必和必拓 (BHP) 2005 Q2 法說會逐字稿

Ladies and gentlemen, welcome to our presentation of BHP Billiton's results for financial year 2005. My name’s Chip Goodyear, Chief Executive Officer of BHP Billiton, and joining me here in Melbourne today is Bob Kirkby and Marius Kloppers. Bob, as you know, is our Group President of Carbon Steel Materials, and Marius is our Chief Commercial Officer.

In London we have Chris Lynch. Chris Lynch is our Chief Financial Officer and he’ll join me in making some prepared comments today, and with Chris we have Phil Aiken. Phil is the Group President for the Energy business. In Johannesburg is Mike Salamon. Mike is an Executive Director and the Group President of Non-Ferrous Materials. My colleagues are going to join me in answering some of your questions a little later today.

And as we did before, we’re going to try and keep the prepared comments to a relative minimum in order to give you more time to ask your questions. So, as you know, keeping comments to a minimum is fairly difficult for me but I’ll try to do it anyway.

First of all, let’s go to slide 4 which is the highlights in the screen in front of you, at least in this room. People, as you know, are absolutely critical to our strategy and to our long-term success, and therefore it’s appropriate to talk a little bit about safety. A year ago I began by saying that we had done a study of safety and our safety systems, and did that with some outside help. And they had determined that our safety systems were very good, okay, in some cases some of the best in class.

But that our operating discipline - and this is the way that we actually adhere to those systems - were things that we needed to work on. And that’s been something the organization’s worked very hard on over the last year. I'm pleased to say we've had some very good results there. Our classified injury frequency rate, which is an important number, had a 21% decrease and that’s very good.

Again, as you say in your press release and I’ll talk about a little later, that comes despite some very good production results. And that’s the exact message we want to tell, that good business and good safety are very much alive. Unfortunately, safety is not something you can say you're ever finished with, it’s a continuous process. And this year we did have 3 fatalities in our operations. Now that’s better than the 17 we had in 2004 but, as you know 1 fatality is 1 fatality too many.

So we continue to work on our systems and our operating discipline, and that’ll continue to be an aspect of this Company essentially infinitum.

Moving to the financial results, let me begin by saying we had very strong results across our business - operationally and financially. We set production records in 11 separate commodities. We did that - a combination of the capacity expansion we've had over the last 2 years, as well as the operating excellence program that’s been part of the Company for quite some time.

When you take those production records and combine it with the environment that we’re in - the strong pricing environment we’re in - you end up with some significant financial records. And that’s coming off of a very good 2004, which even of itself was a record.

EBITDA was $11.4b for the year, EBIT was $9.3b, and attributable profit was $6.5b, up 86% from the prior year. Our earnings per share were over $1.06, and that was an 89% increase from the prior period. We had EBIT increases in every 1 of our customer sector groups year-on-year, and our Group EBIT margin was over 37%, again a significant increase on the prior year.

We commissioned 8 major projects in the last year. We approved 4 new projects - 2 in -- 3 in -- 2 in petroleum, 1 in copper and 1 in iron ore. Our project pipeline currently stands at $11.9b, and I’ll talk about that a little bit more, later in my comments today.

As you're aware, we had a successful acquisition of WMC, that was about a $7.2b commitment. I’ll talk about that in a few minutes also. And then we did complete our capital management program which we announced last year, the $2b capital management program, produced through the share buyback in the limited stock. And by rebasing our dividend which we did the last time we made a dividend announcement.

So with that, I would just say it has been an illustration of a successful execution of strategy over a period of time. Although this is a very good year, it’s 1 that does represent what can happen when we bring opportunity and preparation together. And that kind of result can result in these kind of outcomes, that we have financially and operationally for 2005.

So with that, let me turn it over Chris who’ll make a few comments on the financial area, and then I’ll come back with a few comments before our questions.

Thanks Chip and welcome everybody. Before I go through the results a few reminders. Firstly, all references to dollars are obviously to US dollars in -- throughout the presentation. The comparison with the prior period refers to the period ended June 30, 2004. And our results today include the earnings from the former Western Mining Resources Limited assets for the full month of June. And finally when referring to headline numbers, we’ll exclude the exceptional items in both periods.

So slide number 6 shows our record headline results for the year ended June 30, 2005. Turnover increased by 28% to $31.8b, primarily due to higher commodity prices which added $5.7b, but also due to higher volumes sold into that high price environment. EBITDA of $11.4b and EBIT of $9.3b are up 53% and 70% respectively. Attributable profit of $6.5b is 86% higher than the comparative period, and earnings per share of $1.064 is an increase of 89% on the prior year.

Our results include a number of exceptional items which in total reduced attributable profit by $114m. These items fall into 3 broad categories. First, there's $298m profit from the disposal of assets and other investments. Secondly, there's a charge of $387m for decommissioning and site restoration plans, $266m of which relates to the decision taken today to permanently close the Boodarie hot briquetted iron plant.

And a charge -- a further charge of $79m to restructuring certain operations mainly associated with the WMC assets.

Turning now to slide number 7, where you can see that the EBIT contribution increased year-on-year for each of our 7 customer sector groups. In the Petroleum CSG, EBIT increased by 32% to $1.8b. Prices were up for oil by 46% and natural gas by 14%. The new production from the North West Shelf Train 4 - Rod and Mad Dog - all commissioned in the current year. An increased production from the ramp-up of Ohanet which was commissioned in October of 2003, contributed to the increased result.

Partially offsetting this was the impact of significantly higher price link costs, and lower production of crude and condensate volumes. The latter due to natural field decline of mature assets and the sale of Laminaria and Corallina oilfields.

On the exploration front, we had a very successful year with Petroleum’s bookings of proven reserves totaling 141m barrels of oil equivalent, giving a reserves replacement ratio of 118%. Negative impacts of a weaker U.S. dollar and inflationary pressure on import costs were a theme for most our minerals and CSGs. I won't go through each individually, but I will cover the impact of rising costs across the entire Group later in this presentation.

The Aluminum CSG achieved a 26% increase in EBIT to $977m, with the main drivers being higher prices, higher volumes and the benefits from the various operational improvement programs. In fact, in a year of strong prices we again produced record volumes of aluminum metal. These increases were partially offset by higher LME price-linked costs, increased pot relining activity, and a $36m charge related to the agreed repurchase of an aluminum supply contract.

In Base Metals, EBIT of $2.177b was 88% higher than for last year. Record annual production at Escondida, Antanima and Cannington, combined with higher production at Tintaya, enhanced our ability to capture the current high price environment. Price-linked costs, mainly TCRCs, were higher than for the previous period.

We've changed our methodology for calculation of the provisional pricing for copper to the lower of the spot rate at balance date, or the forward curve, to better reflect the value and reduce volatility. This resulted in a positive $3m addition to EBIT during the current period. Whereas had we used the spot rate, effective on June 30, the adjustment would have been $49m positive.

In Carbon Steel Materials, record production volumes; higher prices for iron ore, coking coal and manganese ore and alloy; and record shipments from each of our owned and operated Australian ports, led to an EBIT increase of $1.7b or 148%. Increased CIF business, as well as modified supply arrangements with Bluescope Steel, also contributed to these earnings.

Partially offsetting this was the impact of higher price-linked royalty costs; higher labor and contractor costs; and increased stripping cost to Queensland Coal, where we have accelerated production levels to meet customer demand. Increased depreciation charges of Western Australian iron ore, together with Boodarie Iron being on care and maintenance throughout the year, also negatively impacted this result.

Diamonds and Specialty Products EBIT of $498m was 8% higher than the prior period. EBIT for Ekati by $28m to $380m, as a result of higher realized diamond prices and improved quality, offset by a production from lower grade ore during the year. The impact of this lower grade was more noticeable in the second half of this year, when EBIT contribution reduced to $95m from $285m in the December half. This lower level of earnings is expected to continue into the 2006 year, with a consequent impact on EBIT.

The contribution from Integris ceased following the divestment of our interest in January of this year. The profit realized on sale of $90m is included in this D&SP result.

Energy Coal EBIT increased by 163% to $616m. Higher export prices contributed but were partially offset by increased costs. These were largely incurred at Ingwe on items such as contractors and major overhauls, to ensure optimal future production and efficiency.

Stainless Steel Materials EBIT increased by 33% to $758m, and was largely driven by higher prices for nickel, and record production at Cerro Matoso and Yabulu. But with some offset by higher imported ore costs at Yabulu. Royalties at our Columbian operations have also increased.

Net corporate operating costs increased to $266m, reflecting higher costs associated with employee share awards, recruitment programs, and increased regulatory compliance costs relating to items such as Sarbanes Oxley, and International Financial Reporting Standards. This was partially offset by the profit on the closeout of the Western Mining Corporation cash settlement derivative.

Before I step through cost impacts in more detail let me recap on volumes. Although we had record production volumes for a number of major commodities, you cannot see a significant impact reflected in our volume variance of $110m. We have approached and use 2004 margins for this calculation. Additionally we disclosed the $140m contribution from new operations separately. In the last 4 years we have delivered on average volume increases of around 38% across our major commodities, excluding oil and condensate.

Turning now to costs on slide number 9. Despite the cost pressures being experienced in our business, we've delivered record earnings and again improved our EBIT margin. Before third party trading our EBIT margin was 37%. However, increased costs are having an impact. In total, net of the effect of price-linked costs, exchange rates and inflation, cost had a net unfavorable variance on EBIT of $775m.

Including inflation, this represent 5.7% increase over our 2004 cost base. It’s important to note that a reasonable portion of these increased costs have been deliberately incurred, to enhance the earning capacity in the current high price environment and the current high demand environment. However, we are conscious that -- to be careful that they do not become a permanent structural change to our cost base.

Increased charges for labor and contractors added $235m. Higher labor costs reflect a full year’s impact of wage settlements made last year, together with higher bonus levels aligned with the record results. Higher rates and increased usage of contractors used to accelerate production also contributed. We’re paying more for raw materials such as coke, fuel and energy. However, as we are also producers of thee commodities, these higher costs are more than offset by the benefits we are gaining from higher prices.

Maintenance costs were higher as we increased activity to support higher production, combined with increased contractor rates. The higher production costs at Ekati due to the processing of lower grade ore, is the largest component of the $70m grade and field decline variance. Expenditure on business development activities increased by $60m. Distribution and demurrage increased by approximately $50m on the previous period, and a change in accounting treatment of 2 items resulted in a $50m increase to costs.

Other costs largely relate to the increased legal and compliance costs previously outlined. Offsetting these increases, we achieved $100m of cost efficiencies through our operating excellence programs; utilization of knowledge sharing networks; and strategic sourcing initiatives.. This offset is represented by the green bar on the chart.

The results of these initiatives can be seen on slide number 10. This is the output from our benefits capture system, and captures the total of the improvement initiatives from our results, recorded through that benefits capture. In addition to the $100m of costs efficiencies, there is $135m in costs that have been mitigated. We've reduced the extent of supply and cost increases, by ensuring we adopt best practice procurement methods across the Group.

Add to that of revenue enhancements which have been captured from incremental volumes, resulting from de-bottlenecking and other efficiency programs. And in total our various programs have contributed to ensure we reduce or avoid costs wherever possible, saving us around $435m for the year.

Turning now to the non-EBIT items on slide number 11. Despite higher U.S. interest costs, our net interest expense fell by 7% to $330m. This was driven by lower average debt levels combined with higher interest income earned. There's a $1m exchange loss on translation of net debt in the current year, compared with a loss of $133m last year, principally driven by lower levels of rand debt.

The tax charge for this year, excluding exchange impacts, was $2.3b and represents an underlying effective tax rate of 26.2%. Continued progress in the Gulf of Mexico has again enabled us to recognize the benefits of U.S. tax losses at $350m, in line with previous guidance. We would expect this level of loss recoupment to continue for the 2006 year.

I’ll finish up by looking briefly at cash flow on slide number 12. As mentioned earlier, we had record available cash flow after interest and tax of $8.7b, an increase of 70%. Due to increased cash generation from operation -- operating activities, offset by higher tax payments. Outflows related to capital and investments -- investment items of $11b. This included $2.7b on growth projects. $6.6b related to the WMC acquisition; and $1.1b on sustaining capital; and $533m on exploration.

When we announced the WMC acquisition, we indicated that this would increase our net gearing to around 42% by June 30, 2005. In fact, our net gearing is a full 6% lower at 35.7%, as a result of the strength of our cash flows during the period.

And finally some guidance on capital expenditure for 2006 financial year. We expect total expenditure to increase to around $6b. This will include approximately $4b spent on growth projects, about $550m on exploration, with the remaining $1.4b being spent on sustaining capital.

And with that I’ll hand you back to Chip.

Right, thank you Chris. I’d like to take a few minutes and cover a couple of areas. First will be our view of the markets that we operate in, and then next talk about where we’re positioning ourselves to take advantage of opportunities that we see in the years ahead.

Let me begin with China in terms of the markets. China continues to show a strong GDP growth, in fact it’s a little bit higher than we had expected when we talked to you in February. We had targeted about a 9% GDP growth for China this year. In the first half it’s been about 9.5%. We continue to expect it to be about 9%, but fixed asset investment has continued to be quite strong. It has slowed a little bit but probably a little bit less than we might have expected.

Consumption continues to be quite good, and we are seeing the consumer continue to spend and the growth of that spending to be quite rapid. The government’s policy initiatives have certainly been around the things we talked about in February, and that is long-term, sustainable, world class businesses. They're trying to manage business out of business -- out of existence that they don’t believe are sustainable in the long run.

From a policy point of view, they’ve also focused on infrastructure and this will be the backbone of what they ultimately believe will be important for economic development. So things like the power system and the rail system - the government has been spending its time and money in those areas.

Export growth has been good, particularly in the manufactured area, but we would expect that to come under some margin pressure in the next year to 6 months or so. That ultimately will be good news as it starts to manage out some of these inefficient businesses that may not be able to survive in the longer-term. But ultimately we don’t see that as being as significant factor.

Now I always have to say in China that we continue to believe that it is a very exciting place to be. That over the next several decades we see a significant number of people that are looking for a better way of life, and that ultimately is going to drive the resource business. But I also have to say there will be ups and downs. Like any economy there are business cycles, and those will occur in China like they do every place else.

And the key for us is going to be in a position with large, low cost, low reserve, large assets that we could manage through those times. There are a number of other things that have happened over the last several months in -- the last 6 months or so in China that I’ll certainly discuss in questions if you’d like me to, but about the renminbi and the revaluation, I'm glad to talk about.

The -- Controlling the VAT, the tax issues around energy intensive exports. The steel industry policy that they put out a couple of months ago, and the LNG terminals which they restricted some of the permits, until they have supplies for those LNG terminals. Now I'm glad to talk about those in questions, but I would just say that those are all rational moves, very consistent with my earlier comments about trying to identify sustainable, long-term businesses. And despite these things growth continues.

So although people like to use [indiscernible] the sky is falling every time you see an announcement like this, the fact is growth continues in China. And it is something that it is ultimately going to be driven by 1.4b people identifying a better way of life, and seeing that come in many of the conveniences that we find in the developed economies.

Moving on to Japan. Japan had a better first half of the year than we expected. What's going on in Japan is interesting. It’s been restructuring over the last 5, 10 and some may say 15 years, and you're starting to see some of the benefits of that. The companies are generally doing okay. The compensation to employees has been generally moving up and was pretty good in the last pay period.

The consumers then taken that money and put it to work. They have spent money. Domestic demand in China --in Japan has continued to be quite good, and that has driven growth better than we otherwise might have expected it to be. Having said that, we do expect it to perhaps fall off in the latter part of this year. Again, slowing down a little bit from where it was in the first half of this year.

I would also say though that Japan’s niche in Asia, and perhaps in the world, is going to be in high technology areas. And that’s going to be true in raw materials or raw material processed goods like steel, and that’s mainly where they see themselves competing. And so we continue to see good demand for raw materials in that marketplace. Obviously with those products, it’s not only Japan but other parts of the world.

The U.S. -- we expect the U.S. to have a good year in 2005 which it has certainly had, not quite a strong as 2004. In fact, there was a little bit of a wobble in the early part of the second quarter but it seems to have gotten over that. Consumer confidence is good, business confidence is good. Industrial production is moving in the right direction. Housing starts are good. So we -- And employment levels are also quite good.

So that economy, despite higher oil prices and rising interest rates, looks as though it’s going to meet the targets we set for that. Which were a good year - not as strong as 2004 but still above trended growth rate.

The next area is Europe. We -- Probably as long as I can remember, we've said that Europe is the lagger in terms of economic activity, and unfortunately you're going to hear the same thing today. We’re not seeing much of a change in Europe. Business confidence is rising but this isn’t the first time that’s happened. So, again, we don’t expect to see much significant growth coming out of Europe.

I would just say in summary, we continue to see good demand around the world. We stick with our projections in February, in which we said for 2005 will be an above trend growth year in terms of global demand. But it’ll be a little bit below 2004. Remember that 2004 was the best year in the last 3 decades for global growth.

Now the question that we are always asked is, where to next? Where are prices going to go? And we’re all familiar with the 3 -- 2 and 3 and 4 year business cycle. Most of us have had most of our working life in those cycles. The decades of the 70s and 80s and 90s are characteristic of those. And what I talk about from time to time is that there is another set of cycles that take place.

These are secular changes that do take place from time to time, and what I've talked about there is primarily been the post World War II period where we did see several decades of above trend growth in commodities, and that was an intensity of demand-driven increase that led to real price increases across a wide variety of commodities. And I generally show that in a 100-year chart, but I figured we needed to go longer than that and today we’ll show you 200-year chart.

Now this chart is not metals and it’s not energy, it’s actually a broad index put together by the U.S. Bureau of the Census, and it is U.S. commodity prices but it is food and so on and so forth. But it does illustrate 1 of the points that I've made in the past, and that is that there are periods of time in which you have multi-decade increases in real commodity prices. And those sector changes incur from time to time.

In fact, in the last 200 years there’s 3 or 4 periods of time when you’ve seen that, and that’s illustrated on this chart. In the mid-1800s, with the industrial revolution, power came in the form of steam and rail transportation was also obviously coming to fore. At the end of 1800s electric power and communications started to take a rise, and then my favorite the post-World War II period and so on.

Now it’s interrupted from time to time by moves in the opposite direction. But what I would like to say is that you need to look at that chart quite carefully. Because we’re looking at 200 years, a small move on that chart is actually several decades.

And today we find ourselves in a period of time which is - or where we are close to it anyway, 2001, 2002 - when real commodity prices are the lowest they’ve been in the last 200 years which essentially puts them at the lowest price they’ve been in known history. And the question we say is, is China and is India and is the developed economies of the world going to represent the next sector of change in raw material demand, and therefore raw material price.

Now as you know, we can’t answer that question in foresight. But from a BHP Billiton point of view, we do think that that is a reasonable probability that that is going to occur. At least we have to build that into our scenarios. So what we do is consider what options we can create to participate in that market circumstance, if indeed it does incur. We will not bet this Company, we do not need to bet this Company in order to achieve the opportunities that can come from that.

What we do is we -- we benefit from a Tier 1 set of assets - large, low cost, low reserve, live assets. We benefit from the technical skills that come with having operated these businesses, in an industry that has shrunk over the last 30 years in terms of the number of companies, as well as the number of people -- number of individuals participating in our industry.

We have used our tentacles into the marketplace to understand where our customers want to take their business. And we've used our global footprint to identify opportunities, not just from the market point of view but from where products are produced. And to give you an example of that, in 2001 we produced 65m tons of iron ore from the Pilbara out West. Today we’re producing about 110m tons of iron ore.

And as I've said in the past, good oilfields and good mines get better and bad ones get worse. And embedded options exist in this portfolio across the commodities, across the assets like we have, as well as through those markets, that technical knowledge, and the asset footprint that we have. Now what has that led to over the last 3 or 4 years?

The next slide illustrates the volume increases. Chris mentioned a broad number of 37% on average - 38%, 37% on average. This shows you across a suite of commodities since the year 2001 to the year 2005, the percentage increase. And we have invested over that period of time $6.43b. We've executed 24 organic growth projects. We have also had 2 relatively minor acquisitions in that period of time. And many of those commitments came in relatively tough environments, tough commodity environments, and plus our operating excellence has led an ability to show significant commodity volume increases across our business.

Nickel and silver are up 50%. The iron ore, manganese and alumina area’s up over 40% each. The copper, aluminum and natural gas up over 30% each. Now the question is what do we do next? Well, we’re very going to do very much the same thing that brought us to this point. We’re going to continue to manage our assets in a superior way, to get the maximum value out of those Tier 1 assets.

The next we’ll do is make sure we share knowledge across our business. I bet every 1 of our 100 assets around the world has a best practice, and if we can share that across the other assets, there's very little that can stop this Company. Then what we’ll do is reinvest in businesses that we know and understand, exactly as we have done here that has led to these volume price -- volume increases that we’re doing.

The next slide shows you our project pipeline. This has been updated. You're very familiar with the style of this slide, but it’s been updated from the last time you saw it. We've taken off the 8 projects that we've completed in 2005. We've added 2 on - that’s the Shenzi project in the Gulf of Mexico, it’s a petroleum project, and Maruwai which is a coking coal project in Indonesia.

We've also modularized the iron ore business. We have broken down that bubble that you saw last time, and in addition made a few other changes that we make from time to time. This is 26 projects, $11.9b - it’s a $1.7b increase in opportunity relative to what you saw before, and that’s after excluding the 8 projects that have been completed.

Now, again, this is just projects in execution and in feasibility. There's a whole suite of projects in pre-feasibility and in concept that are not here, that are working their way through our approval process. These are high quality projects. They are generally going be on the low part of the cost curve, and our issue is,1, when are they ready to go and, 2, when is the market ready to accept those.

Now it’s very important, and we always say it, that despite these opportunity sets and others, we’re not going to compromise our focus on long-term shareholder value creation, and we are in a challenging environment. Costs have certainly gone up. It impacts down on the operating cost that Chris talked about, but also in terms of projects. There's tight supply, not just in those that are taking raw material from us, but obviously as we try acquire steel and other inputs as well as the human resource input.

And this does impact our projects. It is a matter of fact in the life that we live today in the resource business. But we’re managing to the best we can. We’re using our strategic sourcing initiatives to manage those costs down, and mitigate not only the project -- the operating cost Chris showed but our project costs also. We’re also using our project development services function to make sure we were putting the right resources, right human resources in this area.

And then also we also from time to time do things like modularize the iron ore activity, because it is a very heated market in Australia. And it does make sense to try to find a way to manage that, so we don’t all of a sudden grow a $2.8m or $3.8m project on an already heated marketplace. And obviously rely, and continue to rely, on our investment approval process which has held us in good stead over the last several years.

Moving on to WMC. As you’re aware, we have been successful in that acquisition. We achieved 100% ownership in the early part of August this year. Just to remind you, what did we see here? We saw a series of world class assets, in fact almost of all of the assets at WMC were world class assets, and they fit very well with our portfolio. We saw a very good strategic opportunity in nickel, it fits well with our business and does help with that -- with the overall structure of that business.

We saw important copper assets which fit very well with our skill of moving material. We saw a Tier 1 uranium resource that very much complemented our energy offering of pipeline gas, LNG and energy coal. We also saw growth options which, as I mentioned earlier, are very important to us as we think in the years ahead. And then certainly we have current production, in a marketplace where we believe supply reaction to this environment will be restrained, or at least will be delayed in the implementation of those -- of that supply side response.

The integration process is going well, it’s on schedule. We have actually closed the WMC headquarters office which is on the South Bank here, we've closed it 2 months early. We have closed a number of marketing exploration offices around the world. There are 400 positions, or more than 400 positions, that have been eliminated as a result of this combination and those people have been identified and that process is moving forward.

We have continued to identify opportunities to manage cost - the client synergy opportunities and efficiency opportunities. But we do stick with our cost projection of AUD115m -- or AUD120m on costs, and AUD115m per annum in terms of cost savings.

The Olympic Dam pre-feasibility is moving forward. That is an activity that we need to put into our own system and we've done that, and we’re continuing to move that forward. No surprises in that area. Over the next couple of years we expect to move that through our pre-feasibility program. The assets have now moved into their customer sector groups. So Olympic Dam into copper. What we now call Nickel West has gone into the Stainless Steel business. The fertilizer business into Diamonds & Specialty Projects -- Products, and the Exploration area has picked up obviously the exploration team.

The activity in nickel has been to optimize across our nickel business the addition of those nickel assets, and that continues to move forward. And we continue to look in exploration opportunities in Western Australia, that’s very important to us. The other mining companies out there supply resource to us and we expect that to continue. We’re looking at Brownfield and Greenfield opportunities in this area.

And one thing we’re able to do quite effectively when we look at an opportunity, is think about how our systems will work in that acquisition or in that new company. What we often have more difficulty doing is determining how some of those opportunities within, in this case WMC, fit into the BHP Billiton family, and we call those ‘Gems’. And we've identified a number of those in the process of the integration activities, and I’ll mention 2 of those to you.

1 of them is an exploration technology called Geothera which is magnetics technology, that fits very well with our FALCON technology which is a gravity based technology. And we think the combination of those things will give us even a better suite of resource, a technology resource, to find new mineral deposits around the world. And another 1 is in the area of reclamation.

We have an arid land reclamation project in system which we think is actually 1 of the world’s best, and we think we can use that, not only in Australia, but in our other operations around the world. And there are a number of things that we’ll identify over time, and certainly we've identified to date. And any good combination is going to try to pick the best parts, not only of what we bring, but what we find, and utilize those to the best of our capability.

So finally and in summary, let me just say that it certainly has been a successful 2005. We've seen operating and financial results that have been record results in a large number of categories, and when you combine the environments that we’re in, things like that can happen. I think Chris’s comment on gearing is an important 1. In 4 months essentially before -- 3 or 4 months before the end of the year we expected a 42% gearing level in the Company, and we ended up in a 36% gearing level.

And that is an illustration, not only of the performance of BHP Billiton, but also the WMC assets in what has obviously been a pretty attractive price environment.

The outlook remains positive. Demand is good. Inventories are low across most of our products, and the supply response is lagging as a result of regulatory issues, as a result of human capital issues. As a result of the inputs that come to making these projects come to life.

I think that it is obviously quite a bright story, but I think 1 of the important things about BHP Billiton that we've said essentially ever since we've talked to you about it, is the portfolio diversification that comes with this Company.

And sometimes it’s hard to see that in environments like this, where things across the commodity suite are dong well, and companies that are in single products also look to be doing well. But I think you’ll very much appreciate it as things come into balance, which inevitably they will, supply side will respond. It may be delayed but it will respond at some point in time, and there the diversity and quality of these assets will certainly shine through.

Now from a management point of view I mentioned what we do. We manage the assets well, we try to find ways to share our knowledge across our business, and then we reinvest in those things that we know and understand. And our track record of delivering that growth has been illustrated, not just by a volume number, but by an impact number in terms of our overall financial performance.

But always we will focus on what is value accretive to the shareholders. We do that in terms of not only thinking about how do we value the equity that you see in front of you every day, but through dividends. We've increased the dividends 7 times, and we've made a material change in that over the last year.

We've seen a 53% increase - final dividend last year, final dividend this year. And obviously our capital management initiatives, share buybacks, on market, off market as well as capital returns in the form of a company like Bluescope Steel.

So with that let me open it up for questions. What I’d like to do is -- I'm going to start with Sydney, London, Johannesburg, Melbourne, then we’ll go to the telephones and we’ll try to rotate that around as much as we can till we run out of time. I’d like for you to address your question to me, and then I’ll farm it out as appropriate. So why don’t we do that by beginning in Sydney.

[OPERATOR INSTRUCTIONS]

Chip, it’s Chris Lancaster from the Royal Bank of Canada. Look, terrific result and I’d just like to focus on 2 areas. My first one’s on dividends. Considering we've got a $6.5b profit for the current year, $3.5b last year, and yet the dividend has only - emphasis my word - only increased by $0.26 to $0.28. Which effectively means the payout ratio is almost halved. I wonder could you give us some idea of the motivation for keeping it that low?

And the second question relates to disclosure. I always feel a little perturbed when companies reduce disclosure. I just noticed that ‘Other South American Operations’, which used to previously include Tintaya, Cerro Colorado and Angelina, are now grouped as ‘Other’. So I wonder would you just give us some color on what those specific operations did?

Yes, I’ll tell you what, why don’t I -- Let me try to answer both your questions, Chris. First of all, in terms of the dividend, I think you need to be careful about last year because, if you remember, we paid 3 dividends last year instead of 2. So I don’t think comparing $0.26 to $0.28 is exactly apples and apples. I think you ought to look back over time. In fact, just a few years ago our dividend was $0.13 and today we find it at $0.28.

But I would also say that the -- We've had 7 consecutive increases. We've paid out $2b in the form of a buy back and we did, by the way, just make a significant investment for what we believe to be a very attractive opportunity in the WMC acquisition. So the total spending in opportunity this year has turned into a number, that’s not only the growth expending and the exploration expending in maintenance but another $7.2b.

So the total spending last year was around 11 -- a little over $11b. So we’re working through that and we’ll see what happens. But I think, again, we've seen a significant increase. We have continued to have a progressive policy. We always say we want to invest in things that we -- that are good value, accretive things but we don’t have good opportunities that we do return it to shareholders, and we've done exactly that.

In terms of the disclosure issues, I'm not going to go through each of the other businesses. But I think it’s important to note that as the Company grows - now we’re somewhere in the $90b to $95b - we do need to make sure that we are getting relevant with regard to the numbers that we do disclose. And I think we have to always look at that. It’s no intent to reduce disclosure. In fact, in materiality disclosure’s continued to -- it’s a big company now obviously, and those have continued to at least move down that spectrum.

And so in terms of understanding where this Company goes, that’s okay but it’s not going to make a huge difference to your investment decision.

Next question in Sydney?

Yes, hi Chip. I was interested in finding out about what's happening with the tax rate, moving forward. I think in February we had Chris tell us that the tax rate long-term would be closer to 30%, rather than the 25 to 26% you’re seeing today. So if you could comment on that?

And secondly, could you also make some comments on the CapEx increases you're seeing across your projects. I notice in your development tables you’ve got the costs under review at your nickel operations. Could you give us a heads up on where else we may expect cost increases to come through?

Okay. Chris, I’ll let you do the tax rate but why don’t I start with the CapEx side just in general. As you know, it’s no surprise to anybody who follows this industry, particularly here in Australia, that costs are rising. As I say, human capital, the supply side. We may complain about steel but, by the way iron ore and coke and coal are certainly going up also. So we’re on both sides of that to some extent.

But with regard to specific areas, most of what we’re seeing overseas is an FX issues, and other than that we’re generally seeing pretty good performance. In Australia, as I said, you are seeing some of these other things come to fore. So what we’ll do with Ravensthorpe and Yabulu is, that continues to go through its review. I would expect some time in September there's a C -- SSM or Stainless Steel materials review. And at that point in time we should be in a position to give you an update on that.

But again, these issues are there, there's no doubt about it. But I would comment that in -- that our projects continue to be on schedule. So those things that we can continue to control are being well-controlled but, again, fact of life is that we are seeing some of the input costs go up.

So with that, Chris, why don’t I turn the tax over to you?

Okay, thanks Chip. Yes, particularly the tax rate and obviously there are a lot of moving parts. But our go forward advice would be probably somewhere in the range of 26% to 28%, for the ’06 financial year. We will obviously update that at the half as best we can, and that does include a continuation of a similar amount of U.S. losses being booked. This year was $350m as we mentioned. We’d expect a similar booking of those in the ’06 year.

So somewhere in the range of 26% to 28%. But just -- also just be aware that there are some potentials in some of the adoption of IFRS that may move that around a little bit, in terms of where some line items may be classified which again, I think we just need to see the fullness of time. But I think on the apples for apples comparison going forward, 26% to 28%.

Okay, thank you Chris. Thank you Vicky. 1 more question in Sydney and then we’ll move over to London.

Yes, thanks Chip. It’s [Joe Kenravick] from Deutsche. I just thought I’d ask you about outlook. Just looking forward into 2006 calendar year. Compared to your view of ’06 earlier in the year, where do you stand today in light of what we -- what seems to be a stronger U.S. economy? We’re seeing salaries and employment grow strong. We’re seeing consumer wealth effect, housing keeping up, and demand growth seems good.

China seems to be beating consensus, particularly IP. You mentioned yourself, Japan seems to be rolling along, and the Europe, cross fingers, seems to be non-recessionary. So just if you could give us an outlook further out than just 2005 today compared to, say, 6 months ago?

Yes. Thanks for that question, Joe. I think you hit the key points. You're seeing pretty good economic activity around the world in those critical economies – U.S. certainly. Seeing it China certainly, and from a resource point of view quite critical, and Japan’s looking okay. As I say, Europe is the difficult 1.

So I'm not sure I can add much more. I would say that today the outlook looks a little bit brighter, than it probably did in the second -- in the early part of the second quarter. But again, much of what we’re seeing out there is not only what are we seeing in some of the developed economies of the world, but what are we seeing in the developing economies of the world. So, listen, I can’t add much more to that other than things generally look pretty good.

Okay. Why don’t we move to London and pick up some questions there?

Good morning. Heath Jansen here from [SeaGrip]. Just a question if I may on Exploration spend. You mentioned you're going to spend around $550m next year, but just looking in some of the appendices, looks like $390m of that’s going into Petroleum and $160m in to Minerals.

Given you have seen a big step change in your production base and you’re up 36%, are we likely to see a step change in Exploration spend over the next couple of years, particularly in minerals? And in particular, which commodities are they likely to go into?

Heath, since you mentioned Minerals, maybe what I’ll do is ask Marius to answer that question. And again, Petroleum. I think the important thing in Petroleum is just to note, that we do take a look at what we think is a right level based on the production that we have, and the rate at which we expect to hopefully add resource to that. So again, since you're focused on Minerals, let me just turn that over to Marius.

Yes. Heath, the way we look at Minerals exploration is that we need to put an infrastructure in place, that can sustainably and effectively spend the money. The level that we've indicated for next year is about where we are configured to effectively spend the money, and you're unlikely to see any major revisions to that at this stage.

Yes. I think that’s important that we don’t end up creating a yo -- a roller coaster or a yoyo with our exploration spend. You can - kept the sustainability that we need in that. Next question?

Hi. It’s [Marcus Lunn] from Morgan Stanley. Just a couple of questions on the Petroleum division. Firstly, can you talk about -- more about lifting costs? Seems like costs were a little bit higher than expected in the period for that division. And also update us on production outlook for ’06? And just finally when you think you’ll be in a position to sanction the Shenzi and Stybarrow projects?

Okay. Phil, why don’t you answer those questions on Petroleum?

Okay. Well, look during ’05 some of our lifting costs were affected by the change of mix. A lot of our legacy assets obviously have lower cash costs than some of our new assets, and therefore you do see a bit of change and lifting costs will increase a little bit more than they've been in the past.

I suppose my comment would be particularly also during last year we had some issues in Bass Straits. And we did have higher-than-normal maintenance costs there. So you did see a bit of a lift in the lifting costs over all.

My view is that going forward you will see them stabilize. We have had a lot of new projects coming on over the last few months. There’s always start-up costs. But I would be fairly confident going forward that we’ve got our lifting costs under pretty good control. And we are still, if you look at any benchmark, one of lowest cost operators when it comes to any benchmark you do against the peer group when you compare ourselves to.

With regards to production into ’06, our guidance has been somewhere between 125 and 135m barrels of oil equivalent a year. The situation at the moment is that is still our guidance. We haven’t actually got any new production coming on this year. We have a lot of projects ramping up. Mad Dog, Angostura, ROD, etc. And therefore during this year there’s actually no major new projects coming on. Atlantis is due to come on third quarter of calendar ’06. But that’s the main guidance this year.

And finally, with regards to Shenzi and Stybarrow, hopefully towards the end of this year. Stybarrow is a fairly standard [FPSO] and we’d be pretty confident that will be sanctioned in the October/November timeframe. Shenzi, a bit hard to give you an exact answer. We are currently in feasibility. It’s a very large project, as you’ve seen before. It’s a Mad Dog-type project. Could be later this year or early next year we’d expect it.

Thanks Phil. And if I may just make a comment on costs. Costs are certainly an important aspect of the Company and how we perform. And we are very focused on that. But I would note that 80% of the price change has fallen to the EBIT line. So that’s after the cost increase, after the inflation and after [pricing and costs], 80% of the price move has ended up in EBIT and that’s not a bad outcome, particularly in an environment like this.

Okay, 1 more question in London. And then we’ll move over to Johannesburg.

[John McKenna] here from Deutsche. Just a couple of questions. 1 just on Atlantis. I guess post the mishap at BP Thunderhorse, is there any update or consequence in terms of Thunderhorse, project scope, modification perhaps?

And second question just in terms of your volumes. You obviously paint a pretty bullish picture about your volumes over the last 5 years. But when you look at the EBIT contribution for ’05 versus ’04, it’s $110m only for volumes. What’s -- how do we read this figure overall in terms of the Group. And is that -- that’s obviously a net number. And I guess some guidance for ’06 if you can.

Yes, John. Your second part of the question was company in general, right? Yes. Okay. I think it’s important to note how that number’s calculated. It is based on last year’s margins. That obviously has the petroleum business and the diamond business, which obviously had lower performance than -- and not just look at those minerals [and this is so]. Again, and you’re also looking just ’04 to ’05. So you have to look across all of those things to assess what that is.

But again, our number is calculated, as Chris mentioned, on the basis of margins last year. You get quite a different number if you look at that in the businesses that have increased if you look at this year’s margin.

Phil, why don’t I pass over Atlantis and Thunderhorse to you?

Sure. Well, as you know, John, there’s a lot of similarities in the design and construction of Thunderhorse and Atlantis. And obviously at the moment BP are looking at the learnings out of Thunderhorse. And we’re pretty confident.

And I think one of the important things to stress here is that the issues with Thunderhorse, the investigation is going on, but the work to date’s confirmed that the listing is not due to any inherent problem or leakage in the hull or the pontoon. BP obviously are doing a lot of work on this. We are in constant touch with them. And any issues out of that are now being taken into account as we go ahead with the final work on Atlantis.

The Atlantis [atoll] is being worked on in Corpus Christi. There’s a lot of work to go onto well into September. But it’s not due to go offshore until November. And at this point in time any learning issues out of Thunderhorse are now being built in to some changes on Atlantis.

We are still confident. The operator is still looking at the third quarter of ’06. And, as I said, any issues out of that, at this stage there don’t appear to be any things of any significance being built into Atlantis.

Okay. Let’s move over to Johannesburg and see if there’s any questions there.

Hi. It’s Mike Bedford from Barnard Jacobs Mellet. Chip, over the last 2 years, at least, we’ve seen a nice steady increase in revenue from third-party products, but not much of a growth, if any, in profitability. And overall you always said the marketing was the differentiating factor for the Group compared to the peer Group. Now we are 2 years at least down the line. [Indiscernible] generate in returns and [information] expected.

I’m going to let Marius handle that question. But I have to say that I think marketing is, indeed, a distinguishing factor. And it’s a very important part of what we see as our strategy. So let me let Marius answer that. And then I’ll either -- I may just make a few comments after he makes his.

Okay. We try and get the maximum price for our equity products. We do trade some third-party products in order to optimize things like logistics, and to get some price discovery, and so on.

The way we like to think about the contribution of the overall effort is towards the net EBIT margin that we generate for the Company. So albeit that there is little trading profit, per se, out of that activity, we believe that these efforts have greatly aided our understanding of the market and consequently our ability to realize the best possible prices for our equity product.

Yes. Thanks Marius. And I think that’s showing up in the EBIT margin which you’ve seen move out substantially over the last 4 years. I think in addition, 1 of the things we do through that activity is develop customer relationships. And often we will develop a relationship and it may involve us having to deliver products we may not have access to. And so we will identify that, and that will be important for our customer. And we may need to acquire that somewhere else. But ultimately, we’re bringing along our equity product.

There are many ways to think about that marketing activity. But I can tell you that in terms of customer penetration margin results which you’ve seen, and again continue to rise, that marketing activity is very, very important to that. And it is something that puts us right in front of the customers on a regular basis.

But it’s very important, it is not a trading business. It may be called trading from a regulatory point of view. But it is not a trading business. I think that’s very important. We take very little, if any, price risk.

Next question in Johannesburg.

It’s Brendan Ryan from the Financial Mail. Can you provide an update on your diamond exploration activities in Angola and the [DRC]. And, in particular, when will you know whether or not you have a major new mine at [Altaquila]?

Well, I’m going to -- Marius, would you be able to comment on that, if you’re okay. Okay. I’ll let Marius answer that.

Yes, Brendan, as you know, our major exposure in Angola is through the joint venture with Petra Diamonds, where we’ve essentially got a series of options and farming rights. We think that the area is very prospective. We tested a number of [kimber lights] in the area. They all contained diamonds. And, from the way that these parts are configured, we think that they’ve got a lot of volume in them, but perhaps not that high diamond grade per ton.

That process will continue to play out over at least the next year before we’ve got any definitive answer to move into the next stage. And if you just refer to our bubble chart, you will see that that project does not appear on our bubble chart yet, which means that in our pylons it’s still prior to the feasibility study phase. So we’ve got to patiently work our way through pre-feasibility and then eventually feasibility. And that’s a process that takes time.

Okay. Let’s try one more. Is Johannesburg still there?

[Okay].

Okay. Is there 1 more question there, Michael?

Chip, we have no more questions from Jo’burg on the [indiscernible].

Okay. Why don’t we come here to Melbourne then? Alright. Let’s see. Neil?

Thank you. Neil Goodwill from Goldman Sachs JBWere. Just 3 quick questions. 1 on costs. Your costs this year are up 5.7% which is a good effort in the current environment. But having visited some of the operations this year they were talking about much greater cost increases going forward. Can you give us some idea of how high you think costs overall will rise over the year?

The second question is U.S. tax losses, especially beyond 2006. We’ve got them factored in for 2006 currently. But can we extend them beyond that time.

And the third question is probably more strategic. But you had a very strong growth rate last year. You’re spending [$6b] next year. Can I just ask what’s the optimal growth rate that you’re seeing? How do you work out what growth rate you really need?

Chris, I’m going to send you the tax, and if you want to say anything on costs or add anything to me on costs, that will be fine, and I’ll come in on the growth -- what’s the right growth rate.

First of all, on costs, they were telling you that price and costs are going to be up very materially. You must have been there in budget season if you’re hearing the same thing. I can’t give you -- what I say is that certainly the input costs will certainly go up. And we are trying to manage that. I can’t say -- I can’t give you an estimate of where that’s going to be. But those prices are certainly there and I think you can get a sense of that looking at steel prices in certain cases and looking at some of the contract settlements that we have.

Now, what you’re seeing here is much of the contract has rolled through. Last year you might have seen a half a year of settlement. Now you’re seeing a full year in the ’04 [indiscernible]. But again, I agree with you, I think it’s a pretty good -- pretty good performance in this environment. But again, we’re across so many different assets and so many different environments that it is tough to give a 1-number outlook for that.

On the growth element, what is the idea growth rate? There isn’t an answer to that, unfortunately, Neil. It’s very much dependent on a couple of things. What’s happening in your market and what’s happening with the opportunities to fill that demand space that’s there. And obviously what’s the return on that.

Now, from a Company point of view, we don’t sit here and say gee, why don’t we give the base metals guys $1b this year, and Bob and his people $2b and so on and so forth. We look at every project through a very disciplined process of what’s the return on the project, what’s the risk profile of the project, how does it fit earnings and cash flow, accretion, dilution, and how does it fit into the portfolio of BHP Billiton. And that allows us to assess not only return but the risk in the project, based on our long-term price protocols.

That price protocol continues to look at the current [futures] curve, where available. It continues to move to a long-term average. And it continues to show the 1 to 2% real decline. We have not changed that long-term outlook for pricing. So that’s what drives the way we think about it, all driven to the value, ultimately delivering value.

Chris, come in on Neil’s question around tax.

Yes, Chip. Neil, the -- this year we booked $350m of losses. We figure we can do that for about another 2 years and then that will be pretty much exhausted. So it’s all to do with the virtual certainty test that we apply. And we have about 2 years more at about the same rate to go.

Thanks Chris. Okay. Another question here? Another one right here.

Thanks. Rob Clifford from ABN Amro. I’ve got 2 related questions. The first 1 is what proportion of the cost increases that you saw do you think fall into the category of deliberate cost increases to get volume gains? And now you’re at the higher volume rate are those additional costs still required?

And the second question is you talk about rapid increase in costs, particularly for labor and consumables. And particularly the rate has been increasing quickly. Can you comment on what you think the rate’s going to do going forward? Are we still seeing those costs increase at the rate we have over the last 12 months or do you think the rates of increases are pairing back?

I tell you what, maybe, Bob, I might just get you to comment on the -- some of the voluntary cost increases for things like contractors and free [stripping] and so on because a number of those are taking place in coke and coal and iron ore.

And I’m not sure we have calculated exactly what percentage. So I think maybe if Bob can just give you an idea of what we are doing there and maybe you can get a sense of what that will [channel].

We have undertaken a number of voluntary things to increase our EBIT and our value. And with today’s margins they can sustain from higher costs. So we’ve done some deliberate things. And I can think of some examples in the [Bohan] Basin where we are taking strips -- additional strips in the strip market that today are very profitable. In other price environment wouldn’t be so.

And the other thing that we’re doing is we’re ramping up our production. And so we are engaging contractors in that because it’s the quickest way to do it. It’s a good [way] for our own equipment, but in today’s price environment, partly it’s a lot more money than waiting for cost.

We’ve got an eye on that. And obviously when -- if the price situation changes, as Chip said, we don’t expect these prices to continue forever, we will keep an eye on that. And when these prices come back we will [unpack] that type of activity. But right at the moment we’ve got all of our people chasing extra EBIT. And there are a lot of opportunities in this price environment.

But it is very important that we do think about that other side of the marketplace, that we can take those costs out. The hardest costs to take out are employee costs. That takes longer. Contractors and so on, and taking a strip that you wouldn’t have otherwise taken, we manage that pretty carefully.

But I think if you look across that list, if you talk to -- talk to Jane, she could try and give you an idea. But I think you’ll see quite a bit of that, at least as the opportunity is managed away in a downside environment which we clear have -- we ask our businesses.

Okay. Another question here?

Mark Pervan, Daiwa Securities. Great result by the way. I just wanted to talk about carbon steels. Firstly iron ore. Can you give us an idea of the mix of [CIF] versus [FOB] and the result? I thought the revenue number looked very good. And do you have the flexibility with your new supply to move maybe more into CIF or be able to move that around anyway on market conditions?

And just on coking coal, just looking at your volume changes. Obviously that’s one that looks a little low compared to your other commodities. And you’re obviously market leader there and it’s a very hot market. 37m ton last year. Can you give us a guidance on what sort of production we should expect this year?

And do you see any concern with the recent rapid rise in coke production in China? Are they using more of their own supply or can you source -- can you actually supply that market or are you supplying more the Japanese/Korean market?

Okay. Thanks for that question, Mark. Why don’t I let the 2 guys here answer that. Maybe Marius, you can handle the first part and Bob, maybe the second.

On iron ore, the growth market for iron ore has been China. And we believe that it will be -- continue to be the growth market. That is predominantly a CIF market for us. Numbers you should think about for last year is about 2 thirds FOB, 1 third CIF sales. And that number, as we continue to ship volume into China, for ’06, we believe that it will be early 40s CIF and the balance FOB.

So that’s how that will develop. And obviously a little bit of that development will depend in future on the mix between countries and so on. But I think the general guidance is China is predominantly a CIF market.

In terms of coking coal, I’ll let Bob talk about the growth. But perhaps I’ll make 1 or 2 comments about the opportunity set. We continue to be very bullish about the overall opportunity set to serve customers in coke and coal. And there are a number of reasons for that.

The first 1, I think, is that the cost increases in the Chinese coal industry has been dramatic. And we think that that cost increase will continue, and continue to be quite dramatic. Now obviously, that increases the cost effectiveness of our products.

Second point to note is that there has been a very strong policy-setting exercise by the Chinese government. And if I can summarize that, it basically says shut down all of the small, inefficient, predominantly inland-located steel mills and replace that capacity with large sea-board-located mills.

Now, the 2 operative words there are large and coastal. Large means you need more strong coke, which our product on the high end of the spectrum gives. Sea-board, again, gives us the opportunity to serve those customers as opposed to domestic. So we believe that very, very good opportunities for that business in the Pacific market, in addition to our core markets of Europe and Japan, as they stand at the moment.

Just on the volume. 2 things here. There’s undoubtedly a lag in the timing of their ramp up between coking coal and iron ore. And we talked about that a number of times. It goes back to our understanding of what was happening in China, where originally we thought they may be exported, but now we, as Marius has said, big opportunities, particularly in the sea-board area. And it took us time to evaluate that. So we -- our ramp up is slower.

But if you look at the bubble chart we have the expansions coming through this year. In fact, today, I’m pleased to say that the Broadmeadow mine, which is their newest mine, starting cutting coal at 12.30 today. That’s new. And we’ve got other expansion activities, what we call [BMA] stage 1 and stage 2 coming through.

The other thing in these numbers is we did shut [Riverside] mine down this year. And Riverside is a [B&C] asset, of which we get 80% of the equity. That will be replaced with our [Coytrel] mine which comes on in calendar ’06. So there is a bit of a blip in this year as we shut 1 down and time lag to get the other 1 up.

But generally, we are on a ramp up. And we put out quite a big paper on this in September last year which is [indiscernible], and we are sticking to that program.

Okay. Let’s see. Why don’t we go to the telephone and see if there’s any questions that we have there.

Thank you. Our first question from the phones comes from David George of JP Morgan. Please go ahead David.

Hello David.

Yes, Chip. Just on the bubble chart, the iron ore projects, the split of the old long-term growth projects into 2, Rapid Growth 3 and 4. It’s hard to tell from that chart, would they [in destination] still sum for the original capital cost estimates of what was long-term growth project.

And can you also just give us some idea of the split in the components between those 2 phases. And then when would rapid growth 3 go to board for sanctioning?

Bob, I’ll offer that to you.

No, the sum of the 2 is bigger than the whole. I think the previous number was 2.3. We’re now talking about 2.7b for those 2 projects.

Rapid Growth project 3 is in the very final stages of assessment and we’ll be taking the lead at the next -- the board meeting coming up in October or the following one. And it’s about a $1.3b project. And it revolves around expanding the mining areas [C] mines by 20m tons.

Okay. Another question from the telephone.

Thank you. Our next question comes from Brendan Harris of Macquarie. Please go ahead Brendan.

Yes, hi Chip. It’s Brendan Harris here from Macquarie. Just interested, at a previous briefing it was commented that post-Atlantis the petroleum business could generate up to around 170m barrels of oil equivalent and then move forward from there. That was before the difficulties that we saw in Angostura.

I’m just interested in what you think the sort of level of production will be post-Atlantis, so ’07 annualized numbers that we should be thinking of. And therefore obviously considering growth from that point with the likes of Shenzi, etc.

Okay. Phil, do you want to handle that?

As I said before, this year we are looking at somewhere between 125 and 135m barrels. And then we get big step jump in our production when Atlantis comes on stream, at the moment that’s third quarter of [inaudible]. We’ve got Stybarrow which we talked about before. We’ve also got another [FPSO] project in the West Pyrenees. We’ve got Shenzi which, as I said before, is moving through to feasibility, hoping to sanction in the next 6 months. We sanctioned Neptune not so long ago. We sanctioned train 5.

At the moment in the Gulf of Mexico we’re probably the most active E&P company. At 1 stage about a month ago we had 9 wells, a combination of expiration, appraised and development wells being drilled. And we’ve got a number of opportunities there, like Puma. What we can do with south west ridge of Mad Dog, for example, will that be a new facility or a tie back to Mad Dog.

So we remain confident that we will continue to see volume growth in this business. And the 170m in calendar ’07 remains our guideline. After that, I really don’t want to start putting figures on. It depends on how quickly we develop these projects. And, as we’ve always said in the past, it’s not just about developing projects quickly, it’s about doing them safely and adding value overall.

So we still feel confident you’re going to see growth for the next few years, up to about 170m in -- out of the year ’07. And we think there’s good growth opportunities after that in a number of areas, not just for the Gulf but in our gas business, and also off Western Australia.

Chip, if I could just ask 1 other question --

1 more question from the phone?

Thank you. Our next question comes from Peter O’Connor from Credit Suisse First Boston. Please go ahead Peter.

Hello Peter.

Peter O’Connor: Chip, congratulations. Firstly on BlueScope deals that Chris mentioned in his briefing. I just wanted to check what that was and how that would relate to the financials in 2006. I just wanted to understand where firstly the expiration -- the additional cost would be going. Incoming [easily managed] at about 150 compared to the current level we see in the diamond group.

And thirdly, your chart, that 200 year chart, when should we start using real price increases in our long-term forecast?

Let’s see, BlueScope, Chris, maybe you can talk about that? Maybe Marius can talk about the diamond question. And then once you start making real price forecasts, that’s a good question Peter. As I’ve told you before, we make a lot of things and crystal balls isn’t one of them.

What we have to do is we have to look at a lot of scenarios. And all I’m giving you’re here is a scenario. And I think that’s just the way I’d look at it. There’s not 1 right answer to any of the -- what’s your price protocol or when should we start using it. But just recognizing that essentially most of us have been in an environment where this happens for 2 or 3 years and then things fall back. That isn’t always the case. And I think it’s just important to keep that in mind.

Again, our long-term price scenario is 1 of real price decline. So ultimately that’s the right answer. That chart actually illustrated that. But that doesn’t mean it happens every year or every decade. And that’s just, I think, the thing we need to think about.

Chris, on BlueScope, could you answer Peter’s question on that?

Yes, Chip. I don’t know the precise number. But it’s of the order of about 40-odd -- $45m. And it pertains to the supply arrangements over the next 18 months. This has basically been pulled into the ’05 and out of the [‘06]. So that’s the impact on [capital].

Okay, Marius?

Yes, Peter, you’ll have to excuse me. I didn’t quite get your second question. If you could just repeat the question on diamonds please.

Peter O’Connor: Marius, you have said previously about the expiration [cent], you thought about $150m for minerals compared to, as far as I can tell, an expiration line on the diamonds and specialty products group of about 80 to 90. Is that 150 encapsulating iron ore and other groups and copper as well?

I think what is important to understand is that we normally have a number of offsets or changes in our expiration spend. The number that we show in diamond excludes -- sorry, includes all of the activities. But from time to time there are things like royalties that we sell and other -- and other items within the exploration business that comes through there.

So what you’re seeing there this year is, perhaps, somewhat changed from, I think, the previous year in which there was a higher income proportion from some activities that we sold off.

Thank you Peter. Let’s go back to Sydney and questions there.

Hi Chip. Good evening. Chip, I just want to take you back to the start when you answered Chris Lancaster’s question about why you didn’t increase the dividend. And I can understand you obviously bought Western mining during the year. But if I look forward, and as you look forward too, EBITDA of 11.5 this year. I think you, like I, and like everyone here thinks 14b, 15b EBITDA for the next 12 months, given you’re going to get 9 months of very high coal and iron ore prices.

I just want to ask, how do you and the board then sit there now, even with 15b of EBITDA, probably 10b for capital tax and interest, that’s still 5b of free cash flow which, when you’ve got net debt of 9b, in 12 months you’ll be down to net debt of 4. I’m trying to understand, firstly, why no capital management with that scenario facing you for the next 12 months? And you do have half-year earnings locked up in fixed prices.

So if you could just help me understand why the board chose not to maybe give some capital management initiatives for the next 12 months.

And secondly, just a quick 1 for Chris. How much franking do you have left as well? And was that an issue why we couldn’t do another off-market buyback.

I’d say a couple of things around that. Again, the generation of cash has certainly exceeded the expectations. But 3 months doesn’t make a ball game here. We obviously have to continue to exercise and finish the final payment on WMC from a financial point of view. We have significant capital spending. We obviously have to watch the performance of the business.

I’m not going to comment on your expectation for cash generation. But again, I also don’t think you can look at our gearing level in this kind of environment and say oh, you’re target’s 35 to 40. Gee, happy days. You should say that out. I think you need to think about what’s going on in the environment that surrounds us.

So there has been an impact when we have absolutely led the way in capital management. There is no way you can look at what we’ve done in this Company compared to anyone else, certainly in our industry, since then we haven’t been the 1 who has been most aggressive. In fact, over the last few years, since the merger, we’ve done about U.S.$8.3b, if you include the spin off of BlueScope steel.

So I think that it’s nice for you to look at that that way. But I think if you really look at the track record, we have delivered on that. And we are very prudent in doing so. This isn’t simply a question how much do you make today, let’s throw it out the door. It’s a question of how do you manage this for a long-term business. And we have been -- we have shown absolutely no restriction in giving money back when we didn’t have a better alternative to us.

So that’s how I expect we’ll manage it now and we’ll manage it in the future, and essentially how we managed it in the past.

Chris, on the franking?

Yes, Chip. There’s a healthy balance of franking credits there now. And that’s subject to any other caveats obviously expected to grow. So it’s not a franking credit issue with regards to any cause for concern other than I’d leave it with where Chip’s commented on that issue. But franking credits are there and available. And they are expected to build further. Obviously the dividend, this time round, obviously is fully franked.

Next question in Sydney?

Yes. Tim Gerrard from Austock. Just a question of a strategic nature. Phil mentioned that you’ve got some of the legacy assets in petroleum were responsible, if you like, for the higher costs -- sorry, put another way, you’ve new petroleum assets that have got higher costs than the legacy assets. I was just wondering, do you now view the north -- the Bass Strait as a legacy asset?

Phil?

Yes, when it comes to oil production, Bass Straits these days has very much been as last year. I think it’s produced [550,000] barrels a day. Total liquids in Bass Strait is now down to about 160,000 barrels a day. But as a gas production, Bass Strait remains very important. We’ve still got [main gas systems] out of Bass Strait.

I’d define a legacy asset, in this case, as an asset that probably now is not going to have a lot of investment longer term. And it is an asset that obviously now we are looking at as being in its latter days. I believe Bass Strait will still be part of our portfolio at the end of this decade. And it’s still got a lot of legs in the old legacy asset.

One comment, I think my last comment before about costs, the question came on about Angostura. And there’s no doubt that Angostura, we are actually writing off Angostura against lower reserves. So that did have an effect on our costs last year. And therefore it’s a combination last year of higher costs of some of the older assets, maintenance, etc., Bass Strait, Liverpool Bay, but also we are taking higher DD&A on Angostura.

Okay. Why don’t we try 1 more in Sydney and then we’ll go to London.

There are no questions from Sydney at this point.

Great. Thanks. How about London? Any questions there guys?

Just probably 3 or 4 hands.

It’s Ross Gardiner from JP Morgan. Just 2 questions. First, I wanted to pick up on what Bob said. In this environment of high prices, are you pursuing assets that would be sub-economic in normal times and normal long-term pricing environment or are you moving away from a high grading force of [indiscernible]. Is this a drive to almost low grade from the assets?

And then the second question is the differences between the sales at Escondida between -- of 9,000 tons in the production and the sales. With the high TC/RC rates, are we seeing a holding back and a little bit of stockpiling of material, maybe just in this environment of high TC/RCs?

Ross, I might answer those, unless I get somebody to shake their head at me. First are we taking a high obviously asset quality [indiscernible]. The answer to that is absolutely not. We are not going to go out and buy any piece of trash because the higher prices are here. That’s not going to have any impact on our Company anyway.

But what we will do is, as Bob said, if we’re taking an area that we wouldn’t have taken at $60 coal, and at $120 coal you would, that’s a good economic decision. You wouldn’t go mine a mine at $120 coal. But if you pass up saying you’re going to take it out of the ground, I think that makes sense. And it’s always a tough question for management. What do you say, you can make a $60 margin because let’s say the cost is $60. No, we should pass that up because we want the cost to be $40 in the report. The answer is you’ll get it if it’s [easy].

With regards to holding back concentrate, that’s not happening. No. We’re not doing that. That’s just a point of the timing of the shifts.

Another question in London?

Hi Chip. It’s Jason Fairclough from Merrill Lynch. Just a couple of quick questions on Olympic Dam. You mentioned that it was in pre-feasibility. I was wondering if you could give us a little bit of detail on the options you’re looking at. Perhaps talk us through the timeline for the decision. Along with that, maybe your outlook on the uranium market and how you will be factoring that into your decision-making process.

Okay. What I’m going to do is ask Mike to just comment on -- make any comments on Olympic Dam he’d like to. And with regards to price I’d say that certainly we see what you see. We obviously study it pretty hard. But there’s no doubt, as we go around the world in our business that energy consumption and economic development go hand in hand.

And, as I have said before and many of you have heard, I’m going down the freeway in Shanghai and looking up at the apartment buildings and there’s an air conditioner in every residential window, which is fantastic, that uses aluminum, copper and steel, but they only buy 1 every 5 or 6 years but they turn it on every day. And there is no doubt that energy consumption is going to increase with the development of these economies.

How that’s going to happen, is it going to be carbon based, is it going to be nuclear, is it going to be renewable? The answer is going to be all of those things. And so we think that there is a bright future for energy in general and we see uranium as being part of that.

Beyond that I don’t think there’s much we can say about price. Most of our products, at the current time, is under long-term arrangements signed in to the WMC gain. So those will obviously work out over time. But again, we’ll be looking at that market as we move to a decision.

Mike, do you have some comments on Olympic Dam?

Yes, sure Chip. As you are aware, we are still drilling the resource. So, in terms of our terminology, this would be a concept-phase project. What we see is very, very good. However, the drilling will continue. The project team is being reconfigured in line with the way we do things. And we will go as quickly as possible from the drilling through to pre-feasibility. But our estimation, I think, is that you are looking at probably 3 to 4 years before you come to any sanction decision on Olympic Dam.

In terms of what we expect to have there. The expectation is a very large open pit. Probably somewhat more than double copper output, somewhat around triple uranium -- current uranium production. And obviously, like the existing facility, producing finished product on site given that you have the uranium there. So each aspect of that will be finished product. Overall, we’re very pleased with what we’re seeing.

Thanks Mike. 1 more in London.

[inaudible] from Investec. Chip, you’ve made a few comments about capital cost pressures. I was wondering if we could turn more specifically to petroleum, the sort of trends that you or Phil are seeing on a worldwide basis, and then more specifically in the Gulf of Mexico and offshore Western Australia.

Phil, go ahead with that.

When it comes to [indiscernible] have almost doubled. Previous generic figure, if you’d look back a couple of years ago you’re looking at a couple of $100,000 a day for a drill ship in the Gulf of Mexico. When things were a bit quieter in the market, those drifted down to about 150. You now hear drill ships costing $400,000 plus. And that’s just activity. So a big pressure on costs and drill ships and drilling overall.

In our particular case we had long-term agreements with [Global Pan-SA] on the DD1 which we take possession of very shortly. That’s one of the first generations of dual development rigs. And we have our commitment with [CR Lewits].

And 1 of the things we like with the [Lewits], for example, is that although the day rate’s gone up, we have very, very high efficiency there. We put down wells quicker than most wells that go down. So it’s not just a matter of cost, it’s also about the efficiency of the rig.

And, like every other part of BHP Billiton’s business, when it comes to construction we are seeing increases in costs, increases in steel, steel pipe, etc. But I think that’s manageable in our projects. We are living in a world of $60 oil where we expect costs to be connected with that. So overall we find it handleable. But obviously it’s putting pressure on. And drill ships, in particular, are escalating quite a bit.

Thanks Phil. Johannesburg, any questions there?

Martin Creamer, Mining Weekly. BHP Billiton was awaiting an oil rig for exploration work off South Africa’s west coast. Is there any advance on that?

And then I noted the [Cliff] Strait’s energy core project is no longer on the gross inventory list. Can we assume that it’s been abandoned?

And just on the issue with uranium, if you are seeking orders and just Olympic Dam, could South Africa feature in your plans?

Phil, why don’t I turn those over to answer what part of that you’d like.

Right Chip. Firstly on the South African well. We do hope to drill that well later this year. What we’ve been waiting for is we’ve been waiting for the availability of the drill ship which is moving somewhere between West Africa and Asia. We don’t want to have to pay a big [mode by de-mode] cost. And we’re pretty confident that we have secured a rig and we hope to drill that well later this year.

With regards to the second question on [Cliff] Strait. Cliff Strait project has been put back into what we call pre-feasibility in our terms. I think you’re all away, our number 1 priority at the moment in [indiscernible] is about our project improvement -- sorry, our improvement plans. We have very openly said we are looking to reduce our costs and improve our capabilities to be competitive in the coal market out of South Africa.

And quite seriously, until we are happy that we have achieved that, we will not be generating new projects and investing more money in that business. So Cliff Strait is not dead but it’s been pushed back to pre-feasibility until we are further down the cost improvement program in [indiscernible] overall.

And uranium. We certainly are sitting now with 38 or 40% of the world’s known resource of uranium. So I think we’ve got plenty to, say, grace over at the same time. We’re in the mining business. And if there are good opportunities we would certainly be willing to look at it.

Okay, is there another question in Johannesburg?

No more question from Johannesburg at this time, thanks Chip.

Okay. Thank you, Michael. And here in Melbourne, question?

Craig Campbell, Morgan Stanley. A couple of questions. Firstly just with regard the iron ore and the same arrangements to China, Marius, were you able to edge an increased margin through that activity?

Secondly, just on costs but a different angle, we have seen a lot of talk about increasing royalties and government taxes. Have any further areas come up for royalties to be going up and the governments having discussions with you at the moment. And has the situation in Chile now settled down and finalized?

Marius, do you want handle the freight question?

Yes, we generally don’t undertake activities if we don’t feel that they are overall profitable. And the reason that we ship products on a delivered basis is that we believe that we can make a bit of an extra margin out of there. It’s obviously a bought-in service. We do have as about 100m ton a year dry bulk ship of enormous leverage over prices. And I think that that freight activity just contributed again to us slightly outperforming where your margins would have been if we hadn’t done that.

I think that is important. We look at it as service to the customer. If we can use some of our buying power to benefit them then that ultimately benefits us. And on the marketing side, we’re sitting with 2% overdue receivables. 3 years ago we were 15. So the ability to consolidate that and be thinking about how we deal with our counterparties is very important.

The second one on royalties, as you saw probably the other day, we have this agreement with the Western Australian government with regards to our iron ore royalties out there. Chile seems to have settled down. Peru, we’re looking at that. But we have current agreements that stabilize our royalties at whatever they were at the old rate. So that has no impact on us. So I would say cross your fingers, but I’m not aware of any -- certainly nothing significant around any royalty changes or any proposed royalty changes.

Any other questions here in Melbourne?

Gordon Ramsey from UBS. A question for Phil Aiken. Congratulations, Phil, in terms of increasing your nominal capacity for the third time in your new offshore developments. We saw Mad Dog, Atlantis and now Stybarrow go up, which leads me to Shenzi. Looking at that project, the CapEx was very similar to Atlantis South. And I am just wondering why the capacity is half the amount and if there’s potential to increase that in the future.

Phil, would you like to handle that?

Yes. Well, Shenzi is a large project. It will have a name plate capacity of 100,000 barrels a day, where of course Atlantis has a name plate capacity of 200,000 barrels a day. Costs have gone up. And we are living in a different environment.

But, overall, we are still in feasibility on Shenzi. And it’s a bit early yet to say what the final capital would be. But certainly it is going to have much more expensive drilling costs than say the original wells, which were drilled on Atlantis, which were drilled in a more favorable environment. And, like all these projects, a lot of the costs are the drilling costs and therefore you are going to see the higher rates for the whole of the Shenzi project where Atlantis actually had lower levels.

Having said that, it’s still a very, very robust project. And we are very confident that it will be sanctioned.

Okay. Let me to go to the telephones and we’ll finish up there. Anything -- any questions there?

Thank you. We have our next question from the phones from [Michael Sung] of ABN Amro. Please go ahead Michael.

Hello Michael.

Hi. Just a quick 1 for the iron ore markets. [inaudible] particularly the spot market at the moment.

Michael, you’re cutting out on us unfortunately. Do you want to try that again?

Yes. Can you hear me now?

Yes.

Okay. With regards to the conditions in the spot market at the moment, there are conflicting signals, the [rios] interims we heard that the Chinese were playing, spot terms above annual contract terms. [Natal] Steel says it’s paying spot terms below annual contract terms. What’s your feeling for the state of the spot market rival currently? How do you see that progressing through to the end of the year?

I think we got about 2 thirds of that question. Marius, do you want to give that 1 a try and answer whatever you’d like to answer.

That’s a great position to be in. Michael, I think I heard that there have been some market reports that some parties have been able to buy ore at below the annual contract price. And the second part was what is the outlook for the year, for the year ahead.

I think 6 months ago we -- as Chip said, we are less bullish than we are today. We are seeing the iron ore market today as tight as we have ever seen that. Inventory levels in China down. Price rises consistent over the last month to about today on a landed cost basis about mid 70s or so, since we’re 68% concentrate trade. So not sure, but whoever bought that cargo at the low -- the term price did a great deal. But certainly he didn’t buy it from us.

Thank you Michael. Okay. 1 more from the phone.

Thank you. Our next question comes from [Jason Lang] of [GLG Partners]. Please go ahead Jason.

Good morning. It’s actually [Robert Donald] at GLG. Just briefly, looking at the base metals division and, to a lesser extent, the stainless steel division, the thing that stands out is the margin decline in the second half versus the first half and also year on year compared to the second half of ’04. I just wanted to understand, from your perspective, whether this is just a temporary grade issue. Or is this the byproduct of input cost pressure?

If this is input cost pressure, I wonder if you could just share with us your thoughts about the run rate of cost inflation you’re looking at in 2006 and whether or not this will then lead to margin decline in the base metals division, assuming prices of copper are static at today’s level. Thank you.

Mike, would you like to comment on that?

The 2 biggest single impacts on margins, base metals it’s TC/RCs. And in stainless steel materials it is price and costs of imported ore in the case of Yabulu, and it’s the royalty at [Serramatozo], which is profit-related royalty.

Talking of the drivers of both of those and independent. And TC/RCs, I guess the situation -- Marius will probably be closer to this than I am. But the situation is that the TC/RC market or the levels are moderating, so the impact should -- would not be as high in the coming year. And in terms of the imported ore and the royalty, they will just go with the price.

Overall, on our nickel business, of course, we will have a very different mix going forward. Nickel risk will have a major impact on the nickel business in the coming year. The margins -- the relatively lower margins of Yabulu will be substantially diluted in a positive sense. So we will be looking at a different business there.

Just on the TC/RCs, you’re suggestion --

[indiscernible] time. But it’s always important to try to give everybody a chance to ask questions too. Again, thank you for your time. It certainly has been an exciting 2005. And 2006 has started off, obviously, equally exciting, if not more so.

Again, whilst a great result both operationally and financially, the key thing is the long-term strategy around manage what you -- manage your business well, clear knowledge and reinvest in things that you know and understand, always driven to that driver of long-term shareholder value.

So again, thanks for you time. Feel free to be in contact with our group here in Melbourne, with Mark and Barry and Tracy and Alison in London, and then Michael in Johannesburg. And we look forward to seeing you in February next year.

Thanks a lot.

Thank you. For those on the phones, this now concludes the presentation. You may disconnect your lines.