OMG 3% Other primary 24% Stainless scrap 25% Other scrap 3% Norilsk 14% Inco 12% Falco 6% Source : INSG
Slide 67: Extensive testing of the EPAL process at Kewdale pilot facility
Extensive testing of the EPAL process at the purpose-built piloting facility in Kewdale, WA. Also, extensive testing of materials of construction
Slide 68: SSM has a strong, experienced management team
SSM has a strong, experienced management team President Stainless Steel Materials Chris Pointon Manager Vice President Human Resources HSEC Greg Ruthven Steve Barnett President Chief Financial President Chief Director President QNI Officer Cerro Matoso Development Marketing Samancor Officer Chrome T
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