必和必拓 (BHP) 2006 Q2 法說會逐字稿

Good morning everyone. Melbourne is on the phone or Sydney is on the TV. Or I guess we don't have Sydney. Sorry, do we have Alex and Chris?

Yes, we're here.

Okay, great. Alright guys. Let's go ahead. Ladies and gentleman, welcome to our presentation of BHP Billiton's results for the first half of the financial year 2007. My name is Chip Goodyear, the Chief Executive Officer of BHP Billiton, and obviously I'm here with you today. Joining us from Sydney is Alex Vanselow. Alex is our Chief Financial Officer and he will make some prepared comments this morning. And with Alex is Chris Lynch. Chris is our Group President for Carbon Steel Materials and an Executive Director of BHP Billiton. And then joining us on the phone we have Marius Kloppers. Marius is in South Africa today and he is a Executive Director and Group President for our Non-Ferrous Materials Group. And they will all -- Marius, Alex and Chris will all assist me in answering your questions later in the presentation.

Moving onto slide number 4, which is our highlights slide for the six month period ended December 2006. People are a critical part of our strategy. They represent the foundation of BHP Billiton, and so spending just a second on safety is important at the beginning of a presentation like this.

Underlying injury frequency rates continue to decline in the first half of the financial year. However, low injury frequency rates don't necessarily mean low fatalities or they don't prevent fatalities, and unfortunately we have had five fatalities year-to-date at BHP Billiton. Last year we had three for the entire year, which is an unacceptable number in and of itself.

Now the issue, once again, is not our end systems. Our systems are outstanding systems. It is a question of the visible leadership and enforcement of that and operating discipline, making sure we are following those systems. And it is a critical aspect for leadership in this company that you understand zero harm and you carry that through the aspirations of zero harm all the way through the organization, and it is something we focus on every day and continue because we will not run an unsafe operation. So, once again, it is something that is critical for us and we will continue to bring it up as an important item every time we talk about our results.

Now moving to the financial and operating results. It certainly has been an excellent six month period. Five our commodities set record production for the half year period. Those are five major commodities. One of our minor commodities did also. We had six monthly production records at ten of our assets and we had record results in essentially all of our headline earnings result numbers. Beginning with underlying EBITDA where we saw 32% increase to $10.5 billion. Underlying EBIT $9.1 billion, up 37%. Attributable profit $6.2 billion, up 41% and earnings per share increased 44% to $1.04 per share. And, as you note here, we did see a greater increase in the earnings per share than we did in attributable profit and that is due to our share buyback program.

Despite continued pressure on costs, we were able to increase prices and volumes as well as a focus on operational excellence and business excellence, has allowed us to increase our underlying EBIT margin to 47% and our return on capital employed to 37%. And this is a record that goes back to 2001. We have seen a continuous improvement over the last five or six years in both of those very important financial statistics.

We continue to invest in our project pipeline. Our project pipeline now stands at 29 projects and those are projects that are either in execution or in feasibility. As I've said in the past, there are many projects that sit in earlier phases of assessment in our system but those are projects that, again, are in execution or in feasibility. The total spend on those projects is $17.5 billion and I'll spend a little bit of time on that in a few minutes. We've found additional ways to grow our business and in the last six months agreed to acquire the Genghis Khan oil field which is adjacent to our Shenzi development in the Gulf of Mexico, and I'll also spend a little bit of time on that.

Our cash flow remains strong and our outlook continues to be positive. As a result, we announced an increase in our interim dividend to $0.20 per share, that is up 14% from where it was a year ago and that's again up $0.025. And this is the tenth successive dividend increase that we have had at BHP Billiton. Cash generation, as I mentioned, continues to be strong and our expectation is it follows that, so we did announce today an increase in our capital management program. That increase is $10 billion. That is on top of the program which we are completing, the one from August, and the remaining amount from that program is $1.3 billion. So the amount yet to do is a total $11.3 billion. Our expectation is that we would do that over the next 18 months. We are going to commence immediately with an off-market program in Australia. That program will be AUD3.25 billion and, as I mentioned, we will start that right away. We will also continue our on-market program here in the UK.

Since August of 2004, we have announced capital management initiatives of some $17 billion and if you go back to 2004, once we complete the program that we have announced today, we will have reduced the capital, the number of shares outstanding by almost 17% over that period of time. Our strategy is consistent. Our strategy is around large low-cost low reserve life assets and diversified resource base across products, across regions and across markets. That give us current strong cash flow and, obviously, current production, substantial growth opportunities organically within our portfolio and opportunistic M&A which we execute when we see value in that process. But we underlie that all with a financial discipline that is driven to long-term shareholder value and the illustration of that comes in terms of successive dividend increases, in capital management program designed to create long-term value for our shareholders.

What I would like to do now is to hand this over to Alex. He will make some comments on the numbers and then I'll come on and make some additional comments, and then we will follow up with your questions. So, with that, let me turn it over to Alex.

Thanks Chip, and welcome to everyone. We've a little bit now about our outstanding set of results for the half year. For the seventh consecutive half year we achieved records for all key measures. All time record production was achieved for aluminum, copper cathode, iron ore, manganese ore and molybdenum from continued operations. We also achieved record production across ten of our assets. This is an excellent achievement at a time when demand and prices remain strong.

Chip spoke about our increased EBIT and I will focus on our growth in EBIT margins and returns. EBIT margin was 47% and return on capital employed was 37% for the half year. Again, both are records. This was driven by a number of factors. We continued to enhance our business excellence program, which increased focus on consistent and predictable operating performance. We expanded our global procurement activities and strengthened our cost focus. Together we found growing capacity expansions, portfolio management activities and continued strong prices; these initiatives have underpinned solid returns on margins. Our marketing group continues to focus on activities to enhance revenue, ensuring that our products are priced and market fundamentals will provide less than shareholder value. Our recent DCSC pricing reflects this.

Moving on to the detail of our results. As you can see, we are now reporting as nine CSGs. This recognizes the size and relevance of our carbon steel material businesses which is now being reported as iron ore, metallurgical coal and manganese CSGs. Importantly though, our customers won't be affected by this change as we will continue to market this product in a unified manner. Seven of our nine CSGs, as you can see, have delivered increased EBIT. The value of our commodity diversification is evident. While inventory to consumption ratios are low and demand remains strong, LME prices will continue to be volatile. However, EBIT contribution from non-aluminum traded commodities was $4.1 billion for the half year; 54% of this is contribution from iron ore, manganese and metallurgical coal. Benchmark prices for these commodities are locked until April 2008. This will strongly underpin our earnings for fiscal years 2007 and 2008. To some extent it will also cushion the market volatility.

Now reviewing the CSG results in more detail and we will start with petroleum. Our petroleum business returned another strong result. Underlying EBIT increased by 12% to $1.6 billion. Sales volumes and product prices were both stronger. We improved base operating performance which reduced the impact of natural fuel decline across the portfolio. Our petroleum business continues to provide us with exciting and significant growth opportunities. Aside from our ten organic oil and gas growth projects, we have also announced the acquisition of Genghis Khan. This is a field that cost us $583 million. We expect petroleum volumes for fiscal year 2007 to be slightly below fiscal year 2006, due to the delay of Atlantis First production. In our aluminum CSG underlying EBIT increased 107% to $840 million. Higher net prices for [alumina] and aluminum added $492 million. Record productions were achieved at each of our three Southern Africa smelters and the Paranam refinery. The Worsley refinery also had its highest ever production due to the successful ramp up of the DCP expansion and the calcining of inventory hydrate. We expect the DCP to be operating at full capacity by the end of fiscal year 2007.

Base metals, underlying EBIT rose 54% to 2.9 billion. Once again strong production was achieved including record copper cathode production. Spence was commissioned in December, three weeks ahead of schedule and on budget in local currency. And we have already achieved our first day of Spence product. The Sulphide Leach project also continues to ramp up successfully.

Our Olympic Dam expansion pre-feasibility studies continue. We expect completion of these studies by mid-next year. We currently have 22 drill rigs on site, exploration undertaken up to June last year has allowed us to increase our recorded mineral resource for this ore body by approximately 0.5 billion tons of copper containing uranium and gold. Successful execution of the expansion will transform this world class ore body into a world class operation.

For diamonds and specialty products, underlying EBIT was $105 million. We had excellent performance at the Richards Bay Minerals for the half year, with a firm market for metallic and zircon co-products. The EKATI diamond mine continues to be impacted by the processing of lower grade material. Increasing underground production over the next few years, should restore profitability to historical levels. The Koala underground development continues on track to schedule and budget.

The stainless steel EBIT of $1.4 billion was up a substantial 284%. Record nickel prices and strong production from Cerro Matoso and Yabulu underpinned this result. Our assets operated at or near peak capacity during the period. We will have a 21 day statutory outage at the Kwinana refinery during the second half, which will impact refined metal production.

Ravensthorpe's revised budget and schedule were proved and announced in November. This project provides us with a significant capability to deliver increased nickel volumes into structurally tight market.

In iron ore higher prices and record sales volumes drove a 13% increase in underlying EBIT to $1.4 billion. WA iron ore recorded its highest ever production during the period, however, tire in activities means full year production will remain below the nameplate capacity of 109 million tons per annum . Customer demand remains very strong for iron ore and we expect to sanction a further expansion of this operation in the next few months.

In manganese, underlying EBIT was 105 million driven by higher sales of ore and strong customer demand. An expansion of the Groote Eylandt manganese operation is currently in feasibility.

In metallurgical coal, underlying EBIT was $659 million. The Greenfield Poitrel project delivered first product and the BMA Phase 2 expansion brought on additional tonnage. Increased sales volumes during the period was supported by an expanded capacity at our Hay Point coal terminal.

In energy coal, underlying EBIT increased by 19% to $243 million. Continued strong demand in Atlantic Basin drove high export prices and our half year production record was achieved at Hunter Valley Coal.

I would now like to talk about an area which I am particularly aligned to which is business excellence. We continue to enhance our business excellence program with an increased focus on identifying and sharing best practices around the globe. An outstanding example is the work undertaken on tire preservation. At a number of our assets, various initiatives have doubled tire life without reducing either safety or operating efficiency. The priority now is to replicate this best practice across all our assets. The resulting savings will be significant in a challenging industry environment. The sharing of knowledge, systems and processes across more than 100 operations, can bring a very significant competitive advantage.

This slide highlights the $290 million benefit that this drive for excellence provided during the half year as measured by our benefits capture system. This is a significant number. In the context of our total cost increase for the period it is helping to mitigate these pressures.

Turning on to the key drivers of change in EBIT. The net impact of higher prices added $3.4 billion. We captured an estimated 72% of this increased revenue to EBIT. However, the same factors supporting higher commodity prices also created higher input costs. These cost pressures impacted by $530 million, excluding the effect of price link costs, exchange rate and inflation. This is an increase of 5.6% on last year's total base costs, or half of 1% if you exclude the non-cash costs. This is a lower period imperial rate of increase than presented at the full year. And in fact it is the lowest rate of half and half increase we have experience since cost pressures began more than two and a half years ago. This is a positive sign and is the second consecutive period in which we have seen declining rates. In this environment however, managing costs will remain a significant key focus area.

Approximately 30% of this year's costs increased as structural with the remaining 70% being either one offs or caused by the heated market which bears a strong correlation to prices. Of the total $530 million increase, 130 million or 25% are one-off non-recurring items within base metals such as the Cannington rehabilitation and the Escondida labor strike. Another $50 million, or 9% relates to the non-cash costs such as depreciation.

Now moving into the detail of this cost variance which is calculated on a pre-tax basis. The largest impact, approximately 39%, represents higher unit costs from changed mining conditions. This relates mainly to our EKATI diamond mine, where lower grades resulted in higher costs per carat. Contractor charges have increased because of both higher rates and activity. In certain cases we continue to deliberately incur costs to enhance production. Costs for fuel, energy and raw materials are higher, but this is more than offset by the revenue benefit of the higher prices we receive for these products.

Moving on to net finance costs, tax and attributable profit. Our net financial costs increased to $222 million. This is largely due to higher average interest rates offset by lower average debt levels and higher capitalized interest. The tax chart for the half year was $2.1 billion. This is an effective tax rate of 25.3%. The underlying effective tax rate included a benefit of 1.6% from the recognition of prior year US tax benefits of $140 million. We expect a similar level of recognition in the second half of the year.

Now turning to cash flow. Net operating cash flow, after interest and tax increased by 63% to a record $7 billion. Our net gearing was 20% compared to 29% last year and our interest cover was 47 times. Our priority for surplus cash flow is reinvestment in the business. Capital on exploration expenditure totaled $3.4 billion for the period. $2.5 billion was paid out in ongoing buyback of our UK listed stocks and in funding our 2006 full year dividend.

We have demonstrated a strong commitment to both growing the business and returning funds to shareholders. Since 2001, we have reinvested $22.7 billion on organic growth and exploration activities as well as the $7.3 billion paid for WMC. In addition, we have a project pipeline of 29 projects in development or feasibility. We expect to spend $17.5 billion on these projects. By the time we complete today's announced capital management activities however, we will have returned an even larger number to our shareholders over the same period, $26.6 billion. Since November 2004 alone, we have repurchased 388 million shares, representing approximately 6.6% of our capital.

Let me finish with capital management. BHP Billiton continues to demonstrate strong capital discipline. Today we have announced an additional return of $10 billion over the next 18 months. This is on top of the increased dividend announced today. This is now our fourth sizeable capital management announcement since August 2004, amounting to $17 billion in total. Excellent and timely execution has been achieved on all prior initiatives.

We will begin this program immediately with an off-market buyback of limited shares with a target maximum program size of around AUD3.25 billion or $2.5 billion. At the completion of today's announced program we will have repurchased approximately 17% of our capital since November 2004.

So just to recap, we have delivered our seventh consecutive record of half year results, achieving record production in six commodities. We have had costs increases to 5.1% excluding non-cash costs, the lowest rate of cost increase in 2.5 years. This is within a very challenging cost environment. Of the higher price impact during the period we have translated 72% into EBIT with our margin and return of capital employed now standing at a record 47 and 37% respectively. We have continued to invest in our project pipeline with accelerating returns to shareholders. Today our pipeline is 29 projects with an expected spend of $17.5 billion. All in all we have delivered another very robust performance, and with that I will hand you back to Chip

Thank you, Alex. From a financial and operating perspective the first half of the year has certainly been very strong. Through generated strong financial results we've seen seven of our nine CSGs increase their EBIT performance, and as I mentioned the EBIT margins and return on capital employed have continued a stretch that's going back for five or six years. Now some of the obvious high points I presented in my highlight slide but there are two items I just wanted to go into a little more detail that are probably less obvious to you.

The first one of those is in petroleum. Now petroleum has put in an excellent effort to offset the natural field decline that we would expect in their business. We've told you in the past that you should expect the petroleum business to show about an 8 to 10% year-on-year decline from existing operations. This team was able to generate a decline that was only 3%. Now that comes despite no new fields, the production from Typhoon that did produce for two months last year was not available this year and there was an unplanned shutdown in Trinidad in the latter part of the last half year. This is an excellent example of operating discipline and making sure we understand the resourcing to get the maximum amount out of it can help to make an important difference in the performance of the company. And they were able to do this with having some of the best injury frequency rates and those lowest injury frequency rates that they've ever had. And so that example of operating discipline is a good way we like to translate across the company what we mean by performance, being able to maximize our performance from the assets and do that in a safe way.

The second thing, it's again is a little bit more subtle, we've mentioned it a couple of times now, is this area of the rate of cost increases. In August last year I mentioned to you that we had, for the first time, seen a decrease in the rate at which costs were going up and now for the second time we've seen that again. Now these things just don't happen; as you are aware there is enormous pressure on people and materials that are necessary for us to do our business. Alex described business excellence and some of things that we've gotten out of that but we use business excellence and also driven very much by Six Sigma technology to identify how we can find savings in the organization and share those across the 100 assets around the world. We have some 700 black belts and 500 green belts in the organization that have been trained already to deliver these items. These savings have resulted over the last several years in something like $900 million of savings and benefits to the organization. We've also been able to use our scale and our global footprint to source people and supplies that meet our critical needs and as we've said, this allows that price benefit to get the bottom line, or in this case, the EBIT line. In this last six month period 72% of price actually made it to the EBIT line and where you certainly see costs going up you can see the ability to control those does allow us to get a significant benefit when you're in environments like this.

Let me move onto the outlook. In the slides, some of the slides you've seen from us before telling you about China and India, the US, Japan and Europe. I'm not going to go through each one of these; I think the comments are there but let me just say that 2006 was a strong year for global growth despite a slowdown in the United States in the second half of the year. As I said in August, we expect 2007 to be a strong year also, or at least a solid year, probably not quite as big as '06 but certainly a very good year, and we expect growth in emerging markets and from Europe and Japan to offset some slowdown in the United States but I think as you are aware, the expectation for the United States has been certainly improving as a result of things we've seen over the last three or four months. So again we expect 2007 to be another exciting year in our business and driven by global growth. But one of the things that we hear a lot about is -- oh my gosh, housing starts in the US are going down, the world's about to go into some sort of significant decline. The world has moved on from that, ladies and gentlemen, I think many of you are aware of that but I wanted to go through a couple of things to illustrate what I mean by that.

If you think about the United States and China, there's no doubt the economy in the United States is larger than the economy of China. The economy in the US is about a 12 trillion GDP number; China is about 3. But when you apply the growth rate in those two markets you get a much more balanced picture and what we've done here is take the growth rate in China of about 10% and in the US of about 3%. And again you'll US being somewhat larger but again a much more balanced picture. And you see in China about 200 billion of that growth is coming in investments, and investments are the things that consume significant amounts of metal, and that's what's driving the demand for the products that we sell.

Now what I'd like to do is then step into a particular product and here what I like to do is talk about copper. And what we're learning here is looking at the demand for copper in 1996 and the demand for copper in 2006. Now what you see is that ten years ago the US represented about 21% of total copper demand. Today it's about 10%. China ten years ago was 10% of global demand and is today 22% of demand. In absolute terms the copper consumption has certainly risen. Ten years ago there was a consumption of about 12.5 million tons, today about 17.5 million tons. When you multiply those together in absolute terms, China consumption of copper has gone up about three times over that period, the US in absolute terms has actually fallen by about 10%. If you take a look at India here you can see it's just barely visible, and obviously that indicates a pretty exciting future as we look out into India.

But the next slide takes that concept of China and its size to looking at some other commodities. Here we're looking at aluminum, copper and steel and also oil. And you see with the exception of oil that China is the largest single country in terms of its consumption of these important materials.

Now we show in the back -- or let me move on now to our intensity of use slide. This is trying to say, okay, that's where China is today and what does it mean, but now what it might be in the future. And I think you're probably familiar with these slides, across the X axis we have GDP per capita on a purchasing power parity basis; across the Y axis we have, in this case, kilograms of copper per capita. And it wouldn't surprise you that as wealth grows in the economy that the consumption of metals grows, particularly in the early stages of economic development and that's going to be to the left side of the chart.

But as you move to above $15,000 per capita consumption, the rate of change of consumption, in this case this metal, does flatten out. And just to give you an example when you start off and you ride a bicycle and then you get a moped and motorcycle and then buy a car, you are significantly increasing your consumption of metals. But once you own your Chevrolet and you now buy a Mercedes, you don't see nearly the relative change in copper consumption. And the same is going to be true for other metals.

So as we look out into the years ahead, you'll see that we expect China to roughly double its GPD per capita over the next ten years and that is going to come from industrialization and urbanization, and that's where productivity growth will come from. It is our job as an industry to support that growth in terms of finding materials and in this case metal to make that happen. In the back of your book, in the appendices, you'll see similar intensity of use curves for aluminum, steel and energy and the story will be very much the same where as countries move up that wealth index, the consumption of these metals continues to grow.

So what I've tried to illustrate in the last few slides is that a US slowdown does not have the same impact today that it had 10, 20 years ago and also illustrate what is the potential from these emerging countries and it's the job of our company and others to meet that demand as I said.

And that brings us to our project pipeline. This slide shows the latest version of our project pipeline, as you can see there have been a number of changes since August. Two projects have been complete that's Spence and BMA Phase 2 in Queensland, so those have been removed from our chart. And there has, certainly, been a continued focus on increasing project costs but I note that many of the projects that we have are going quite well. In fact, most of them are. Spence came in ahead of time and came in on budget in terms of local currency.

We have a number of projects ramping up. We mentioned Escondida Sulphide Leach, which has produced 50,000 tons of metal, Worsley will complete its ramp-up by the end of this fiscal year, and RGP 2, which is an expansion project in the iron ore business, is outperforming the projections with increased rail and port flows.

As I mentioned previously, we have had in the order of some 200 projects in the exploration concept in pre-feasibility area. You can see that several of these projects are now moving into the area of feasibility. These include projects in nickel, petroleum, alumina, and energy coal. We've also phased the development of the Maruwai project, which is a coking coal project in Indonesia, so we start with a pilot project and then move on to an expansion later on as we see that develop.

I'd also like to take the opportunity to talk about Ravensthorpe. Ravensthorpe is progressing well and we do expect that project to commission in line with its revised schedule. The Yabulu project is now mechanically complete. And although it's designed to take feed from Ravensthorpe, we will go ahead and commission that with existing feed pending the receipt of ore from Ravensthorpe later in the year. Or intermediate product from Ravensthorpe.

And let me just provide another observation at this point in time. When you look at projects across the industry that have, I would say, mechanical elements to them, iron ore would be a good example where you're talking about steel, erection of facilities that are steel, conveyor systems in ports, those things we can manage quite well and the industry has done so -- probably not quite as well as some of us have done. But, in any case, those projects certainly can be managed in terms of the execution.

But projects where you're seeing more difficulty are in projects where processing is involved, where you're utilizing specialty materials involved in the processing, where you're using specialized tradesmen to actually implement the project itself. In those areas, and Ravensthorpe would be one of those, you are seeing more pressure and more difficulty in meeting original budgets. That's not just affecting us, that's affecting the industry overall. So the -- every project is not the same. There are different characteristics to the projects and understanding those characteristics helps give an idea of how those projects are performing relative to budget.

So we need to continually add new projects to our pipeline and it's critical that we do this. And next, I'd like to go through a couple of areas just to highlight some of those things.

First, our alliance with Norilsk Nickel continues to go well. It's only eight months old but we're working well together and I would expect, over the medium-term, and perhaps over the short-term, we will see some good things that come out of our joint efforts in North Western Russia and Western Siberia.

We've mentioned Genghis Khan. It's a great example of where being in the right place with the right knowledge can create distinctive opportunities for us. Genghis Khan is adjacent to the Shenzi oil field. Now, on the map that you see there, Genghis Khan is the slashed blocks that are yellow with slashes through them. The area to the right on your chart it is the Shenzi development and you can see we're right next door. The ability to share infrastructure and the understanding of what's happening in that reservoir system was critical to us being successful here. We were able to move rapidly to meet the plans and the desires of the seller and we look for production from this asset, in the middle of -- calendar year 2007. But this is an illustration that we continue to find opportunities through M&A, to add value to the portfolio, but we'll do that where it fits strategically and where we can do it for value.

I also wanted to mention our entry into the -- into one of the world's largest basins for potash. That's in Canada. This is a new commodity for us but it has many similar characteristics to other aspects of bulk mining. We've secured a major land position of about 4,000 square kilometers in Saskatchewan and Manitoba and we've put together a team in Vancouver who are going through existing data and planning additional size and making more drilling so that we can identify the sweet spot with regard to the development of this resource.

I also might mention, it's not on our chart here, but I might mention that we last year reached a preliminary, I guess, agreement with Global Alumina around activities in Guinea. Now, I say it's preliminary. We hope we can eventually complete that. But the thing that attracted us there is a Tier 1 world class bauxite resource. And it's a company like ours, who has outstanding experience in Africa, significant knowledge of the bauxite and alumina business, where we think we can deliver that. Again, that certainly is pending and, therefore, not appropriate to be on this slide, but it is something we released to the public and, if it comes to pass, it would be another set of opportunities for us.

There's been a lot of interest in energy, in carbon emissions and the role that nuclear power might play in future energy issues so I thought I'd give an update on Olympic Dam. Now, Olympic Dam is a world class resource. The more we drill the more we understand how fantastic this resource is. It's the world's largest known uranium ore deposit and the sixth largest copper deposit, and one of the ten largest gold deposits in the world. I expect we'll continue to see this grow over time and I would expect you'll see this asset produce for 100 years or more. But it is large, it is complex, and it's important that we use best technology to economically develop this project with a minimum of impact to the environment and a manageable impact on the community. Therefore, planning is critical. So when you look at that schedule that I have up here that says we start up in 2013, that may seem a long way for many of you but it's really not that far away and you have to make sure you do it right so you can maximize the long-term value of this asset.

So let me just illustrate why Olympic Dam is so valuable. If you look at this slide, this compares the gross value of a ton of resource in a number of our base metals operations. Now you have to be a little bit careful here because we're not presenting capital cost, we're not presenting operating cost, and this certainly will impact the long-term economics, but you'll see here that the opportunity is significant. Now you also have an asset with scale, as I just mentioned in terms of the size of the resource here, but a ton of poly-metallic ore at Olympic Dam is very valuable. The gross value, per ton, exceeds that at Antamina and is five times what we see at Escondida. Again, with the caveat, you have to be careful here because it's just looking at the value in one ton of resource.

But when Olympic Dam is fully ramped up, it will be the largest uranium mine in the world. The question is, are we confident that there's a market for that product. If you move to the next slide, we illustrate the situation today with regard to nuclear reactors around the world. The dots in black are operational nuclear facilities around the world; the dots in yellow, under construction, and the dots in green are planned. And you can see significant activity taking place in China, Russia and India, and there'll certainly be growth in other places but it's these areas that'll underpin the sales for uranium from this resource.

Now, in addition to uranium demand and uranium is a resource meeting energy needs around the world, you're going to continue to see increases in traditional carbon fuels, as well as renewables. And a company like BHP Billiton is positioned for all of those things.

Now, one of the things that we notice as we go around the world is that economic growth and energy consumption go hand in hand. There's no example in history where you can have economic and social development without energy consumption. And so, when we see that, we believe the position that we've created for ourselves across the spectrum of energy resource, is unique. And so when you go to the world's energy supermarket and you go down the aisles of the opportunities presented there, you will find BHP Billiton in the energy coal aisle, in the oil aisle, natural gas and LNG aisle, the uranium aisle. Where we're not is in the renewable aisle. And that's not a skill set we have but we do focus on things that we know and understand. And every one of those resources is going to see an increase in absolute demand in the years ahead and we believe we've positioned ourselves to benefit regardless of which way that those things go.

If we move on to the strategic pyramid, and the reason that I want to do that is not -- I'm not going to review this pyramid in detail with you, but I did want to use it to try to illustrate what our focus is for 2007. So let me just begin at the most important part, and that's with people. I mentioned earlier safety. Keeping our people safe is critical to an organization that sees people as its foundation. So that's job one every year and 2007 is no different.

The next significant job is that license to operate. We need to work with our governments and communities to develop the resources that the world needs in a sustainable way and that's an ongoing job come year-in year-out.

The next area of important focus in the year ahead is in the area of world class assets where we have to deliver volumes and costs consistent with our targets and our budgets. And that's an important driver. We certainly benefit from environments like this but our objective is a long-term 2% real decline in unit costs. And we can't do that every year but we have to keep focus on that.

Next, moving to the project area, we obviously need to deliver our projects on time and on budget.

And then finally, at the growth options area, we need to continue to refill our project pipeline. We've done an outstanding job of that over the last six years but we obviously need to continue to do that.

And so, in summary, it's been an outstanding half year. We've another set of results, production results as well as record financial results, with increasing returns in terms of capital employed, and increasing margins.

And I've said it before but I'll say it again, that it's nice to be in environments like this where prices are certainly strong but, unless you're able to execute, there's no -- it doesn't matter how good prices are. Without production, it doesn't matter what happens to price. And so an environment like this allows us to benefit where preparation meets opportunity and that's what this company's been able to do over the last five and six years.

The outlook for 2007 remains positive and we do expect commodity to grow -- commodity demand to grow in the medium to long-term. And, again, 2007 continues to look good in emerging markets, Japan, Europe, and while the United States sees some slowdown, we don't expect it to be the kind of draconian situation that might have been expected a number of months ago.

And we continue to invest heavily in our growth pipeline. We've done that for a long period of time. Our global footprint gives us excellent visibility opportunities. We've been a consistent developer of products in good times and in bad, and those certainly pay benefits, but our cash flow does exceed our ability to put that money to work in an effective way. So what we've done is to apply that cash to continually increasing our dividend and, where appropriate, continuing our capital management policy. Again, today, we announced an incremental $10 billion with regard to that.

So, before we go to your questions, there was obviously another release about what my plans are. I think you all probably had a chance to see that. Those plans are to retire by the end of 2007. It's always difficult to come up with a time to do that, particularly in an exciting place like BHP Billiton, and an exciting environment we're in, but I think the fact that we are in that kind of environment, and we are so well-positioned, gives me confidence that that can be done and it can be done effectively.

This organization is effectively and efficiently positioned with outstanding resource, with outstanding opportunity, and first class people who can deliver those things over time. But it is important that we did make this statement today, or yesterday, in order to clarify the situation and allow for an appropriate transition period to the CEO role. Again, it's been, for me, an exciting nine years that I've been involved with the company. It's -- we've seen a lot of change and it's been great to be part of that. But it's also important that we continue to renew and regenerate the organization with fresh and new ideas. And I'm a big believer in that and we certainly executed that continuously in our company and I'm sure that'll happen in the time ahead.

There is a robust succession planned at the company. That'll involve an internal and external search or review for potential candidates for this role and that'll obviously take place in the period in front of us.

But we do have a large agenda at the company for 2007. We always have a large agenda but 2007 is no different. My plans are to work with the team, to deliver those items in this year ahead, and I can assure you that my focus, as well as the focus of the management team, will be to do exactly that.

With that, what I'd like to do is open it up for questions. What we'll do is we'll start here. I think we have a telephone hook-in too, so we'll do three questions here and then go to the telephone and swap that around and do that for the next 40 minutes or so. So, let me open it up here. There we go.

It's Jason Fairclough from Merrill Lynch. Chip, you spoke a little bit about some of the structural increases that we're still seeing and the rate of increase is slowing but there still are increases coming through. Can you talk a little bit about your thoughts on the economics of metal production going forward? What does this actually mean for incentive prices for new projects going forward?

Yes. That's a good question. The question is how have higher prices, particularly structural increases in prices, resulted in an increase in what the long-term average price might be? There's no doubt we're seeing that. You can simply look at energy prices and say as energy's a big impact in our business you're going to somehow have to offset that. So there is some pressure on that. But I would also say that you are seeing prices in a number of products that you don't need to see in order to incentivize production. Now you may see that long-term prices will be above what we might have traditionally thought was an appropriate level but, at the same time, we have seen prices move pretty dramatically.

Now when will that come into balance? Certainly, it hasn't yet, despite many people thinking that it would, and that seems to happen every year, but eventually you will see traction to some of the supply-side issues. But I would say, as I've said in the past, that we continue to be excited about what we're seeing in developing economies around the world. Information technology has allowed people to see that you can get to a better way of life. And I bet in China, over the last ten to 15 years, 500 to 600 people have come out of what we would call poverty and that's -- you need resources for that. You need copper, you need aluminum, you need steel. That's communications, that's infrastructure, that's transportation.

So I can't give you an exact answer. It's going to move from product to product but have you seen an increase in what that average price must be for an attractive return? The answer to that is yes you have. But how much it is, that's going to depend on the product itself.

Next question?

Chip, it's Andrew Keen from Sanford Bernstein. Just a question on your buyback program. 10 billion is a big number but 18 months is also quite a long time. I'm just wondering your thinking about why you've pegged out such a long period and how sensitive that is to commodity prices and what kind of commodity prices you're assuming to achieve that timeframe?

Yes. Why don't I go ahead and answer that, Andrew. 18 months is a long time. We always say 18 months. We've always beaten it dramatically. So it does give us quite stability. I don't see it dependent on commodity prices and that's always a big statement in our business. But remember, our strategy has been low cost asset base and a diversified structure, which we feel stabilizes cash flow. And so we look at the sensitivities, we look at the downside, and we've never been cavalier with regard to statements like this and, as I say, we've always outperformed them so I think you can consider that's what we'll do. We'll strive hard to make that happen. So that's probably the best answer to your question.

We may -- I remember when we first announced one. There was skepticism about whether we'd actually execute it and, I think, we did it in three or four or five months and that's what we do. We have a long track record of doing what we say we're going to do.

Another question here and then we'll go to the telephone. Heath. Sorry, we'll go to Heath, then telephones and then we'll come back.

Hi. Heath Jansen here from Citigroup. Two questions. One is, you spoke about a $23 billion CapEx spend so far but, clearly, not all of that is in production. Could you give us a percentage of that assets which are currently contributing to free cash flow or percentage of asset base which is the total Group contributing for cash flow and how that might change over the next 12 months?

Okay.

And then.

I'm sorry. Go ahead.

Secondly, just in terms of the stock that you bought back so far, 6.7% of your capital, could you give us some indication about the EPS accretion that you've delivered out of that?

Yes. Let's see. In terms of the amount of the capital we think, as Heath points out, there are a number of projects that are currently in execution, like Atlantis and Ravensthorpe and others, that is obviously an asset on the balance sheet but not producing cash flow. I'll tell you, I'm not sure. Alex, do you have a number like that? If you don't, Heath, we can come back to you and let you know what that is.

I think we'll come back to Heath on that one. Yes.

Okay. Good. Yes. Because I used to calculate that regularly when we worried whether we were going to hit a 15% return on capital employed but, at 37, I'm not too worried about hitting the 15%.

And, sorry, the second question was?

EPS accretion in buyback.

EPS accretion, well, we -- I can't remember -- I don't know exactly what that number would be but we can give you a ballpark figure but that's taken place now over the last three or four years and, again, we'll give you a number on that. Alex, we can just get back to him.

Chip, just on the last [set] we have was the 44 to 41% was 3% just on that one.

Yes. Relative to -- that's what we get the impact of buying shares back, but there's an interest charge on that. So we'll come back. But that's going to probably be what you'd expect. Something like that.

Let's see. Let's go to the telephone.

We have a question registered from the line of John MacKinnon. Please go ahead with your question announcing your company name.

Thanks, John. Go ahead.

Hello, Chip. Just a few questions, the first one on petroleum. There seem to be strong and persistent rumors of the sale or a partial sale. I question, under what circumstances would the Board consider a sale of the petroleum business as it stands today? A question just on operating costs pressures, you have indicated they are seeming to be easing. You seeing heat coming out of the capital costs pressures, more particular, I guess, the contractors and already seeing some [developing] pressure there with perhaps an additional capacity.

And just a specific question on depreciation, in regard to coking coal, it's a pretty significant high when you look at the numbers, year-on-year it was up 65%. Yet the carrying value of the asset was only up 27%; were there any specific factors we should take into account with that depreciation charge in coking coal?

Okay. [Inaudible] hit the petroleum and I'll hit the contractors and then I'll ask Chris to just come in, and Chris or Alex to come in on anything about coking coal and the depreciation levels.

Petroleum is an important part of our portfolio. We see great opportunity there. We have been able to execute an agenda there that has been outstanding, certainly in the exploration area. And we see -- I think anybody who has followed our business and the opportunities that we have there, we think that it is quite unique and I think very few companies of our size will be able to demonstrate to a tangible illustration of projects that they have, they can increase the production at the rate that we can over the next several years. So, you said, under what conditions would you ever exit, listen, we always have to make sure that our businesses are generating excellent long-term value and that we are a good owner for those things. So if we ever can't be generating good long-term value in this portfolio, or we can't demonstrate that we can get value through our shareholders, then we'd have to consider an alternative. But that's not where we are today. Mike and his team have done an excellent job of refocusing that on the critical issues of operating disciplines which I mentioned, so I would expect you will continue to see petroleum as a part of this portfolio, certainly as we demonstrate our capability to ramp up the production there.

The heat in the contractor market. There are certain areas where we actually have seen that come off somewhat. Queensland, you have actually seen some of the contractor heat come off a little bit. Western Australia continues to be a challenge, and there are a lot of projects going on out there, so it is variable depending on the local market that you're in.

And then Chris or Alex, would you like to make a comment on John's question about depreciation in coking coal?

It is actually a fixed charge, Chip but it pertains to a write-off of some assets in [inaudible]. It's approximately $30 million dollars of -- it's actually a piece of equipment that we didn't feel comfortable in operating as a dryer for coal on the way in to the customer plant, and that is the main impact there.

Okay, very good. Next question on the phone?

Thank you, the next question comes from Jeremy Gray. Please go ahead for your question announcing your company name.

Hello Jeremy

Morning Chip, could you just confirm whether you will be actually cancelling the shares that you will buy back going forward, or will you hold those in treasury for the time being?

Alex, you can confirm that we have cancelled shares. Let me just turn over to Alex.

Yes that's right, we periodically cancel those shares. I think just last month we cancelled 67 million shares, yes.

Great, thanks very much.

Next question on the telephone?

Thank you, the next question comes from the line of Ron Valk. Please go ahead with your question announcing your company name.

Ron?

Mr. Valk, you line is now open, please go ahead with your question.

Okay, well maybe we will come back -- I'm sorry, go ahead. No, let's move here, any questions here in London? Do you have a question, well let's start here, I'm sorry, and then we will continue to move around.

[Tom Orlitz] from Deutsche Bank. A couple of questions. Just looking at your project pipeline and I note that you have a number of projects in execution in copper ore producing recent projects, but looking forward, I see no primary aluminum projects or copper projects. I assume there are some in the background possibly. Can you talk a bit around opportunities in those two businesses longer-term? Growth opportunities. Secondly, just ... you and your outlooks, can you talk a bit around the Chinese imports and in the past you've made comments on different commodity markets and aluminum thermal coal iron ore around trends going forward. Can you update us in terms of where you see those trends emerging in 2007 and longer-term if you feel like it? That's it.

Okay. I'll tell you what this is a good one that maybe I'll ask Marius to come in on. So, Marius, the first one is around aluminum and copper and just remind me again?

The growth prospects [inaudible].

Yes sure. Growth and then what we see with regard to China and its influence on, I guess, particularly those markets, and [inaudible] look at and if we want coking coal, we'll go to Chris. So, Marius, can I turn it over to you?

Yes sure. You will recall that our practice is to only show projects in feasibility or execution on our bubble chart and that is again what we have shown here today. Obviously beyond that we are working at a number of earlier stage opportunities that are in proof of concept or pre-feasibility. And I think the most important of those projects I can talk about just briefly in copper, we believe that the Olympic Dam project will appear on that bubble chart sometime in the middle of next year when we finish the pre-feasibility study and we move into feasibility. And obviously, we feel that that is a very exciting asset and one where certainly from a resource point of view, it is not impossible to contemplate additional expansions of that going forward in the future.

The second project in copper that I would like to highlight is the so-called resolution of copper project in which we hold 45%, Rio Tinto 55%. This is another very exciting high grade probably block cave underground project in the US. Once again early days, but very exciting. So those two projects together with the embedded growth options that we have got in our assets, we believe give us a very, very strong pipeline and then obviously we are in the process of ramping up two assets at the moment.

Secondly, in aluminum, I think the aluminum business has been characterized by triggering its growth embedded options in its existing assets over the last five years. I think within the portfolio, perhaps the most exciting opportunity going forward is in the Worsley asset, where we believe certainly the resource space will in due course, particularly if the capital cost environment slows down a little bit in Western Australia, will support an additional expansion, and then Chip has just spoken today about our efforts in Guinea, where we are getting very close to an agreement to buy into a late stage project, which has got a substantial lead over the competition.

Those are the main growth opportunities as I see them. Obviously they will appear on the bubble chart as we go ahead. Didn't understand the second question completely, but a few comments about China and copper and aluminum. I think over the last year we have seen considerable de-stocking in copper that has lowered the apparent growth in consumption of copper in China over much of the past year. I think we are starting to see that that restocking has got to take place and that apparent demand has got to pick up. All of which is positive for supply and demand. And longer-term, we don't see any reason why the copper's growth in that economy won't continue according to the same proportion to GDP to copper consumption that we have seen in other countries, with a maritime economy nature. In aluminum I think perhaps the same story, with one small exception. Aluminum, China is likely to, despite fiscal disincentives, to remain an exporter of partially finished aluminum semis and so on, and continue to use its smelting capacity to export. But again, from a consumption point of view, there is no reason to believe that that growth intensity won't continue, basically on a linear basis at this stage, with GDP growth.

And I might just add that with regard to the projects, one of the things the guys continue to do is find opportunities for incremental expansion. Those tend to show up later and others can be done sooner and that's part of what Marius is mentioning.

Another thing I'd say is I think your question is around what is happening around processing in China, and you said China, maybe India. But we continue to see those environments as places where processing is going to be a competitive advantage, and what we try to do is position ourselves with resource to supply those process facilities. We see that ownership of resources where we see a strategic strength, not necessarily processing the product which is always going to go to a place which is going to be more efficient in applying people and capital to that activity.

Okay, let's hear another question here, let's see, why don't we go back there then we can come to David and then we can go back to the telephone.

Tobias Woerner from Man Group, two questions if I may. The first one relates to potash, you obviously have plans here to build up that business, what are your views of organic versus acquisition driven expansion in this area? That's the first question.

The second question is a more general question, you clearly have decided to move on by the end of this year and some companies don't see this as an obstacle to making transformational deals but maybe you can give us an insight into what your company thinks about changing a company prior to the departure of a CEO?

With regard to potash, it's the same as every other business we're in and that is where can we find the most value. And that's what drives every decision we make, so the way I look at that, if we see a good opportunity within an organic growth as we described, if there is good opportunity in acquisition we'd certainly look at it but things that we can control are on the organic side so that's where I'd expect us to see us focus.

And then with regards doing transformational deals during transition periods for CEOs, my view is that's possible. This is an organization that has a deeply embedded culture and process that we go through and we are aligned to this value is agenda and I think you'll find that this team can work through whatever environment we're in and make those things happen.

Okay, David, do you have a question?

Thank you, Chip. [David Prouts] from Merrill Lynch. Chip, could you or one of your colleagues give us a practical illustration of the detail that you go into when you're looking at supply and/or demand in your various commodities? Over the years you've been very good at giving us some insights but I'd like to understand a little bit more, how do you actually go about it?

Gosh, I'll tell you, what time is it?

You wouldn't believe how detailed we go into this and I have to say, I think I've said it a long time ago actually, probably haven't said it recently, but the fact that our teams are on the ground and even at the executive level I think our executive committee has 15 people and seven or eight nationalities. Our business is done in local language, it's done by, in often cases, nationals within that environment and the data that we poll is great. And I tell anybody who will listen, including politicians who work on policy, that every day, day in, day out, 365 days a year, customers buy $100 million of product from us and we make a decision to sell them $100 million of product, and policy is great but when people put their money where their mouth is, that tells me how good things are or how difficult things are and nobody has the footprint we have around the world with fundamental resource to make business happen. So I think we've got an outstanding position on that.

Now that becomes a huge data source. I'd like to describe -- I was going to turn this over to Marius but I just want to make sure we don't eat up so much time, but Marius used to look after the marketing activity, but let me just try to summarize and say, what we do is we do macro work to understand how economies are developing, like I talk about 50 years in China. When our policy statements come in, they see a knowledge economy, they see us, they look like us -- that's what they'd like to be 50 years from now. So what does policy look like, what's happening in regional and national levels and then what's actually happening in the commercial transactions that are taking place? Is product going in, is it going out, are they making money? You'll be interested to know that margins in China are rising, we talk about a slowdown, true but we go out and talk to our customers and we are seeing margins rise. Things are good in China.

But the same thing happens in India, Europe, North America we sell about 8 to 10% of our product so that's not unlike the slide I just showed you, the world has moved on from the US running everything we do. So perhaps what we can do, maybe somebody in investor relations can give you maybe the [soup to nuts] to answer your question in more detail but I think it's a distinctive advantage, I think we've got more to do, I don't think we know what we know. I don't think we know what we know, that's an important statement. We've done a great job but people know a lot in this company, we've got to make sure it gets to the right place. But it is quite detailed and it is quite good information. It's a good question but let's see maybe Mark or somebody can just give you the full soup to nuts on that.

Okay telephone, yes we go to the phone?

Thank you, the next question comes from Paul McTaggart, he appears to have just withdrawn his question, so there are -- he has registered the question once again. Paul McTaggart please go ahead with your question announcing your company name.

Alright Paul, it better be good.

Hi Chip, Paul McTaggart from HSBC. I just wanted to ask you about the buyback. Sometimes people do buybacks because they're targeting capital structure and they're making a statement, not so much about value of their shares but use of cash. I wanted to get your sense, was the buyback just capital structure or is it in fact sending out a signal that you think the shares are undervalued and that's the best use of your cash?

Yes. What I mean by that is, we have to run our business to a fundamental driver of long-term value and that's capital structure. What's the optimum capital structure for this organization? I think ever since you've seen me I've said that's a strong single A credit and we have metrics around that and that has been consistent ever since I sat in the CFO role. Now at the same time we are, I'm going to say fortunate, we certainly look at where we're trading but I'm looking at multiples, I'm looking at NPV, I'm looking at relative valuation, and we're in a fortunate position today where we can say capital structure and repurchasing your own shares comes into align and where it makes good sense in both those -- when you take both of those metrics. So when I answered your question, yes, on both of those characteristics we see a consistency to value an opportunity in capital structure.

Thanks Chip.

Okay is that another question on the phone, yes?

We have another question registered from the line of Ross Gardiner, please go ahead with your question announcing your company name.

Hello Ross.

Hello, Ross Gardiner here from JP Morgan, very sad to see you go, very sad to hear you're going. A couple of questions; first of all price participation through the TCRC, the contract's changed through the year. When are we likely to see that coming through on the cost side, obviously you've talked about costs coming down in that regard?

The second one, I noticed that your exploration number in the cash flow statement dropped from $348 million to 304, we're obviously down in Cape Town at the moment, there's huge excitement what's happening in the industry and yet BHP Billiton is going backwards. Maybe you -- as far as expenditure is concerned -- maybe you could just go through a bit on that, your exploration policy.

And then the third one is, and maybe a bit parochial but energy coal in South Africa, we've certainly seen the volumes drop. Not always Transnet's fault, we've also seen that you're pulling out the contract in Ultimum. Just maybe you could give us an update on energy coal in South Africa?

Okay Ross, thanks. Now you're not seeing me go yet, I've still got another year ahead here, so we can continue these conversations at least over the next period of time. On the TCRCs I'll ask Marius to answer that question, we'll come around and then we'll go to Chris to just talk about energy coal in South Africa and what's happening.

Let me answer exploration. I think what you're seeing there is actually oil and gas exploration cash flow. The number you gave would be the aggregate of oil and gas and minerals. If you look at minerals alone I think you'll see that that expenditure continues to go up, so I think that's what you're seeing. With that, let me turn over to Marius first on the TCRCs and when that might come through and then turn it over to Chris on energy coal.

Okay, good morning Ross. Perhaps two comments on the TCRCs. The first is not to neglect the fact that not all of the tons actually produced are open to renegotiation fully, and we do have some price contracts that are priced over multi-year terms. So I just wanted to note that we shouldn't blindly just extrapolate from that. And then just given the duration time of contracts I would say that it's between a six to a 12 month lead time before those renegotiated figures leak into the majority of the tons and obviously that happens progressively over the percentage that is open to renegotiation.

And Chris, for energy coal?

Thanks Chip. Good day Ross. Just to cover off on energy coal in South Africa. In recent times Bob Kirkby had mentioned these assets were in a midlife crisis and so on, and that there was a need to stabilize the operations. That's certainly taken place over the last six months or so. If you see the EBIT numbers, they have improved from the period-on-period comparison, was zero last year and about $35 million of EBIT this year. And that's for a lot of reasons but it is stabilizing and they're moving now to the phase of ongoing improvement and stability in those operations.

The second thing to point out is that we have put into position there in running that business, Wayne Isaacs, who is one of our most qualified deep experience miners, both in underground mining and in open cut. Wayne has previously run the Illawarra coal assets. He ran the EKATI diamond assets and he's also run the Navajo, the New Mexico coal mines. So he's a very good resource and he's now in place heading up those assets.

We are going through some processes to rationalize some of the holding in terms of the Koomfontein sale and the process around Optimum. But also we've got some good growth prospects for the Douglas-Middelburg optimization project, so all in all, I think we're in the process now of continuing that improvement. The guys are working very hard at getting those incremental runs on the board and I think as soon as we can move in -- or the sooner we can move into the phase of having a positive motivation in front of that team in terms of some of the project work, I think we'll see even more improvement. So we remain very strongly committed to those assets and to that precinct. There's obviously a lot of good resource there and we'd be very happy to be participating there in the longer term.

And I'll just add to that, Ross, that I mentioned energy and how important it is for the global economy, and within that energy coal's important and within that the operations in South Africa are important, so it's critical that we get that right.

Nothing else on the phone. Anything else here?

Morning, Sylvain Brunet with Exane BNP Paribas. Two quick questions. The first one on met coal, I was just after some color on the profitability as we find a global change in profitability compared to the 8% drop in the coking coal price.

And the second question on free cash flow generation. If I look at the simple indicator, which is the free cash flow to EBITDA, compared to the former years we find a much lower number in the first half, so my question is could we get some color on that and could we expect a catch up in the second half? Thank you.

Okay, the profitability of met coal, Chris, we'll let you talk about that. And Sylvain, the question about the cash flow, what you're saying is that the cash flow as a percent of the annual cash flow?

[inaudible]

Okay. So the ratio of cash flow in the first half to EBITDA versus what we've traditionally seen. We've seen more cash coming in the first half, what should we see in the second half? I'll tell you what, why don't we turn the first question to Chris, and that's the profitability of energy coal and then Alex, if you have some comment [inaudible] the timing of cash flow in the half year periods?

Okay, thanks Chip. Yes, Sylvain, I guess the key thing with the metallurgical coal business and perhaps one of the distinguishing differences is that China is essentially self-sufficient in metallurgical coal, and so the degree of both penetration of that market, but also the impact on the broader market of Chinese demand is far less apparent in the metallurgical coal area. If we go into -- and you've seen that in the last two years, really, where prices have come off what was quite high peak two years ago, and they've come down in each of the last two years in response to that situation.

If I go to the cost structures I think a couple of things that are in play there, probably the biggest challenge in the Queensland coal operations is the high strip ratios and also some unfavorable impacts from the strengthening of the Australian dollar, and underlying inflation and so on. But if you look at the volumes, the volumes are up year-on-year and we're well placed. And also we have some very good growth prospects in train -- were available to us in Queensland coal but also in you'll see Maruwai there with a small pilot project coming early. She should be in operation next calendar year and then a bigger project coming up into the future.

So all up I think you're seeing price revert to something a little bit more realistic in the longer term and we're continuing to work on our cost structures, but stripping ratios are probably the key issue in Queensland.

Okay, Sylvain, I'll handle the cash flow and hope to help your understanding there. Look, of course the cash working profit is the main component there and that will depend on a whole bunch of factors, but in terms of ratios what we've seen on this half, as well, was a substantive pay of dividends from some of the subsidiaries that we had liked to see that same level of pay in the second half. So you would expect a lower ratio on the second half.

Nick Hatch from Investec. Chip, I've got three questions for you. First of all I'm intrigued about what you said about potash, and I was wondering whether you could perhaps outline the business strategy for the diamonds and specialty products business going forward. It's been a bit of a backwater in the portfolio in recent years. Maybe you can just outline how that's going to develop?

Secondly, if you could give us an update, please, on where Cabrillo Port is at the moment?

And then thirdly, given your profile in energy and in aluminum, do you see any opportunities at the moment for using any of your energy assets for providing obviously energy inputs into expanding your aluminum business? And how do you see the general dynamics of stranded power at the moment?

Okay, let's see here. You know, Marius, I might pass the third question to you about energy and aluminum, and then I'll supplement it [inaudible] you say and I'll handle Cabrillo Port and I'll talk about potash and diamonds and specialty products. But Marius, feel free to supplement when I turn it over to you.

I'm not going to tell the people in diamond and specialty products that it was the backwater. It wouldn't necessarily motivate them. But what I would say is that it actually is a very important area for us, because it is the area where we not only look at operating assets like titanium and diamonds and other things in the past, but it is the area where we look at new things. We have some very creative people there that are looking at how does our skill set apply to a particular opportunity. And there are many things we're not in but potash is one. So the opportunity there we see, as I said, bulk mining, moving material, that's what we do. I've said in the past we probably move more material every day than anybody else, probably over four million tons a day, four million a day. And we know how to do that stuff and I think that's where we see an opportunity in potash. But you'll always see diamonds and specialty products as one that is continuing to add an entrepreneurial element to what we do and, in addition, to progress their activity in diamonds and titanium. So diamonds, we have various exploration activities around the world; in titanium our Richards Bay but also Corridor Sands, so there's tangible things but it does help us look into the next generation of resource that we might look at.

Cabrillo Port. Cabrillo Port is, again, just to describe, that is the LNG port on the west coast of the United States. It is trying to do business in California and get environmental permits, is a real challenge but it is something that we think if we're successful will give us a wonderful option with regard to providing energy into the west coast of the United States. That continues to go through its approval processes. The environmental impact statements, I believe the finals have been issued. Those have a set period of time in which they get a comment on them and then there is a decision. And I think we're looking at -- the goal would be some time this year, but I think it's probably the half year we would expect to do that. But it continues to be a challenge, you certainly have a lot of interested parties who have issues here, but I think the underlying issues in Cabrillo Port are actually very well managed and the environmental impact statement indicates that. But again, I think this year hopefully we'll see whether that is actually going to go or it won't go. Stay tuned.

With that, Marius, why I don't I turn over the question of energy and aluminum to you, and then if you have anything to add on diamonds and specialty products.

Yes, perhaps on diamonds and specialty products first, just again, in that pipeline of those 200 projects and so on, just to emphasize some of the things that are in there obviously include the exploration activities in Angola where we've spoken before. We went in very early and we think that we're probably one of the most advanced parties there. And we continue to be very optimistic about growing our diamond business from one mine to multiple mines over the next couple of years.

Similarly speaking, given the synergies that we've got available in Mozambique through the operation of the Mozel smelter, which gives us an operating presence there, obviously that has completely changed the way that one can look at the Corridor Sands project that we inherited from WMC. And again, that is progressing very well.

So both the businesses that we're already in, we hope to add opportunities there and then obviously the guys are looking at new businesses, as well.

In terms of the aluminum and energy, I think that we haven't identified any areas where there's a natural complementarity between what we've got at the moment. Mike continues to push very hard on the Gulf of Mexico which is where the major growth agenda is, and we believe that our focus for aluminum growing, perhaps smelting, is more in areas where energy is more naturally stranded. And so we've been looking in other areas and one of the comments that was made at the Indaba here in Capetown today was about what we're doing in the DRC, so we're more looking at those sorts of places.

And I would agree with what Marius said. We'll look at those as separate businesses that they're not tying our energy to our aluminum. If it happens, great, but we need to create economic propositions in both those things. Because we've got the energy guys looking in places where we have markets, not looking for stranded stuff. So we want the aluminum guys looking for the stranded stuff, so that's where we get the best outcome. Back there?

[Mike Ubima from Kellion]. We're talking through your projects, you're obviously -- you're operating in some areas that are a little bit more risky than others, or countries that are a little bit more risky than others. I was just interested in how you factor those risks in or how you price those risks when you make your investment appraisals or when you come up with a measure like [a desired] rate of return?

Yes, absolutely. We certainly look at country risk in a number of ways. Just to give you an idea, we manage it on the ground. We get close to the communities we operate in and that's the best way to manage your political risk. We then connect with governments to make sure that they understand what we're doing and we can align with their objective. And then I think the most important way we -- I'd say not most importantly, I think quite importantly, is we have a financial position, a diversified set of assets across many different regions that allow us to absorb the financial risk that comes there. How do we do that? We take a look at the sovereign's credit spreads and make adjustments based on those issues that we see as critical here.

But let me just make a statement, because I actually really love that question and I've had it continually over time. If you look at our asset base I'll bet 90% of it is in single A rated countries or better, and that's wonderful. But we also have some outstanding businesses in Mozambique, in Colombia, Pakistan, Algeria and we've been able to make those things work. And while other companies in our business who are used to operating in we'll say developed economies, come in and say, yes, we want to go there. Well when they're there, they're going to find not only are we there, but we're there with success. So we know how to work in these environments and we've gotten great returns and great performance.

So it's not just kind of, gee, I hope it works. We've got a track record to show it. Mozambique is such an outstanding example. If you look at our industry and think we are not one contributing to society, go to Mozambique. You'll see how it's done right. And we use Mozambique when we talk about things like Guinea and the government in Guinea talks to the government in Mozambique, and I can tell you we have one huge supporter in Mozambique. And we are committed to a win/win outcome in this organization. If we don't, if we ever lose that we will lose our license to operate.

So we can manage it on the ground, and we can manage it with the government, and we can manage it financially, and the success there I think speaks for itself.

Okay, let's see, one more question, nothing on the phone, anything here? Okay we wore you out, probably for the first time ever. Anyway let me just summarize by thanking you for coming this morning. It's been an outstanding half year, great operational results, certainly great financial results, I think those things are obvious. You've had a chance to talk about a number of things here today, but I would also say that we see 2007 as an exciting year and we also see opportunities to continue to progress our project pipeline, to find new opportunities to grow and expand this business, but all of that driven by a long-term commitment to shareholder value. And today through illustration of increasing the dividend for the tenth time in a row and again adding $10 billion to our capital management programs indicates one, we're running our business well, generating cash and finding the right place to put it to work, after we're able to continue to reinvest in our business.

So again if there are any additional questions here in London or in South Africa, Mark and Yvonne who are down in South Africa and Tracy who I think is in North America now, be sure you get in touch with them who'll be glad to get back to you. And I think we owe Heath a couple of answers so we'll get those to him.

Great, thank you, have a good day.