必和必拓 (BHP) 2007 Q2 法說會逐字稿

I'm Alex Vanselow, Chief Financial Officer at BHP Billiton and I want to welcome you all for taking time for joining us today. I know you haven't had much time to absorb the results and our other announcements, but before I open to questions let me make just a few points.

We always thought we (inaudible) [safety] performance; the reality is that while our injury rates and statistical measures have shown steady improvement we have had 10 fatalities in this fiscal year. There is only one acceptable outcome for us and that is no accidents and no fatalities. All of us at BHP Billiton, from the Board down, are absolutely committed to ensuring that.

Turning to the financial results, you can see that we drove revenues up 15.5% up to $25.5 billion while keeping cost increases to 1.9% net of non-cash costs. I believe that this financial result demonstrates our ability to effectively manage our operations in a way that is focused on achieving great outcomes for both customers and shareholders. Strong cash flow continues to underpin our expansion. This half we have brought on seven major projects across five commodities. We also approved four new projects worth $1.5 billion.

For shareholders our strong cash generation meant that we completed $8.8 billion of a $13 billion buyback program and we declared an interim dividend of US$0.29 per share. This is a 45% increase over last year's interim dividend. In terms of economic overview, while we recognize that there is fluidity and uncertainty in the short-term macroenvironment, we remain convinced that the long-term growth fundamentals underpinned by the [merging] economies are still strong.

As you know, we have been very confident about industrialization taking place in China and India and the impact that this is having on our business. I don't see any change to this long-term outlook and we continue to plan and operate our business on that basis.

Today we also announced a formal takeover offer for Rio Tinto. Three months ago BHP Billiton announced a proposal to acquire our shares in Rio Tinto by way of a scheme of arrangements. I believe that there is widespread support for this compelling logic and the proposal to combine these two great companies and unlock the value that is unique to this combination to both sets of shareholders.

Since we announced the proposal we conducted global roadshows and have met with shareholders of BHP Billiton and Rio Tinto. The response to the proposal has been overwhelmingly clear -- shareholders have understood the compelling logic of the proposal. Despite these responses we have had no success in trying to engage with the Rio Tinto board on our proposal.

During that time Rio Tinto approached the UK takeover panel to get us to put up or shut up. The panel set today as the deadline. Our Board and senior management have considered very carefully all the developments since we initially approached Rio Tinto and since we publicly released the proposal that we made to Rio Tinto. In doing so we have taken into account what shareholders, markets, customers and other stakeholders are saying to us.

We also took into account that the only significant increase in Rio Tinto's market capitalization up until last Friday occurred when confirmed market speculations that we had approached Rio Tinto back on November 8. We had also assessed all the potential scenarios. We had used the past three months to look at these scenarios, the response to our proposal and consider what we should do in the best interest of all shareholders.

This morning we announced the BHP Billiton Board had approved an offer for Rio Tinto at 3.4 BHP Billiton shares for every Rio Tinto share. Our offer is subject to, amongst other things, a minimum acceptance condition of more than 50% of Rio's publicly held shares. We believe that this is a compelling, realistic and responsible offer, one which offers very compelling terms for Rio Tinto shareholders and very importantly is also value enhancing for existing BHP Billiton shareholders. This is a unique opportunity to unlock value and BHP Billiton is now putting forward this offer to the Rio Tinto shareholders.

Now let me open the lines for questions. If you can -- the operator will instruct you on how to do so and if you can give your name and organization that would be great.

(OPERATOR INSTRUCTIONS). Sanil Daptardar, Sentinel Asset Management in New York.

A very broad question in terms of the commodities outlook. You talked about the long-term outlook, but in the near-term to medium-term people are concerned that the U.S. slowdown is going to affect all of the countries, [specifically] damaging markets also. Do you see that kind of trend happening in the emerging markets with different countries trying to pull the trigger on the interest rates? Or you see no changes in the economic growth of these countries? Could you just try to --?

(inaudible) the visibility is not very great, but we see a noticeable slowdown in the (inaudible) spacing, especially in North America and in Europe. We believe that Asia is still going strong and, as I said, for the long-term will continue to grow strong. I think the question to ask here is are the units that are being lost by the slowdown in North America and potential slowdown in Europe being replaced at the same speed in Asia? And the answer to that question I don't have; I think it's still very early to know this, but that's what we're trying to observe and trying to understand.

The organizational phenomenon that's happening in China and India will continue, and that will drive demand very strongly forward for decades. But we need to understand better what the short-term holds in terms of those units that are being lost in the developed world, especially in the Atlantic Basin.

So you mean to say the growth in those countries may not offset the units lost in the developed countries -- developed economies or so? Is that the way we should understand or it's not entirely the case?

What I'm saying, that it's a bit early to make that conclusion, but it's something that we are observing. And when you don't have the clarity, when you're in a period of uncertainty what you have is volatility. So I would be ready for a volatile time.

Okay. If the case is that times are going to be volatile, the current Iron Ore negotiations which are going on -- then is that a case to be made? That the Chinese guys are going to shrink away from having an increase of 40 or 50% or even 60% for the current negotiations? They are going to be very strong in terms of negotiating a lower rate of increase versus last year of about 30% or so. Is that what you are seeing in the market? Or you see that probably because there's a scarcity or there's a deficit in the Iron Ore supply they can put up with 40, 50% increase?

I'm not going to comment on any specific commodity and I'm not going to comment on price negotiations, but that's not what I'm saying. What I'm saying is that the Atlantic basin is showing some weakness and we don't know exactly what that's going to translate into. Asia is still very strong, still production is still very strong. And more than anything else there is a very significant deficit in supply of key materials to the steel industry, not Iron Ore only. There's not enough Manganese, there's not enough of the metallurgical coal.

So it is not just the demand that plays a role in there, it's the supply-side as well. So you have to differentiate the two basins, you have to differentiate the two (inaudible) of demand drive and understand the supply-side as well.

Okay. One question on this offer -- of course it has been raised from 3 BHP shares to 3.4 BHP shares. If the merger goes through you would have been required -- you would be required by the authorities to make kind of divestitures probably. And if that's the case that you would try to divest some of the aluminum assets that Rio Tinto bought or would that be kept? Or how would you be thinking about that? Could you just try to help us understand what's going to be happening?

I think your vote of confidence that the deal is done and we should start thinking about divestments is very positive for me, but I think it's a bit early to talk about that. We have in BHP Billiton a process of portfolio management that we review our portfolio with no sentimental attachments every year. And we have been divesting diligently of assets or businesses that don't fit the strategic product.

In the last six years we divested of more than $6 billion of assets. So I think what you will see once the deal has come through and 100% of the shareholders have accepted our offer and this is an offer -- this is the offer that's on the table -- we will look at the portfolio and we will put it through the same filters that we put our current assets. And I think that it's likely that there will be assets that will be divested but I think it's a bit too early to comment on that.

Two things that you also announced yesterday was that you have got financing --

I'll take this last question, but we've got to give some other people a chance --.

Sure. A last question on the financing side, about $55 billion financing and then you also announced a $30 billion stock buyback. This would be (inaudible) -- basically the buyback would be gone currently or that would be sometime down the line basically? Are we seeing it?

A buyback would only be applicable after the deal is completed and that's what's in the offer would be within one year after the deal is completed. And the $55 billion facility that we have in place is aimed at primarily replacing the facilities that Rio Tinto has for the Alcan acquisition. When Rio Tinto did the Alcan acquisition they took a something like approximately $40 billion facility. So the primary function of the $55 billion is to replace the facility. And then the $15 billion on top of that is to part fund that buyback post the accomplishment.

Wayne Atwell, Pontis Capital in Connecticut.

Thank you. There's been some challenging weather conditions around the world; could you share the impact of rains in Australia in South Africa, snows in China and what's this doing to your production and what the likely outlook for supply/demand would be?

That's an interesting question and very open. I can be specific in some of the response. Rain has affected us heavily in Queensland and the metallurgical coal mines. I think there was something on the press about one of the mines having in water the equivalent of 20% of the Sydney Harbor. So I don't know if you've seen that Harbor, but that's a scary thought for me. So I think some of the players, some of the producers in that region will be out of business for a while.

The information we have given to the market is that we declared force majeure and we had an interruption of about two weeks. But in a very tight market like metalurgical coal that's already in deficit, that's sort of a disruption, it is not something that you can just catch up and that will have significant consequences.

The bit about China, we don't have any production in China, but I believe some of the producers in China have been affected by that. But I don't have any detail that I can share with you. We haven't received, as far as I know, any force majeure for any customer saying that they didn't want product. So from our side in serving our customers I have not noticed any effect.

And I guess in South Africa there have been power problems because of wet coal and you've actually -- you cut back some aluminum?

That's one of the reasons. But what's been happening in South Africa is that the growth of the country has exceeded the country's ability to grow its power generation. So South Africa is a bit of a catch-up. So when you're in a catch-up any event like wet coal or plants that go on unplanned maintenance it is a serious consequence.

We are working with the South African government trying to mitigate the impact of this situation, but I think a long-term solution is still to come. And in the meantime there might be some cuts in terms of our availability to our operations. And we have made some disclosures about that and so has the government of South Africa. Pretty hard to quantify, but my guidance was that our aluminum plant and aluminum production from that country might be reduced in the months to come.

And you may not be able to answer this, but I realize you to do a very thoughtful portfolio review every year. How does oil fit into your mix of assets? It seemed like it used to be a great asset for you, but it doesn't fit quite as well as maybe it has in the past. Is that something you might be inclined to jettison in the near future?

I'll say pretty much the opposite. I think a business that has a 78% EBITDA margin, cash cost of production on there of below $5 and where you're growing at a near space of I think 50% in the next five years I think it has everything to do with us. It is a key component of our energy portfolio. It fits a very specific niche.

We have a Petroleum business that's the size of a super independent without having to chase every barrel like the super independents do, so we can be quite selective on what we chase. But we don't have the burden of the super independent in terms of balance sheet. We can compete with the large super majors for acreage for everything because we have a balance sheet that's equivalent to theirs.

So we are in a niche that we have the benefit of the balance sheet without having the curse of the super majors and we have the benefit of being the size of a super independent without having to chase everything that super independents do. So that's why we're growing this business so well. That's why we are in such a strong cost position. And from what I see, the exploration money that I said that we're investing, you can understand that we are very, very much looking at maintaining this business within BHP Billiton for the long-term.

Great. Thank you very much.

Jane Haugh, Dwight Asset Management in Burlington, USA.

Thanks for taking my questions. I just wondered, you have a little bit of information in the announcement about your intention to maintain your single-A rating for the enlarged group if the acquisition were to be successful. Can you talk about what your leverage would look like? Because you're going to do the $30 billion in stock buyback, but yet you plan to use part of the financing facility of $55 billion. And you mentioned that you might rationalize the asset portfolio and may require some additional debt financing. Can you just talk about what they've been in discussion with the rating agencies about, what it would take to maintain that single-A rating and also what your target capital structure is once the deal is done?

I think target capital structure and all that is not something we had made public, so I can't comment on that. But we gave the single-A as an indication that it is where we're going to drive the balance sheet to be. When we talk about the $55 billion facility, you've got to remember that $40 billion of that $55 billion is replacement. So it's not you're taking new debt, you're replacing existing debt if you consider the combined entity.

We are currently sitting on net debt of about $12 billion, a company our size, so we have a balance sheet gearing ratio of about 28%. So if you look at the two companies together, if you look at the combined debt position after the acquisition, and if you look at what has been announced in terms of divestments that Rio Tinto is pursuing independent of the combination, you're going to see that that single-A is quite achievable.

Thank you very much.

Theresa Gusman, Deutsche Asset Management in the USA.

Good morning. My question is on if this acquisition is successful, have you thought through on how you'll retain the employees of both organizations and management integration and how you'll ensure that the strong culture you've built up at BHP and the strong culture at Rio don't clash but somehow come together?

Very good question, Theresa, because this is key to successful mergers or acquisitions. We've been through this recently twice, first with the Billiton merger in 2001 and then with the WMC acquisition. So we've got quite a bit of experience because both went quite smoothly.

One particular aspect of the cultures of Rio Tinto and BHP Billiton is because they're very similar. There are a lot of my ex colleagues from BHP that currently are managers at Rio Tinto, and two of my colleagues in the top management team of BHP are ex Rio Tinto. So it is very, very similar.

We take very seriously our sustainability, our social responsibilities. We operate at a high level of excellence. So it's not something that you would have a cultural clash or something that you're operating under very different paradigms; it's something that I see as, of course, an important task, but a very doable task.

Another point that you should consider, analysis of HR as well, is that we are in an industry that's really struggling to get quality resources across the globe. To be faced with a situation where you might have surplus resources or quality resources because of overlaps is a luxury. And we'll make sure that we allow us to deploy these resources, the surplus resources where there will be more needed. So both things come to play quite well with the combination.

Okay.

(OPERATOR INSTRUCTIONS). It appears we have no further questions coming through, so I'll hand you back to your host to wrap up today's call.

I thank everybody for calling; this was very interesting. And we'll be in contact. I'm planning to go to the U.S. and the Investor Relations team will be in contact with you to see if it's worthwhile getting together and continuing this conversation. Bye-bye.

Ladies and gentlemen, the call is now finished. You may hang up your phones.