必和必拓 (BHP) 2011 Q2 法說會逐字稿

Ladies and gentlemen. Welcome to today's presentation of BHP Billiton's interim results for the six months ended December 2010. I'm speaking to you today from Sydney, and Alex Vanselow, our CFO, will be presenting from London. We are also joined by members of the BHP Billiton Management Committee, and have Mike Yeager, Marcus Randolph, and Andrew Mackenzie on the phone lines, and I have Alberto Calderon here with me in Sydney.

Before we begin I want to point you to the disclaimer, and remind you that this is important in relation to today's presentation. I will start by giving you a brief overview of what has been a very strong six months with BHP Billiton. I will then hand over to Alex, who will take you through the detailed financials, and then I will talk to you after Alex has spoken about how BHP Billiton is positioned to continue to deliver that value to shareholders.

Today we announced record results for the half year. Our underlying EBITDA was up 60% to $17.3 billion, and underlying EBIT was up 74% to $14.8 billion. Attributable profit was $10.7 billion before exceptional items, and that is up 88%. Our operating cash flow was up by 123%, to $12.2 billion. This strong cash flow and healthy balance sheet meant that we were able to increase our interim dividend by 10% over the corresponding period, and today we also announced a substantial capital management program expanding our programs to $10 billion, which we expect to largely complete within this calendar year.

Now let me turn to our operating performance. In addressing performance, I would like to start with safety. Health and safety performance is critical to the well being of our people, and to the success of our company. The substantial effort that we have made in this regard as our number one priority continues to show up in our statistics through the continued improvement in our safety performance. However, despite these efforts we had a fatality during this period, and one fatality is one too many, and I want to express my regrets to the family, friends and colleagues.

On the operational side, BHP Billiton produced a strong set of operating results, and importantly produced that across our portfolio. Pleasingly, our iron ore business set a half yearly production record, and our West Australian Iron Ore business ran at an annualized rate of 148 million tons per annum during the December quarter. The Samarco business, our pillar business in Brazil, also continued to operate above name plate capacity.

Copper production was higher than comparable first half of the 2010 financial year, and reflected solid performances across the operations, including record milling rates at our Olympic Dam and Antamina operations. The ongoing ramp up of our Alumar aluminum refinery in Brazil positively impacted our aluminum production, and we also achieved a half yearly production record for manganese ore on the back of significant improvement in market demand for this product.

In energy coal we saw the first production from our MAC20 project in Australia, as well as the ongoing ramp up of our Klipspruit Project in South Africa. However, despite best efforts, not everything always goes according to plan, and following severe wet weather that impacted our Queensland Metallurgical Coal operations in 2008, we invested heavily in pumping and drainage capacity.

These actions did help, but the heavy rainfall that we've had in Australia has significantly restricted the mining activities, particularly because we've got a portfolio of large open cut mines. The net impact was that production declined by 30% in the December quarter in this product, compared to our September quarter. When we combine these impacts with the disruptions in external infrastructure, we expect an ongoing impact on our metallurgical coal operations, and on sales, and on unit costs, for the remainder of the 2011 financial year.

Of course, another event of note was the Gulf of Mexico drilling moratorium, and the resulting permitting delays. Again, here I must congratulate Mike Yeager and his team for being one of the first operators to return to drilling in the Gulf. With that, let me hand over to Alex, who will give you more detail on our financial results, and then I'll talk to you after Alex has spoken.

Thank you, Marius. We are very pleased to see a well casted strategy delivering another record set of results. Importantly this was achieved during a period that presented a number of unique challenges for our management team. Their readiness and pursuit of best practice has ensured that the impact on our business has been minimized. The same external events have further impacted on an already tight commodity market, and the resulting stronger prices were a dominant driver of our results for this half year period. Let's start by looking at these drivers in more detail.

As you can see from our usual EBIT chart, the stronger commodity prices, net of price (linked) costs increased underlying EBIT by $8.5 billion in the December 2010 half year. Higher iron ore and copper prices were the two major contributors for the period, and increased underlying EBIT by a combined $5.4 billion. Such a significant benefit at the revenue line can only be delivered by a strong operating team, consistent operating performance, and disciplined investment in growth through all points in the cycle. In that context, let's take a look at volumes in closer detail.

You will notice that volumes in aggregate increased underlying EBIT by $372 million. This positive contribution was achieved despite a $464 million reduction in petroleum based volumes, that largely reflected the deferral of drilling in the Gulf of Mexico. As Mari noted, record iron ore production and sales volumes were a major contributor, as Western Australian iron ore exports rose to an annualized 148 million ton rate in the December 2010 quarter. In addition, half year production and sales records for Samarco lead the foundation for future capacity expansion, beyond the existing three pellet plants.

As you will no doubt be aware, our team at Queensland Coal is working hard to ensure a safe and smooth recovery from the recent weather related disruptions. In that context, it is worth remembering that our Queensland operations were consistently performing at or above capacity before persistent rain and flooding restricted activities in the period. In total, the estimated impact of the weather related disruptions in the December 2010 half year approximated $100 million. Given the stressed nature of our operations, a more severe impact is expected in the June 2011 half year.

Now let me turn your attention to the other side of this equation, which are the costs. As we have pointed out over the years, capital and operating cost pressures are a very real and unavoidable consequence of the strong commodities cycle and weak US dollar. BHP Billiton is not immune to that trend. We have also highlighted before the lack of relationship that exists between prices and input costs, given this linkage to raw materials and energy costs. That being the case, industry wide cost pressures are only likely to rise in the near term.

BHP Billiton is, however, a significant net beneficiary of underlying factors in commodity markets, despite the price cost linkage. That relationship is well illustrated by comparing the $8.5 billion benefit that was generated by higher prices to the $0.5 billion increase in cash costs for the period. However, in such an environment there is no room for complacency, and our global procurement initiatives will become increasingly important if we are to maximize the conversion of high prices into operating margins.

Another important fact that relates to the geographic spread of our portfolio, and the fact that many of our businesses have a heavy comment of their costs denominated in local currencies, such as the Australian dollar, the South African rand, and the Chilean peso. While we continue to contain costs in local currency terms to the very best of our ability, the conversion of those underlying costs back to US dollars has significant implications for our performance, and perhaps more importantly, to industry wide cost curves.

In total, the devaluation of the US dollar against the basket of producer currencies in the December 2010 half year reduced underlying EBIT by $1.1 billion. While the influence of a weaker US dollar and cash crisis is relatively well understood, it's impact on balance sheet translations is often overlooked. As you can see for BHP Billiton, the weaker US Dollar has important implications for the restatement of balance sheet items such as payables, provisions, and other monetary items. What should be evident from this chart is the significant impact that such restatements have on our underlying costs. Most notably in Western Australian iron ore, and Queensland metallurgical coal.

In fact, the restatement of monetary items across the portfolio totaled $743 million in the December 2010 half year. Perhaps another way to think about it is to consider that in the absence of such adjustments our underlying EBIT would have been in excess of $15.5 billion. That's not to say that there aren't other offsets that flow through to the bottom line. Currency driven restatements, as they relate to net interest and tax balances, increased attributable profit by a combined $1 billion.

Now I would like to turn your attention back to our strategy, and more specifically our diversified portfolio. Firstly, what should be most evident on this slide is the superior level of diversity that BHP Billiton has across the mix of ferrous, non ferrous and energy products. What is perhaps more notable is the current stew of our earnings mix and margins towards the ferrous group of businesses - that's iron ore, metallurgical coal and manganese.

Such a bias towards this infrastructure intensive commodities is hardly surprising given the current state of urbanization being witnessed in emergent economies such as China and India, and BHP Billiton is clearly benefiting from that trend. That said, in time we do expect a progressive shift from (inaudible) structure intensive commodities to consumption driven commodities in those same emergent economies.

That is why our unique level of exposure across the range of commodities, with varying intensities of use, is at the heart of our diversified strategy. While diversification is central to our strategy, the quality of underlying assets base is as important. I would like to draw your attention to the right hand side of this slide, which with the predominance of high margin businesses highlights the world class nature of our portfolio.

That leads nicely into my favorite chart, which most of you would have seen, which is our Jackson Pollock chart. It clearly highlights the power of our diversified tier one of stream strategy. What you can see is that despite significant volatility in the external environment, our business continues to deliver consistently high operating margins. For the December 2010 half year, our EBIT margin exceeded 45%.

So strong margins, which are a function of the quality and diversity of our business, led also to equally strong cash flows. For the December 2010 half year, net operating cash flows sit at $12 billion, before a cumulative $23.6 over the 2010 calendar year. Our strong cash flow more than meets the requirements of our extensive organic work program. Total capital and exploration expenditure for the December 2010 half year approach $6 billion with a broad spread across the portfolio.

That brings me to the balance sheet, which ended the year in a net cash position. Such a position of financial strength, when combined with the predictable nature of our cash flow affords us flexibility to fund our significant growth program, while increasing returns to shareholders. With that in mind, I would like to remind you of the discipline and consistent manner in which BHP Billiton has and will continue to prioritize the deployment of capital.

Our first priority is the commitment to invest in tier one, and value adding growth opportunities. Our second priority is the commitment to manage the balance sheet for a solid A credit rating. Our third priority is the progressive and predictable return of capital to shareholders. While Marius will talk more about our significant organic growth program shortly, I would like to focus on the topic of shareholder returns.

Today we have announced a 10% increase in our interim dividend for a payout of $0.46 per share, which is equivalent to our analyzed commitment in excess of $5 billion. The $0.04 per share increase over the December 2009 interim dividends ensures we retain a proud track record of at least meeting or increasing our dividend in every period since the company was created in its current form, an achievement that is unique amongst our diversified peers.

As you can see, your cash dividend has grown by a compound 23% per annum over a 10 year period. As in the past, we have reactivated an expanded our capital management program to $10 billion to return access funds in a way that benefits all shareholders. I would like to emphasize that one of the key considerations when developing our capital management strategy is to ensure that we can deliver on our promises. In that context, we have indicated that we expect to largely complete the $10 billion program by the end of the 2011 calendar year.

When completed, this initiative together with previous capital management programs, will bring our cumulative buy-back to approximately $23 billion, and the equivalent of 15% of the then issued capital. In summary, I hope I have managed to highlight the following key points. First, the strong margins and growth that characterize BHP Billiton's historic performance. Second, our significant cash generation and disciplined approach to capital management. Third, our deliver of shareholder returns through the cycle that sets us apart from all of our peers in the industry. With that, I would like to hand you back over to Marius, who will talk briefly about the major marked economic trends, and the growth outlook for our business.

Thank you, Alex. Now let met cover some of the macro economic factors impacting our business. Last year we witnessed continued strong emerging market demand, which Chinese gross domestic product increasing by over 10%. We are also now seeing increasingly positive developed market data. Economic growth, retail sales, and finally employment, continue to improve in the major economies of the US and Germany. In Japan, exports are leading a pickup in economic activity.

However, we would caution that given the level of sovereign indebtedness that remains we cannot rule out any discontinuities to these improving economic fundamentals. Another factor to watch is the overheating in some of the emerging economies, notably China, India and Brazil, where we don't as of yet know how policy decisions to tackle these problems will play out. If I had to summarize, however, we are cautiously optimistic on the short term outlook for the global economy given the continued robust growth in the emerging economies, and further positive signs for recovery in the major developed economies.

From a commodity perspective, if anything the picture looks even better. This is due to the substantial interruptions to the supply side, firstly resulting from weather and other impacts are more in the short term to current supply, and secondly due to the challenges of bringing on new supply, particularly given an industry wide withdrawal of capital during the year financial crisis. As a consequence we are seeing currently, as evidenced by prices, good short term supply and demand fundamentals for base metals, for energy, as well as for steel making raw materials. Of course, in the longer term the continued urbanization and industrialization of these emerging economies that we've spoken about should continue to provide strong support for commodity demand.

Against this backdrop, BHP Billiton continues to be very well positioned to deliver value to our shareholders. As Alex has pointed out, our strategy has not changed. Our diversified model of tier one assets has delivered superior margins and returns, and this is very evident from the chart on the screen. We believe that we are well positioned to continue to outperform. Let me perhaps today highlight an area where we believe the market is not fully appreciative.

Since the formation of BHP Billiton in its current form, we have invested $24 billion and completed 54 major projects. Of course, over the last six months, we have approved the Macedon Gas Project, as well as additional capital for our iron ore business. However, let me talk a little bit about the quality and the depth of our future pipeline. If you look at the chart on the screen, you will see that in our five year plan we plan to spend in excess of $80 billion on growing our business in the planned period to our financial year 2015.

Not only is that a very substantial program, but you can also see that we have a good spread of projects currently in the concept, pre-feasibility and feasibility stages of evaluation. That means that there is robust ongoing volume growth as we look forward, and as these projects move through execution. Of course, we currently have major projects in both iron ore and metallurgical coal, which are at a very advanced stage in our approvals process, and in which we hope to move into execution over the next few months.

Now, the reason we can look at our business, and grow our business in this way, is clearly demonstrated in the following slide. Here you can see our strategy, which we often talk about, of concentrating our portfolio on large, long-life resource positions in our major businesses. Aligned, of course, to that resource position, we have created a simple and scalable organization that can continue to optimize the development of these resources over the long term. A substantial portion of the cost of getting these resources to market is infrastructure. Of course, with multiple expansions in these large resource positions we can maximize the infrastructure use during the course of multiple expansions over many decades.

Notably, the chart on the screen shows that we have many decades of production at current production rates, but we also have the resources in place in these currently existing assets to support our significant growth rates. Of course, in addition to the mineral resources that we show on the slide on the screen, we have significant gas positions in West Australia and the Gulf of Mexico. We participate in some of the largest fields, such as Mad Dog and Atlantis. This brings me to the end of our presentation, so let me try and conclude.

Today we are very pleased to announce record financial results for our half year ending 31 December 2010. These results present the clear evidence that our strategy works for our shareholders. Our portfolio of very long reserve life, high quality, very large assets allow us to continue to invest significant amounts of capital in our future growth. Of course, at the same time we are also returning cash to our shareholders with an increased dividend and expanded buyback program.

Looking ahead, our disciplined approach and tier one portfolio of assets will allow us to continue to deliver superior growth, superior margins, and superior returns for our shareholders. On that note, I'd like to thank you, ladies and gentlemen. I'd now be pleased to take your questions. We'll start in Sydney, before taking questions from the phone lines. If you could address questions to me in the first instance, and I will pass them to Alex as required. Can I have the first question, please?

Good morning. It's Paul Young from Deutsche Bank. I have two questions in your oil and gas division. First of all can you provide an update on the Gulf of Mexico, and the likely impact of the new regulations on CapEx, OpEx, and project development schedules? Secondly, can you talk more broadly about your growth strategy of this division? Development projects such as Knotty Head, Mad Dog and Gunflint in the Gulf, and Scarborough in West Australia, will likely only maintain production at around the 160 to 170 million barrel per annum level. The question is - and I know you're exploring actively or aggressively this year - would you like to see higher production from this division, and growth, and a higher proportion of earnings from oil?

Paul, thank you. We've indicated in the past that we are keen to continue to grow this business. Of course, the major impact of the Gulf of Mexico events has been that to memory the about $460 million volume impact that Alex showed on one of the slides, which is the profit manifestation of the volume impact. The way we look at this business is that we do not believe that the return characteristics of the portfolio that we've got in the Gulf of Mexico will be materially impacted by the new regulations that will be put in place.

Of course, there will be investments to be made in things like containment schemes, and there are clearly going to be some changes in the way that permitting and execution is carried out, and that will have a flow on effect on our procedures. However, we don't believe that these will be material from an overall return expectation from that business.

The way that I personally view the impact on the Gulf of Mexico is that what we've got is a hiatus in volume growth as a result of the moratorium. It's important to understand that the barrels that are in the grounds are not disappearing. In fact, they are just being displaced from one period to another, and will be taken out of the ground in the future. Once the permitting process starts operating in a normal rhythm we expect business there to return as normal.

Beyond those items that you've mentioned, I can't comment very much. I do want to point out that the growth opportunities in Atlantis, and of course the undeveloped potential in Mad Dog, which is already known today, obviously constitute very substantial investments going forward. The oil industry has got a history of being on a slightly quicker development cycle than the minerals business, and so I probably can't give you more than that today. However, Paul, we are keen to continue to grow this business as a core constituent of our portfolio.

Marius, Peter O'Connor from Merrill Lynch. My question is on the cost outlook. Alex mapped it out in detail about how you were facing the cost pressures in the near term. Are the two hotspots still WA and South Africa, and what type of growth rate in costs should we look at going forward in the environment we're currently operating in? Is it a number closer to 10% inflation per year, and mining cost inflation a better number to use, or can you keep it to a lesser number?

Peter, I think we've got a split - and I'll ask Alex to make a few comments as well. I think we've got to split the impact on our costs on a number of dimensions. We've got to split it by capital and by operating costs, and then within those two categories, we probably can take a look at raw material and labor again, or labor related elements. I think that where we've probably seen the quicker level of overall escalation that's probably been on the capital side, or put more simply, for the same amount of money you tend to get less.

That has been a trend not only over the last six months, but really has been a trend in the industry over the last couple of years. It's been exacerbated, of course, by the impact of the currencies, and where there is still considerable amount of locally denominated currency spend in those items. I think on the operational side we've obviously got the currency impact, which we've already spoken about.

I think what Alex tried to pointedly emphasize today is that where we have seen prices move, particularly over the last six months, normally on our cost line - because of the nature of how those materials flow through our consumption pipeline - we tend to see a lag effect of raw material costs as they manifest on the consumption line. Then I should note that the overall environment for labor cost inflation is clearly weakened in Australia and South Africa, but also if I look at places where we've had recent wage negotiations, for example Columbia.

Alex, I don't know if you can give more granularity on a forward look at what you expect, or if you can complement that.

I think you've covered most of the points, Marius. The intention of what I said was to create awareness, and remind everybody of the lagged effect of costs. I think the most important message here, especially on the capital intensity, is that investing through the cycle has great value. The capital that we deployed in the time of the great financial crisis got you more units - a lot more units than we are getting now, and getting in this part of inflationary period in capital expenditure.

Certainly, Peter, I think the capital cost inflation has been well above that number that you've mentioned. I'll take one more question here in Sydney, and then I'll take a couple of questions from the phone.

Hi, Marius. Lee Bowers from Macquarie. Just a couple of quick questions. The first one was on the capital management program. Are you able to confirm that you're in a position now, from a regulatory perspective, to launch an off market buy back, and if not, what timing do you think is appropriate there in terms of when you will be in a position to launch one? The second question just relates to the indicative five year CapEx guidance. Thanks for that, and I guess it does raise the question in terms of iron ore as to how much of that amount that you've flagged is attributable to a post RGP6 environment? Therefore, I guess, what implications should we draw there in terms of your view on the Outer Harbour and Quantum projects?

Lee, thank you. Perhaps the second piece first, and then I'll hand the first piece to Alex. On the five year CapEx, clearly the Outer Harbour, as we articulated more than three years ago, and we confirmed about a year ago, is a key part of our expansion program. The overall way that we look at our iron ore business is that we've got a resource base there which is really superior in the way that the mineralization occurs. We've got large ore bodies, we've got relatively few of them, and so we've got mines that can do a 30 million ton plus operating rate per mine. We also have a set of ore bodies that can easily go, in our mind, to 350 million tons of production and beyond.

Clearly in order to get to that production rate we've got to do the Outer Harbour. The team has worked very, very hard over the last couple of years in order to get all of the elements of that in place, to get that registered as a major project. However, given that this is a five year capital outlook, a substantial chunk of the CapEx that is shown will still be on the infrastructure, new mines, and then on the existing projects that we have in execution at the moment, as well as the RGP6 project, which we have long flagged. However, the Outer Harbour is an integral part of our strategy, and core to us achieving the growth rates that we'd like to achieve.

On the off market buy back, I'm probably not in a position to say anything about that, but Alex, I'm looking at you to see if there's anything we can say today?

What I can say is that $10 billion is a very large number, and one year is a very ambitions period to return the $10 billion, but I think we'll come back and provide more details in due time.

Thank you. Sorry about that, Lee. Let me just try and take calls on the phone. I think we've got Jodi, probably, manning the phones. Can I have the first question please?

Thank you. The first question is from the line of Craig Campbell from Morgan Stanley. Go ahead, thank you.

Good morning, Marius. A question regarding some of the minor assets, given the focus on the very large asset base. Would you look to maybe exert some of the minor minerals that you're in, given some of the high multiples that we're seeing in the market? A second question for you, which is very new term; with relation to copper markets at the moment, are you able to give us some color on where the TCRC is likely to end up settling for benchmark? Finally looking at the jellybean chart that you put out, the Olympic Dam project sitting in its future options; has the progress of Olympic Dam slowed down at all, or do you think it's still on track for an investment decision within the next 12 months? Thank you.

Craig on what people call the minor assets, what you call the minor assets, I should point out that these are very substantial assets. If I look at the nickel division over which we've had questions in the past, from memory we made $350 million of profit in that business in the half. So we are very comfortable that the portfolio we've got is manageable, and that we can wrap our arms around it. When we talk about portfolio simplification, it is always about maintaining the portfolio against the backdrop of growth in a place where our management is not too diluted. I feel very comfortable about where we stand on that dimension.

With regard to the copper TCRCs, I'm probably not the best person to give you an outlook there, today, Craig. On the Olympic Dam expansion, we have continued unabated in the engineering of the expansion shape and methodology. I think that what we believe we want to do largely maps to what we have exposed to the market, and which you can find on the website, which is the modular expansion. We're sometimes doing some of these expansions in parallel, but taking the decisions in a modular fashion.

While we don't hold all of the regulatory time frame keys in our hands - obviously those are for the various levels of government to decide - I'm very confident that the technical work that is being completed by the team, the level of preparation, and the surety with what we want to do, that we will be in a position to move that project forward, largely dependent on what the time frame of the regulatory reviews are. I see no reason to update or change the previous time frames that we've laid out, which is essentially that we hope to make an investment decision there over the next 12 months.

Thank you. The next question is from Lyndon Fagan from the Royal Bank of Scotland. Go ahead, thank you.

Good morning. I've got two questions. The first one is on the dividend policy, and the second one is one MNA. It would seem as though you've got the financial capacity to increase the dividend significantly, and also go ahead with all the growth CapEx. Can you talk about whether there was any discussion about changing the policy to maybe a payout ratio, and what you think an appropriate dividend yield for the stock is? It's about 2% at the moment. Secondly, has the company changed its view on what appropriate MNA is to potentially small to medium sized opportunities in light of your recent activities?

On the dividend policy, we are very committed to a progressive dividend policy. That dividend policy has seen our pay out, again from memory, move in 2006 from a total payout of about $2.1 billion or $2.2 billion to close to $5 billion last year and obviously more this year through that progressive 23% per annum growth rate. We are committed to that. Our shareholders really appreciated that during the downturn, where we were virtually the only company in the sector that continued to pay a dividend. We want, to the maximum extent possible as a company that has not cut a dividend since the great depression, our shareholders to see that as an annuity and we will continue to grow that dividend basically in line with the company growth is.

Obviously if there is a return on capital change expectation we will progressively -- sorry, sometimes we base that as we've done in the past. I also just want to point out that $0.01 on the dividend is about $50 million on a period and so it's actually not the major way in which we can return capital to our shareholders in the short term.

The major way and the way that benefits the shareholders in aggregate has historically been off-market buybacks in Australia and on-market buybacks of the PLC register that is from time to time traded at a discount and, therefore, are the most economical units to retire to the benefit of all of the shareholders.

On the M&A side, let me talk about small and large but let me start off with the large before I talk about the small. We have always said that amongst the world's oil bodies we only want to own and operate the very large ones. These are few in number as time has now told us they are difficult to accomplish and, in addition, where we currently stand in the commodity price cycle probably as increased price expectations for those assets. Hence our focus, as some of my peers with other companies that have declared results over the last couple of days, is to emphasize that as one looks at a buy versus build equation, the clear opportunity for us is to continue to invest money in our organic portfolio.

When we come to small and medium size acquisitions, I want to differentiate between tier one and tier two. We are absolutely not in the place of making higher leverage second tier or below asset type acquisitions because we don't feel we add value. Our strategy is to expand massive oil bodies over time and we feel that that's where we allocate capital. Our shareholders are actually better off allocating the capital themselves to those types of assets. They don't need our expertise in building, they don't need our expertise in technology and so on to unlock those assets progressively over decades. However, that does not rule out acquisitions of things that can be aggregated into tier one positions.

The best current example we've got is probably the way we went about in aggregating the potash portfolio. I think we did four or five separate and discreet transactions, major ones -- we obviously did little lease acquisitions and so on in between -- but we had a clear view that we were going to aggregate a resource position that fell exactly in the definition that we want and you should expect that those sorts of things will continue. So I hope that answers the question.

If I could just leave the phone then for a second. Alex, just checking but I'm assuming that nobody wanted to come to London at this time of the night, right?

Absolutely right. I only have Andrea Lindenberg here with me.

So you've at least got good company. So now I'll move the questions back to Sydney then at this stage.

Marius, Clark Wilkins from Citi. Just questions on CapEx. Look at the spend rate in the first half of the year, less than AUD6 billion, but you're looking at the full year number of AUD15 billion.

Is it actually feasible to wrap up the spend that fast, that quickly, in terms of the internal resources to be able to manage that process? Also, in terms of stay in business capital, going forward what is the stay in the business number for the business as it grows?

Thank you for that question. I'll try and answer that into two pieces. It is an important question and one which, no doubt, you can imagine we've looked at very closely.

In the aggregate of our capital number and our exploration number, which we sort of look as the amount of money that we're putting back into the business in sustaining and growth, what we see is that actually the large CapEx programs essentially, you've got a pattern of investment which is very, very typical of the CapEx patterns that we always see where our first half is always a slightly lower number. But the major growth projects, essentially the capital is going in and we're very comfortable that those projects are being executed like we want to, and that's really to your capability question - they are in place, they are being done and so on.

We have on the exploration side, as these things always work, particularly in the oil and gas business, a substantial amount of (break in audio) back-end loading in the exploration side this year and that shows how happenstance the wells have been sequenced this year.

From memory, we've got a couple of wells going in in Australia, two also. We have got three or four wells, I think, going in in Southeast Asia and so on, so there is some element of predictable back-end loading on the exploration side.

Then on the smaller projects, the ones where we have not, where we typically don't break them out in that AUD250+ million category, I think the CapEx has been a little slower there than usual for us. But if I wrap those three elements together and we see where the big projects are going, the small projects are going and where the exploration is going, Alex and I see no reason to change our CapEx expectations or forward look that we've put out for this year.

Alex, I don't know if you can add to that at all.

No, but I can tackle the second part of the question which is the sustaining capital. I think you will see on the slides, on the back of slides we give always a sense of what that sustaining capital is and it is around the AUD2 billion. But, as a rule of thumb, he should use something around 5% of the applied capital in the business to get pretty close -- sometimes a bit higher, a bit lower -- to the sustaining capital, so 5% of that.

Thank you, Alex.

It's Andrew Gardner from MF Global. Two questions, if I may, relating to things you've already talked about. Firstly, just on the AUD80 billion CapEx budget many of the projects in execution and feasibility stage are well-known, but if you could talk about which of those are top of the shortlist in the concept and pre-feasibility stage in that budget.

Then the second question is tying a couple of things together, really, where you've mentioned on aggregating a number of the small and medium sized players in certain circumstances as well as feeding back into your CapEx plans for RGP6, the outer harbor, and wondering how I can kind of word this in terms of what you expect or how you view what is happening in the Eastern Pilbara and those other operators that are also fighting for capacity through Port Hedland as well.

Andrew, perhaps again to reiterate, in Port Hedland our long term growth plans are clearly to develop the outer harbor. We're committed to it, we've worked at it for years and we believe that that is necessary in order to get the all body potential out to the sea. That goes unsaid. In terms of the CapEx programs, I think what you're going to see over the next year and then in the period beyond is really a little different in the various products but let me try and quickly outline those.

So firstly in Jansen, the potash project, you've seen that we've put that into feasibility. That is really the run up of about five years of work in order to get there. My expectation is that, consistent with our previous guidance, we want to deliver first product there in 2015 -- that is calendar year 2015 -- and if you work backwards you will see that our guidance there for approval of that project is still basically the same as what we've given before. So that's clearly one project that is going to feature quite strongly, both the initial phase and then the subsequent phases of that, because all of that stage-by-stage has been meticulously prepared over the last couple of years. I'm talking about the new things first.

The second item that is worth noting is then Olympic Dam because, similarly, we've been on a five year preparation program there and, again, sort of by next year - that is calendar year -- we hope to make an investment decision there. Again there are multiple stages of expansion there, some of which you may decide to press the next one on before you have completed the first one, in the same way that I've just spoken about Jansen and that we've historically done in our iron ore business.

The next one is probably Escondida. Now Escondida is interesting because from memory we had about AUD15 billion of CapEx in our program before the global financial crisis. We kept on investing at about a rate of AUD10 billion but we had a number of projects that we pulled back and that after the global financial situation we had to restart them. Now, in Escondida there's a number of not so visible smaller projects that we are currently executing but the big one there for us is the new concentrator that we want to build in Escondida and my expectation is that we would want to move that into feasibility, which for us is a very serious commitment, in the short term.

Then I come to the things that are very, very short term and, again, perhaps coke and coal then. You know, since our view a couple of years ago was that China was going to be a sustained importer of coke and coal we've tried to accelerate our expansion plans there around the (inaudible) ore bodies, which are slightly smaller ore bodies, that's probably the first one that we can get into production quickly.

Then we've got the Caval Ridge and Hay Point harbor expansion and upgrade after that. All of these things are extremely well-developed and you should take that to mean that, certainly within a relatively short period of time, all else being equal we hope to move these projects further.

On the iron ore side, perhaps lost from the equation is sometimes the work that we are doing on the Samarco expansion. Now obviously we hold only 50% of that asset but that is nearby for a decision as well.

Then there is really what I would call the projects that are aimed at exhausting the capacity of the inner harbor and RGP6, again, you know, are very close by. So I think that's a rundown of the major projects on the mineral side and you can see that they basically centre around those five sets of ore bodies that I detailed before.

It's Neil Goodwill from Goldman Sachs. You've given us a fair bit of detail on the size of the expansions in dollar terms, but could you give us some indication of how much do you think that will grow the company in percentage terms?

Also, specifically, the money that you're spending in the petroleum business, do you think that will actually grow the business or do you think that will just maintain the status quo in terms of your production levels?

Neil, I normally and the company normally does not like to give volume projections per product because things move around within that project portfolio and, you know, one projects gets accelerated, another goes a little big slower. But I would say that if I look at the ore body quality here, we really are limited on these big assets on how many things you can do in parallel.

I mean, the resources are there. In all of these sets of ore bodies that we spoke about so exhaustively today, there is the potential to double and triple the output and it is not a resource constraint, it really is on how quickly you can get the money into the ground. The last forecast of potential growth rates we gave three years ago and I think the number that Al [Baxter] at the time put out was about 5% or 6%, and I think that that is still a reasonable estimate.

Let me try and take one or two questions from the phone again and then I'll come back here to Sydney. Jodie?

We don't have any questions from the phone at this stage.

Ok, thank you. I'm assuming it's still only Andrea in London, so Glyn?

Good morning, Marius, this is Glyn Lawcock at UBS. Look, just two questions.

Firstly if you could share your views on coal seam gas versus shale gas and your view on the gas market. I think a few years ago BHP looked at putting gas into the US, now it's a complete reverse.

Yeah.

As you say, times move. I just wondered if you could share your views on that market.

Then secondly, over the last 12 months you've been successful in spearheading pricing change in a number of commodities well talked about. Are there any commodities that you see out there, either in your portfolio or not in your portfolio, that still have a mismatch in pricing that probably needs to be sorted out, thanks?

Yeah, I think on the second question there's obviously some way to go in alumina. For us it's a relatively profit impact but, clearly, something where if you in the future want to take a bigger alumina exposure, the fact that particularly the Atlantic market is not -- you know, in the Pacific market essentially the fact that the alumina is priced in China, that market has sort of evolved a little bit more quickly, but in the Atlantic market it's now following, in my mind, but not completely.

I would say that the overall profit impact is probably not enormous but there is a way to go there. In the other products also, just while we're exploring a little bit more broadly, we're very comfortable that the price of the day concept is cemented, but for our customers we really look forward to a world where both the product price and the input price is fully hedgable. So I don't see any changes there but we do see evolution towards maturity of that market.

We would like to see deep and liquid physical spot markets, we would like to see deep and liquid physical spot markets, we would like to see deep and liquid swaps markets or derivative markets in the raw materials as well as in the output products. That allows, for example, different steel mills that have different cost structures to take decisions on we want to let it float or we want to profile ourselves as a converter and I think that that will be a major value-add for steel mills as they re-profile and differentiate themselves over the future.

My expectation is that we're going to continue to see that and we're going to see within the next 12 months a greater visible physical spot market in traded spot market in iron ore and we're trying to facilitate that. So that's where I see the evolution. I've just lost my train of thought again, what was the first part of your question?

Gas.

Gas. So I'm not the expert here but I have got two experts in the team. We've got sort of Andrew Mackenzie, who is probably the most technical person I know, and Andrew says that, look, shale gas hasn't increased the gas resources of the earth by 10%, it's increased it by an order of magnitude. And we've got Mike Yeager here, who's probably the best guy in the world to get things out of the ground when it looks like a hydrocarbon.

So I think Mike is on the line and is probably the guy can talk a little bit more about the differences between shale gas and coal seam gas. Mike, I don't know if you want to say a few words on that?

Yes, Marius, can you hear me okay?

Yes, we can.

Yes, well certainly these are enormous resources and different companies have taken different perspectives on their profitability and on their longevity and how they fit with the technologies that those companies employ. You know, I think in general we, according to our mission statement, really like to be on the low cost side of things. So clearly when you talk about the coal seam gas and aggregating it and then trying to liquefy it, you're into a higher cost business, not one that can't be good but certainly a higher cost. While on the shale gas - at least right now in North America -- with a tremendous pipeline infrastructure and the ability to get in on the largest gas market in the world, you can do that at a lower cost basis.

So I think those are the way we view them, we will continue to assess these opportunities as we are presented with a chance to participate in them but, certainly, the shale right now is on the lower cost side and the coal seam gas a little bit on the higher cost side, and that's really how we rank them up.

Glyn, okay? Next question, please.

(inaudible)

Alex, the question from Charlie Aitken is what the franking credit balance was.

A little over AUD5 billion.

Any other questions here from Sydney. I'm going to loop back one last time to the phone. Jodie, have we got any more questions on the phone?

No, there are no further questions.

Thank you very much. I think we have no further questions here in Sydney. Obviously we'll have the opportunity to talk again over the next couple of days but thank you for coming in this morning. We are very proud of the record set of results. The company is extremely well configured around enormous resource base to continue to grow, deliver value to its shareholders by continuing to increase the amount of money that it invests, continue to make a strong balance sheet proposition and continue to increase the amount of money that we return to shareholders in the form of a progressive dividend and buyback. Thank you very much for coming this morning.