必和必拓 (BHP) 2011 Q4 法說會逐字稿

Welcome to the BHP Billiton preliminary results briefing. My name is Clare, and I will be your operator for today's call. For the duration of the call you will be on listen-only. (Operator Instructions).

I am now handing over to the host of today's briefing, BHP Billiton's Chief Executive.

Ladies and gentlemen, welcome to today's presentation of BHP Billiton's preliminary results for our 2011 financial year.

I'm speaking to you here today from London; and Alex Vanselow, our CFO will be presenting from Sydney. I'm also pleased to note that we are joined by members of the BHP Billiton Management Team for this important presentation. We have Andrew Mackenzie here with me in London; Marcus Randolph is with Alex in Sydney; and Alberto Calderon and Mike Yeager are joining us on the telephone lines.

Before we begin, I would like to point you to the disclaimer and just remind you of the importance of that disclaimer in relation to today's presentation.

With regard to today's format, I will start by providing a general overview of what has been another strong and perhaps busy year for BHP Billiton. I will then hand over to Alex who will go into the financial results in a little bit more detail; after which, I will discuss our unchanged strategy and commitment to grow shareholder value.

Today we announce record results for our financial year 2011. Underlying EBITDA increased by more than 50% to $37.1 billion and underlying EBIT rose 62% to $32 billion. Record attributable profit excluding exceptional items was $21.7 billion, a 74% increase over the prior year. Record operating cash flow of over $30 billion facilitated record capital expenditure, our entry into the US onshore gas industry, an accelerated $10 billion buyback program, as well as a 22% rebasing of the final dividend.

To put those figures in perspective, underlying EBIT achieved 10 years ago when we announced our first results following the BHP Billiton merger was 10 times larger today than that first result.

Now I would like to discuss what has been another strong year for our operations. When addressing performance, I'd like to start, as I always do with safety, the health of our people and the safe operation of our business remains the number one priority for us, and we recognize the correlation between operating performance on the one hand and safety on the other hand. And in that context, I'm pleased to report another 6% improvement in the Groups total recordable injury frequency rate over this financial year. However, we still had two fatalities in the 2011 financial year and we had another fatality early in July. Absolutely no fatality is acceptable, and I would like to offer my condolences to those impacted; family, friends and colleagues.

At an operating level, BHP Billiton had another very strong year, as we continued to benefit from our longstanding commitment to invest throughout the economic cycle.

We produced record production in four commodities, namely iron ore, nickel mat, manganese and natural gas, and we had record production at 10 of our operations. I'm particularly pleased with an eleventh production record, our annual production record in our iron ore business.

These results reflect our fairly unique decision to invest in growth in the depths of the recent global financial crisis, and last month we were able to confirm the successful ramp up of Western Australian Iron Ore to 155 million tonne per annum run rate.

Annual production in sales records were also achieved at New South Wales Energy Coal, following the successful commissioning and ramp up of our MAC20 project, using our Newcastle coal infrastructure Group port capacity.

And in our base metals business, total copper production for the 2011 financial year increased as a substantial improvement in performance at both Olympic Dam and our Pampa Norte asset in Chile, more than offset the grade related decline at Escondida. Importantly, Escondida production is expected to increase beyond the 2012 financial year, as mining activities progress towards higher growth -- higher grade ore as we complete the Escondida ore access project.

And it would be remiss of me to not comment on the 129% increase in resources at Escondida, comprising of 40% increase at the Escondida resource itself, as well as initial reporting of the mineral resources for the Pampa Escondida and Pinta Verde prospects.

While our current performance compares favorably with our peers, we, in addition, continue to lay the groundwork or foundations for sustainable, long-term, value adding growth. As part of our invest through the cycle strategy, we approved 11 projects in the financial year for a total investment commitment of $12.9 billion. Those investments which span iron ore, metallurgical coal, energy coal, diamonds, petroleum and copper will further differentiate an already uniquely diversified asset portfolio.

Notwithstanding these achievements, like our peers in the industry, we have faced our fair share of challenges over the last 12 months. Persistent and often severe wet weather significantly impacted our Queensland Metallurgical coal mines. And today, six months after the worst of the weather, our operations continue to be affected by substantial in pit water accumulation.

Similarly, the drilling moratorium in the Gulf of Mexico delayed the production of very valuable crude oil and condensate. I am, however, very proud that BHP Billiton was right out in front in bringing a new deporter production well into production after the drilling moratorium was lifted.

Industry-wide cost pressures, driven by stronger producer currencies, as well as underlying inflation in raw material and labor costs remain a concern and, over the 12-month period, we took the decision to revise capital budgets and schedules for our Kipper and Turrum petroleum projects, and our Worsley efficiency and growth alumina project.

Alex will discuss the tight labor and equipment markets in more detail. However, I would like to make specific mention of the recent heads of agreement with Leighton Holdings, our acquisition of the HWE Mining subsidiaries will accelerate our transition to an owner operator structure in the Pilbara. It will remove a layer of complexity, deliver substantial operating cost savings and enable us to manage very substantial growth in this business in a safe and low risk manner.

With that, I'd like to hand over to Alex, who will present our financial results.

Thank you, Marius, and welcome to everyone. It is my pleasure to deliver another set of record results, again achieved through the consistent execution of our strategy. This past year has seen the continuation of recovering commodity prices, against a backdrop of lagging, but increasing cost pressures.

Let me start with our record underlying EBIT. For the 2011 financial year, underlying EBIT was $32 billion, up 62% on the prior year. As shown in the waterfall graph, stronger commodity prices, net of price linked costs, were the primary driver in increasing underlying EBIT by $17.2 billion. Higher commodity prices had a positive effect across all CSGs, with iron ore and copper the two most significant contributors.

The weakening of the US dollar versus commodity producing currencies led to a negative exchange rate impact of $2.5 billion, and the strength of the Australian dollar accounted for approximately 80% of this variance.

Now I'd like to provide some more color around the material variances, the key drivers, starting with volumes. Our Tier 1 assets and unchanged strategy of investing through all points of the economic cycle led to production records across four commodities and 10 operations during the financial year.

We delivered a $572 million positive volume impact to underlying EBIT. And the major contributors to that were Western Australia iron ore, as Marius mentioned, ramping up to 150 million tonnes of capacity. In Petroleum, we had the Pyrenees field's first full year of production; and also, the acquisition of Fayetteville, that more than offset the natural fuel decline and the impact of the moratorium in the Gulf of Mexico. And in Metallurgical Coal, as Marius also mentioned, the significant negative effects of the floods in Queensland.

Now let's look a little bit more broadly at how our high quality portfolio and consistent investment enhances our performance versus our peers. Our strategy is focused on large, low cost, expendable assets that deliver superior margins through the cycle; what we call the Tier 1 assets. This allows BHP Billiton to produce its full capacity, and to take the price of the day at all points of the economic cycle. Coupled with our consistent investment program, BHP Billiton production is less volatile and allows for greater value generation.

Now let's examine the components of our cash cost variance. A consequence of the strong commodity prices that we enjoyed is an increase in the cost of the many of the products that we consume. We have highlighted this lagged effect many times in the previous presentations, and the entire industry is challenged by this continued cost pressure.

BHP Billiton, however, is a significant net beneficiary of this linkage, and a key differentiating factor is our long energy position. We consume less than 25% of the energy we produce. And if you also note that over half of our variance in cash costs was a structuring nature, with the labor category being the largest. This increase was due to two things; one, the higher labor rates, and also the higher increased number of people, increasing workforce due to our growth projects.

In the 2011 financial year, we experienced a 4% increase in our total cash costs, but cost control alongside with safety in volumes are the key focus area for our operating teams. Also, the support of our Global Procurement group is critical in sourcing key inputs at competitive pricing. Let me highlight two specific examples of the increasing tightness being faced by the industry.

We are again projecting shortages in the giant radial tire market, and lead times for mining trucks are back to early 2008 levels. Our long-term partnership with manufacturers ensures we have a preferential position and certainty of access. We are confident that we are well supplied for our ongoing needs in our extensive growth program.

Our global procurement system creates critical mass for our major raw materials in our largest purchase categories. The centralized system provides us and our vendors with a strong order book and flexibility in the deployment of supplies and equipment.

Now let's turn our focus to our strategy and our uniquely diversified portfolio. Our superior level of diversification has our Ferrous, Non-Ferrous and energy products each contributing significantly to EBIT. The Ferrous group remains our greatest contributor, driven mostly by China demand for steel as it advances through the first phase of urbanization. The benefit of our low cost portfolio is demonstrated in our strong margins, as shown in the chart on the right. Iron ore was the stand-out for the period amongst a group of superior margin businesses.

The absolute mix of the EBIT contribution will change over time as industrialization advances in the developing world, and as we continue to optimize our portfolio. This includes laying the foundation for change to capture opportunities as demand patterns evolve. This point is emphasized with our potash and shale gas investments, and the development of Olympic Dam.

These assets will further diversify our portfolio by commodity, geography and customer, and in doing so, will further reduce the volatility of our future cash flows. This high quality diversified model leads to industry-wide superior margins and returns.

The chart on the left uses the average EBIT margin taken from what we refer to as our Jackson Pollock chart, which I didn't leave out; it's in the attachment on the back of the package, and compares it to that of our peers.

Our 2011 underlying EBIT margin averaged 47% alongside an underlying return on capital of 39%, as shown in the chart on the right. These two financial measures highlight the outstanding quality of our portfolio. This marks the seventh consecutive financial year in which BHP Billiton has recorded an underlying EBIT margin of 40% or more, and an underlying return on capital of 25% or more.

This is an outstanding achievement considering we continue to invest heavily in our future. If we exclude investments not yet productive, our return on capital employed for the 2011 financial year is 50%. This performance has again led to significant free cash flow generation, and let me step through our unchanged capital management priorities in the next slide.

The first point you should notice on this slide is the record net operating cash flow, an increase of 78% on the prior year to $30 billion. Now consider how we consistently match our cash outflows with cash generation to maintain an appropriate capital structure through all stages of the cycle. Our priorities for cash are, first, to reinvest in the business, then manage our balance sheet to a solid A credit rating and, finally, return excess cash to shareholders.

In the 2011 financial year, BHP Billiton invested $12.4 billion in organic growth, and $4.8 billion in acquisitions. We have consistently increased our capital spend at a compound annual growth rate of 18% for 10 years.

In terms of our balance sheet, we continue to maintain a solid A credit rating, independent of cyclical pressures, acquisitions or buybacks. Our gearing level has provided us with flexibility to explore options in the face of increased economic uncertainty. At year end, net gearing was 9%, which ensures we can comfortably absorb $15.1 billion, the Petrohawk deal. The inclusion of the full acquisition and funding of Petrohawk would see our pro forma net gearing rise to approximately 27%.

The 2011 financial year was another example of our capital management plans at work with a further rebasing of our progressive dividend, and the early completion of the $10 billion buyback. From this cash flow chart, it is evident that where we do have excess cash, and once the first two priorities are satisfied, the Company looks to return funds to shareholders.

An interesting side note is that this year's cash dividend was 1.3 times greater than our total operating cash flow in the 2002 financial year, the first full year for BHP Billiton.

So three separate buybacks since the 2005 financial year. We have returned $22.6 billion to shareholders at an average purchase price of less than $25 per share, and this amounts to approximately 15% of the 2004 issued capital. So to summarize, our record $32.1 billion in capital actions this year, we have invested a record $17.2 billion to grow in value our portfolio, return $5.1 billion in cash dividends, plus an additional $10 billion through the share repurchases.

This capital management has benefited all shareholders by investing in our future, and growing in our dividend pool, while reducing the number of shares that are serviced by that dividend. Based on this, we have been able to rebase the final dividend by 22% to $0.55 per share. This consistent and disciplined execution of our strategy is aimed at creating sustainable long-term shareholder value that will continue to differentiate BHP Billiton from our peers.

So, in summary, I have highlighted firstly the strong growth margins and returns that continue to characterize BHP Billiton's performance; secondly, our significant cash flow generation in this disciplined and consistent approach to capital deployment; and thirdly, our delivery of shareholder value, shareholder returns through the cycle that sets us apart from our industry peers.

And now, I would like to hand you back over to Marius.

Thanks, Alex. I'd like to now discuss our strategy in the context of this economic environment, as well as broader industry themes.

This slide may be familiar to some of you as I included this chart, which we show here on the right hand side, in a presentation that I delivered earlier in the year in May. At that time, I highlighted the diverging signals that were emanating from the developed world.

We've said for three years now that global imbalances, and in particular high levels of sovereign debt, will create ongoing uncertainty. Indeed, a protracted OECD recovery has remained our base case throughout this period. Of course, a coordinated policy response may yet provide some mitigation.

In the developing world, inflation remains the target for policy makers, and recent economic data suggests that the tighter monetary policy is having the intended effect. In our view, the current policy settings in China are entirely appropriate given the need to manage the transition of that economy from an investment-led to a consumption-based growth.

Notwithstanding the shorter-term challenges for the global economy, we expect the influence of developing nations, and particularly China, to become more pronounced as their economies become an increasing proportion of global GDP, as shown on this slide. And we reiterate our longstanding belief that continual urbanization and industrialization of these populous nations and, in particular, the associated metals in terms of growth, will provide strong, long-term support for our products.

So in this context, why do we always emphasize the more diversified nature of our portfolio? As an economy, for example, China industrializes steel intensity per capita matures first; followed only at a later stage by commodities such as copper, aluminum, nickel and so on. Energy and food, the latter of which in our case translates to potash, are linked with economic expansion in a more linear fashion throughout that development.

Now, by having products in our portfolio that cover early, mid and late cycle demand, we create more opportunities for long-term shareholder value creation and, hence, the emphasis on the more diversified nature of our portfolio. However, demand is only one side of the story. Let me talk about the other, equally important side of the equation, namely supply.

As noted earlier by Alex and myself, a surprising number of short-term disruptions have contributed to the generally inadequate supply response. And specific examples, such as the Bowen Basin flooding are highlighted on this slide. While those shorter term factors will ultimately unwind, there are some broader structural issues that have persisted for some time and that are worth commenting on.

To illustrate the point, the chart on the lower right-hand side of the slide that you can see suggests that for seaborne iron ore, seaborne metallurgical coal and mined copper production, all of these actualizations of production have fallen short by 10% to 15% of the risk adjusted forecasts made only three years ago.

These shortfalls, just to give you a quantum of that means, in copper is equivalent to about three Escondidas; in BMA to about a BMA; and in iron ore to about three-quarters of the Western Australian iron ore. So the supply side continues to lag and continues to under-perform relative to forecasts and expectations.

And, as Alex mentioned, bottlenecks in the supply chain for tires, trucks and other key consumables are increasingly apparent and likely to constrain the industry's expansion plans in the short and medium term. However, market forces will, ultimately, in the long run, induce a supply response. It is, however, important to consider at what cost from both a capital and from an operating perspective that this new supply will have.

As a result of firmer producer currencies, an increase in raw material and energy costs and the climbing ore grades, we have observed a general steepening and elevation of global commodity cost curves, as illustrated on the slide that you can see for iron ore, but I could have used any number of other examples as well.

Similarly, as illustrated on the right-hand side, here showing the capital intensity for iron ore projects, we've seen that capital costs have increased over time. And this too will, in due course, as they get executed, give a rise or a steepening in the total or C3 cost curve.

Now to emphasize, our high margin, low cost, upstream strategy that has consistently delivered industry-leading returns offers significant advantages in this environment that we've just described.

Fundamentally, we believe that the quality and potential of any mining company is ultimately defined by the quality of its resources. And as you can see illustrated on this slide, BHP Billiton has large, long life assets that are diversified across the commodities' complex; and as we commented on earlier, the diversified across the industrialization cycle.

As an example of that size, based on conventional measures, our Western Australian iron ore assets, at 2010 financial year run rates would have a resource life of more than 50 years. However, if we consider the total mineral inventory it would imply a life of over 200 years.

Now one may think that 50 years of life is sufficient. However, thinking about the total mineral inventory becomes very important, as we think in the case of Western Australian iron ore for example, taking that production from a 155 million tonne run rate to 355 million tonnes per annum and beyond; or, as another example, when we contemplate the expansion and output from Olympic Dam to many times its current output.

Having described this large -- very large diversified Tier 1 resource position, let me talk about our development plans. We've said before and I'd like to repeat today, at BHP Billiton we recognize the importance of a simple and scalable organization. And with our large resource bases across the ferrous, non-ferrous and energy products, we have the ability to plan for the very long term.

As you can see from this slide, current and future development options are located primarily in geographies that we know very well. You will also note an emphasis on the high quality, high margin businesses that already generate a significant proportion of our profit. Investments at Jansen in potash and Olympic Dam in copper/uranium and onshore US gas will add complementary long-term production growth to this world-class portfolio.

And in order to successfully develop that product pipeline, we have established a hub-based project model that allows us to set up and construct many projects in succession in the same basin, using the same teams. And this approach means that we can develop and retain specialist teams and grow our delivery capacity over time. The latter is all the more important in the light and in the context of the supply side challenges that I've commented on earlier.

Now I'd like to comment specifically on the Petrohawk acquisition. Firstly, it was with great pleasure that over the weekend, we announced that our $15.1 billion tender offer to acquire Petrohawk Energy Corporation was completed. As we noted when we talked about that acquisition for the first time, we believe that Petrohawk's Tier 1 resource and development potential is perfectly aligned with BHP Billiton's unchanged, well defined, upstream strategy.

In this regard, our ability to competitively fund accelerated development and growth throughout the economic cycle ensures that we are perfectly positioned to optimize both on the development of and the returns from these high quality resources. To do so, it's important that we leverage the skills that we've developed not only on the petroleum side of the business, but also the minerals side of the business.

Having discussed the building blocks of our growth strategy, let us consider the potential of our portfolio. You've heard Alex discuss the strength of our financial position and the operating flexibility that that creates. I hope I have also emphasized the importance and differentiated nature of our upstream, long life, diversified resource portfolio.

Those factors, combined with the consistent and disciplined execution of an unchanged upstream focus strategy, positions us for strong predictable and high margin production growth.

And as you can see on this slide, putting together some of the elements that we've put in our petroleum, met coal and iron businesses over time, we target a compound annual growth rate, in production, of approximately 6%. Of course, that goal is predicated on our substantial organic growth program that is expected to exceed $80 billion to the end of our 2015 financial year.

We are committed to this invest through the cycle strategy, but, as in the past, obviously, we will adjust our plans from time to time to align with the external market.

That brings me to the end of my presentation, so let me conclude. We are pleased that strong production performance, record financial results and industry leading returns have again illustrated that our Tier 1 upstream diversified portfolio strategy is the right one.

As a low cost producer, we aim to safely maximize production and returns via the acceleration of our organic growth program.

The completion of our expanded $10 billion capital management initiative six months ahead of schedule has enabled us to declare a 22% uplift in our final dividend, thereby ensuring that our strong performance benefits all shareholders.

On that note, I'd like to thank you, ladies and gentlemen. We would now be pleased to take your questions. I think it's best if we start here in London, before moving to Sydney and then we'll take the phone lines.

(Operator Instructions)

If you could address you questions to me in the first instance, I will pass to Alex and others as required. Can I have the first question please? If you could just state your name.

I notice that the run rate for capital expenditure has been lower than the $80 billion this year. Was that a conscious decision from your point? Or why was that? Was it to do with M&A or could you just talk around that, please? Thank you.

I think the eventual expenditure was about $12.4 billion on growth and exploration, whereas we gave guidance of $15 billion. That's within the normal threshold of error as projects move around and the rate of capital expenditure. You should not read anything into that. You'll see in your pack that we've given on an equivalent basis, about $20 billion forecast for the upcoming year, which in our mind is a P50 forecast.

Marius, you alluded to the invest through the cycle strategy, but said that you will adjust that from time to time depending on the outside market. If I think back to the last up cycle, 2006/'07/'08, if I remember correctly, BHP actually, at that point, re-sequenced some of its projects, because it was worried about competing with itself and essentially driving up labor costs in a limited pool of labor; any thoughts on that? Is that what we're getting to today?

Jason, no. I think that what we've tried to, Alex, myself and the rest of the management team here over the last five years, we said that we probably wanted to go a little harder in our own back yard, so to be speak. And we've communicated that message pretty consistently over time. What we're seeing now is many of those growth options that we pushed on hard over the last couple of years are starting to mature, and I think of things like Jansen, Olympic Dam in particular.

But my comment was more to indicate that there is ceiling level on the rate at which you can go, i.e., you do everything that you've been working on and maturing. But, if there is a downturn in perception, as there was a very material downturn in the global financial crisis, I just did want to emphasize the discretionary nature of that capital spend.

Now I'll caveat that in two ways. We do want to invest through the cycle. And with complete hindsight, they always say the retro-spectroscope is an incredibly accurate instrument.

The one project that Alex and I decided to cut in the last downturn, the global financial crisis, the most material one that we put on the back burner was Escondida. Boy, in hindsight, that has turned out to be a really expensive decision. And it's probably reinforced our desire to basically continue to grow in a measured way but to continue to invest throughout the cycle.

Thank you.

Marius, you've guided to $20 billion CapEx for next year. And you mentioned the $80 billion by 2015.

Yes.

So, you're giving us about a $20 billion a year anticipation. Is it possible to get any breakdown on that, say, how much you intend for Olympic Dan?

Perhaps two comments about that CapEx. So somebody probably will ask the question in due course, let me try and pre-empt one question, which was how does the $5 billion of [sell-off] CapEx for Petrohawk fit into the $80 billion, which was done before we announced the Petrohawk acquisition.

I think the way that you should look at it is that, in due course, we'll come back here with a new five year plan, which is a synthesis in high grading of the overall portfolio. So, just to caution against adding linearly, the $80 billion and then add the Petrohawk thing, which clearly happened over the last couple of days on top of that; what we will eventually get is a synthesis, high grading further prioritization of that asset.

Insofar as Olympic Dam perhaps here is the guidance that I can give without breaking it down further than we've put in the public domain. We've given every indication that if we keep on tracking in the manner that we are now, in all likelihood at about our June Board meeting, we will take a sanctioning decision of the so-called Olympic Dam 1 ODP1 project. That project, consistent with our desire to always take more than one decision if there's no dis-benefit of taking them separately is essentially for creating the open pit and summons for the re-infrastructure.

Without being too precise, about 18 months/two years later, there will be a second sanctioning decision, which really is for the expansion of, for example, the concentrator water and smelting capacity, in order to take the product. And we sequence those two things, because the pre-strip takes longer than the construction of the thing.

Now that gives you some indication as to the timeframe with which those two projects will be approved in the five-year cycle. You then add a ramp-up that indicates that you can't spend more than a couple of billion dollars, per year, in a given location. And you'll find that, in aggregate, as a percentage of the total program, the Olympic Dam projects, while massive, individually, as they ramp up, will still be a relatively modest proportion of that overall $80 billion. I hope that gives you some guidance.

And Andrew, I don't know -- perhaps we've got to go to Alex, who is standing forlorn there on a Sydney stage. Alex, perhaps you can take a couple of questions in Sydney, if you can just address them to me in the first instance?

Two questions. One on your LNG strategy, just commenting -- can you comment on the fact that your Petrohawk acquisition is really US domestic gas, non-exportable? And that is essentially your strategy to be involved in the export market. Does this push down the Scarborough and Thebe on the priority list? And can you potentially talk about the likelihood of actually exporting gas from the Petrohawk assets in the future?

And the second question's on the purchase of Leighton's mining fleet in the Pilbara. You mentioned that Escondida delaying that project with a mistake in the last downturn. Can you maybe comment on why you actually didn't make this decision during the financial crisis, or is this one of the big synergies that would have been delivered with the iron ore joint venture with Rio?

And secondly, or part two of that, could we actually see this now spreading towards other basins, if you like, and in particular, the Queensland Coal?

Paul, let me take those in reverse order. At the time of the Rio joint venture that we proposed, we were going to adopt an owner-operator model. That was clearly communicated and we felt that was one of the synergies. So this acquisition you should very much see as an execution of a long-held strategy to get core activities controlled in-house; particularly where they are integrated across a supply chain.

Now that, obviously, will never be the case for 100% of the volumes that we move. And again, forgive me that I do not have the exact volumes moved, but I think in Queensland coal, probably contractors move on the order of 25% or so of the total volumes. In Western Australian iron ore it was something like over 80% of the volume. Given how the two main mines, MAC and Yandi, that we started, particularly MAC that we started in the last 10 years, grew.

So there are not the same order of magnitude events going to happen in other locations, but the core movement capability of raw materials, we'd like to keep in-house.

As it pertains to the two questions on LNG, our ambition is unchanged to have many tools in the toolkit. And we've put another tool in with the acquisition of Petrohawk, in terms of non-conventional gas, and we will build on that. Our aspiration has always been and continues to be, to have other tools in that toolkit as well. LNG operatorship and so on, in due course, in a measured way, being one of those, so unchanged ambition.

With respect to the two projects that you have particularly highlighted in Western Australia; obviously those timeframes are not set by us, but set by all of the participants in the venture. And, therefore, you should see the execution of those projects, over time, as being unchanged by the Petrohawk acquisition.

The last question pertains to US gas exports; and perhaps a little too early to call exactly how the world will arbitrage calories. My personal view is that-- Andrew, what do you say? About 10% of the hydrocarbons that are released, or 5%, from a shale basin get trapped in some sort of way, or a couple of per cent get trapped in conventional reservoirs? So, clearly, the addition of shale has added massive hydrocarbon resources to the world, and will continue to add those in other geographies.

Over time, the world is going to learn how to arbitrage energy costs; or put simply, the world continues to become a smaller place over time. Floating LNG pipelines, gas to liquids, alternative uses for gas. And the world is going to continue to arbitrage energy costs in an ever more efficient way, because it has got more avenues to do so.

Clearly, gas exports from the US is one potential avenue But another avenue may be substitution of liquid fuel for compressed gas, gas to liquids in some parts of the diesel chain; and all manner of other technological arbitrages that we cannot yet directly articulate. And I point you more at the broader picture, rather than the narrower picture, Paul.

Alex?

Just had a question really about, you got some press in the last week or so with the potential to put your own rail corridor through Queensland, to take your coal, obviously, to your own port and then potential other ports. Is this about driving down cost of rail? Do you see inefficiencies in the current system? Is it just wanting to have a dedicated rail and port system, like the Pilbara, for example? What is the key operational impact thinking behind this? And how far do you want to go in terms of spending CapEx? This is potentially a multi-billion dollar project through time, including port and rail.

I want to point out at first that it's an early stage project and, as such, we should look at that in the normal course of things, in our case moving through what we call selection definition and execution. I want to be at some pains at pointing that out.

However, we do think that there are synergies, by more closely coupling rail, mine and port. Or, simply put, across every interface that you do not control, there is the inevitable leakage and inefficiency that results. And that is not a reflection on the operators or the owners of the existing parts of that chain.

But I think we would very much say that our capability to engineer better outcomes, and more proactive decisions, is easier in Western Australia where there's one party that needs to take the decision around port, rail and mine, and takes it if it's required. Whereas in Queensland you've got multiple parties, not all of the objectives are the same, alignment needs to take place, time passes, interfaces result. And that's really the thinking behind that.

And obviously, at the end of the day, we've got to take a look at what the return on capital is of the basic rent strategy versus the build strategy, and in the light of these synergies that I've just spoken about. I should point out though that we very much see investment in infrastructure in that mine, rail and port sequence as absolutely aligned with the core business and part of the asset base that we create. That is the case in many of our operations, but particularly so in the bulk products obviously.

Alex, perhaps take one more question in Sydney, and then we'll move to the phones for a minute.

Just back on the CapEx issue, when you talk about high grading of the CapEx profile and keeping it at that $80 billion, is that due to a lack of skilled workforce to be able to execute on the projects? Is it confidence in the cash flow? And the projects that are dropping out of the bottom, are they effectively ones that do have a lot lower return than what the shale gas is? And if so, why were they in the project pipeline originally?

I want to be at pains to say that I didn't say that we would the CapEx at that $80 billion level. All I said is we've had a relatively late event over the last couple of days with Petrohawk, and we've got to integrate that total development pipeline over time. I was just at pains not to add the two sets of investment in a linear fashion.

The best way that I can describe how that happens is to say that if you've got two separate systems, and you locally optimize them, that is not the same solution as if you put the two systems together into one system, take it top to bottom, and prioritize, starting with the most attractive project and working down the sequence.

So that's probably how I would comment on what we see, and over time, as we discover more about the resource base that we've just acquired, as we continue to work that investment and capital allocation pipeline, as we do every day, we will update that CapEx number.

Clare, perhaps we can go to the phone lines for just a second and take a few questions from the phones.

Heath Jansen, Citigroup.

Just a question on Petrohawk. Just wondering, obviously this is going to skew your earning stream much more to oil and gas. So I'm wondering when you model that through your Jackson Pollock chart does that materially change your diversification going forward.

And secondly just on that, does it actually improve your EBIT margins over time, because when we look at a number of the US natural gas producers, such as Chesapeake, their average EBIT margins have been below 30% whereas yours has been above 40%. So I'm just wondering when you incorporate that in does it actually result in higher margins, and again higher margins than your peers?

And then maybe just sticking with the oil, if Mike could give us some updates on the Gulf of Mexico, particularly in light with the issues that BP has had with Thunder Horse; are there any knock-on implications with Mad Dog and Atlantis? Thanks.

Heath, in terms of margins, we believe that on balance the acquisition of Petrohawk and the Fayetteville assets, and the investments that we will make in that, will, on balance, increase margins. I don't want to comment on how much or how profound, but we believe that that increases the margins on a net/net basis.

Alex, I'm for the moment a little bit at a loss as to what the forward cash flow at risk projections as a result of the changed portfolio is. From recollection I don't think it changes much, but perhaps you can give a little bit more sight on that?

It actually has a smoothing effect -- a further smoothing effect on the volatility, because what you're doing is you're increasing your US dollar cost base. So that provides a diversification from Australia heavy cost base. It also provides a commodity that's not directly correlated to WTI, so in itself provides an another smoother.

So if you add Petrohawk, and if you add Fayetteville, and you look at the projections of growth in those two -- or potential growth in those two, it's actually a further smoother on the volatility of the cash flow.

Thanks Alex. And to the GoM question, obviously I can't answer any questions on Thunder Horse; that's not in the public domain. But I think that, clearly, production drilling activities have not recommenced on the Mad Dog and on the Atlantis projects for us. I think Mike is working one piece of exploration drilling on Mad Dog.

But Mike, beyond those comments I don't know if you're on the line, and if you want to make just any additional comments?

Well, Marius, I just would remind Heath, and everyone, certainly being the first company back out there drilling producing wells, we're very proud of that. We've now -- our first producer that we put on line, and we told you about 17,000 barrels per day at Shenzi. We're just about to finish up the second producer there, so -- and that'll come on line in the next three or four weeks and that'll be in Shenzi also.

So one of our rigs is back drilling producing wells, and back in the game there in a big way. And as Marius says, we are operating right now over in the BP Mad Dog field ourselves and drilling a step-out well there that has -- that we're very optimistic about adding more resources to Mad Dog. It's not yet finalized and all, but we're very optimistic about adding to that large field.

But overall, Heath, the BP rigs are not yet active, and that's something that we're working with them on and hoping to get their operations back moving here soon also. That does have a big impact on us and we're looking forward to their return to the fray, and we're doing everything we can to help them.

Marius, that's about all I could add.

Thanks, Mike, that was very useful. Clare, may we have the next question on the phones please?

Grant Sporre, Deutsche Bank Research.

Just one question. It's really to do with -- you used the phrases high grading CapEx and certain ceilings when it comes to spending CapEx. I wonder if that applies to your general outlook on the portfolio. So do you -- would you have the same sort of vision in terms of high grading your portfolio?

And also, previously when talking about your portfolio you used the terms of management capability, and there were certain limits which you felt the organization could manage. I just wonder in light of the Petrohawk acquisition if those comments apply, and if you could comment on that please.

Yes, Grant, we're very cognizant of the what we call the limits of management capability, which is why if you look at, particularly, our capital deployment I think it's very disproportionately going into things where there are billions, if not tens of billions, of dollars of investment in a single place. And that scale would have been reasonably dramatically increased over the last 10 years.

I don't think that we would have answered that question in exactly the same way 10 years ago. So there has been a further defining and refining of what can management manage.

Grant, our portfolio, over time, has continued to simplify. I was just reflecting the other day on things like highland copper, Suriname alumina, Ravensthorpe, Yabulu, Manganese Metal Company, Zululand anthracite collieries, chrome, long products, flat products, a little ahead of the -- prior to the merger, stainless steel production, and so on.

And while those disposals may not have been reason -- very, very large from a sales price [move], I think we've sold on the order of $7.5 billion worth of -- depending on how you value the steel spin-outs. But I think that you should have every anticipation that that portfolio, over time, without wanting to signal anything in particular is going to continue to be concentrated, continue to be high graded and continue to be, in particular, focus on deploying new capital in the very largest of assets.

Thanks very much.

Clare, one more question on the phones and then I'll loop back here to London.

Caroline Learmonth, Absa Capital.

Could you please give some guidance on the longer term? So on a five-year view or beyond, what would you see as the ideal business mix, profitability mix in terms of your different commodities, and, in particular, oil and gas versus other? And how are you planning to get to that ideal mix? What would be the split between your organic pipeline, which you've talked about in some detail, versus potentially more M&A?

And then the second question, on the progressive dividend policy, should we assume going forwards that that will be the focus rather than further share buybacks? Thank you.

Let me talk about the third element, buybacks versus dividends. And Alex has spoken about our three-point plan for cash; grow the business, maintain the balance sheet, return surplus cash. If you actually peel back that final point, it's got two components; grow the dividend and then return surplus cash.

We've got to take a decision to grow the dividend, our progressive dividend when we are very, very certain that we can increase that dividend in a sustainable manner.

So the way, Caroline, that I would differentiate between the difference between a buyback and a dividend is that the one we are confident, not supremely confident, because there's always uncertainty, but we are confident that like we have done for the last 100 years, that when we increase the dividend, we can maintain that dividend.

A buyback is something where there is some form of unexpected surplus that arises because of high commodity prices or some other event, which is temporary in nature, defined and that is the money that we channel into a buyback. So that's how we look at those two things.

From a mix perspective, we accept that the portfolio mix will change over time as we invest -- differentially invest capital in different places. I think that our investors sometimes linearly talk about product mix whereas for us, we look at all of the elements of mix; customer, production, geography, stage of economic development that the asset will play into, market that it services and so on.

So rather than looking at a two dimensional X/Y chart of what the commodity mix is I would rather say that the way that we look at mix and diversification is on all of those dimensions simultaneously. And therefore, each asset is different, because it's different in operating geography, product, maybe market that it services, our operating functional currency, and so on and so on.

Having said that, we've probably never given real guidance to your specific oil and gas question in a numeric format, but we have said that up to one-third of total profits, or maybe even a little bit more, adding oil and gas to the mix, but obviously depending on what the particular characteristics of the project are, tends to continue to compress cash flow at risk, which Alex has just confirmed with the Petrohawk acquisition.

And obviously, stable cash flow at risk in addition to that -- or stable cash flows as evidenced by cash flow at risk in addition to all of those diversification metrics, which we translate as don't have all of your eggs in one basket, obviously complement each other. Thanks, Caroline.

Great. All right. Thank you.

Perhaps move back here to London and take some questions from the floor here?

[James Gary] here from Credit Suisse. I just want to ask about Olympic Dam. I think the fiscal agreement with the South Australian Government might be due to be completed soon. Can you just talk about that and whether you've got an optional arrangement there?

And given the five to six years of CapEx, is there any potential, and I think you mentioned a couple of years ago, that there might be some, potential to get early production before, say, cutting into the ore body early?

And just also back quickly on the Gulf of Mexico. Given the situation with Mad Dog and Atlantis, you've probably taken on a little bit of risk with the shale acquisitions in terms of just dealing with the local communities and the like. And just would you be prepared to take over operational management of those projects if the opportunity arose?

On Olympic Dam indenture agreement, I can't comment beyond where I think the South Australian political system has commented, which is that there has been years of work and very, very substantially all of the elements of that agreement are in place, as you would expect, for something which we hope to finalize in the not too distant future.

Now obviously, there's still some work to be done but there has been a very extensive body of work really starting six years ago and then continuing to date. So I think I can just reiterate what both sides of the political system in South Australia has said and confirm that.

In terms of early access of tonnes, no, not possible. It pretty much takes, and I'm looking at Andrew here, the four years to get down to top of ore that it takes. And if you put more shovels and more trucks into the pit, you are more taking decisions on the ultimate pit production rate in addition to your sink rate, so there's not a lot that we can do to accelerate there.

In terms of your third question on communities and shale gas, I wasn't sure that I understood all elements of it, so I'll get back to you, but let me make two comments. One, it's often forgotten by many of our analysts, a lot of analysts that cover our stock come more from the mineral side of the business. In the mineral side of the business, the preponderance of royalty agreements are agreements between companies and a government of some kind, a state government, a regional government or a national government.

What is very important to note in the assets that Mike has acquired in the two tranches, so that would be Fayetteville, [Beauja], Haynesville, Eagle Ford and so on, these are all in locations where private mineral rights exist, on the order of, Mike, help me here, between 12% and 20% net revenue royalty rights, which makes the communities' investment. They are free carried investors in your -- that is a very, very different dynamic when you're seeking access for somebody on a farm which -- where you've got to use some of the surface rights and that farmer or rancher, I guess is the correct word, takes a 20% royalty as opposed to some other locations where there is a not lot in it for the person that is going to have some people trundle over land, so very important thing.

Wasn't sure I understood particularly the operatorship issue, because I think we specifically acquired the -- both the Chesapeake assets as well as the Eagle -- as well as the Petrohawk assets, because of the high percentages of the ownership in the wells and in the areas, and the high percentage of operatorship that these two transactions bought, plus the organization, obviously, that we acquired. But let me just clarify that I answered your questions again.

Well, I just wanted to make the point that given Mad Dog and Atlantis seem to be slowing down, or the rates of decline are rather fast, if there was potential for you to take over operatorship and possibly speed up production there. Is that something that you would be prepared to take on?

Well, we've got a got a very cooperative relationship with BP. I think the fact that Mike is doing some work on Mad Dog illustrates that the partners are true partners. But that question is best addressed to BP. As it sets its strategic priorities, it would be inappropriate for me to speculate on that.

First question was on met. coal, whether you could help us quantify beyond the volume impact what would have been the one-off costs of the floods for the year?

And my second question is on base metals, also on costs, to get some color on the breakdown of the cost impact, particularly in H2, if anything was more impactful? I'm thinking more like energy price pressures in Latin America.

I don't know if I can add much value to those two questions. But Alex, I don't know if there are any specific comments that you could break out on base metals' costs, or whether we've given any guidance on how the flood costs will continue to impact Bowen Basin met. coal production costs?

I pick the first question on the met. coal and I'll ask Sylvain to repeat the second one.

But on met. coal, the impact up to June 30 is reflected on the results. There is the full metric impact of $200 million or thereabouts. And there is also efficiency in terms of reconstruction work and additional costs of about $100 million. So that's up to June 30.

Since June 30, you've seen the production rate, it's still impaired. And when we produce the first quarter results, they will be published in September, we'll give you some indications of what level of production is coming out of met. coal and what you should look forward, in terms of this loss production.

Can you repeat the question on base metals, Sylvain?

Costs inflation, any observations in Latin America; so Chile, Peru, things like that that stand out, Alex?

I think the area that stands out in South America is no different than the one that stands out here in Australia, which is the labor market. I think even in countries where you have high unemployment rates, like Brazil, the qualified worker pool is very depleted; and you've seen yourself investing in training. But not only the extra cost that comes with labor negotiations and bonuses, as you've seen, but also a decrease in productivity that you're seeing on this workforce. So it's actually a double whammy that's happening there.

Then perhaps [Brendon] can help a little bit afterwards as well.

Let me take one more question here and then I'll move back to Alex; and we have a question here in the middle I think, thank you.

Marius, just to talk about from a strategic perspective; we have seen the red flags intensify in the energy space with regard to the public debate challenges, both in uranium earlier this year and then now also the contribution of carbon to global warming, particularly after the start of the test case between Xstrata's Wandoan and potentiality, and Friends of the Earth.

I was just wondering how you would see, what your thoughts are in terms of addressing rather than -- and what the challenges are for the mining industry and how they can take that on ahead?

A little difficult to generalize, but let me step back.

Modern life consumes more energy. That's the convenience, that affluence buys us in terms of having heated homes, travel and comfort. And obviously, the world is working out how to minimize the energy usage at a given standard of living through efficiency, technology, and so on and so on. But energy usage grows, all else being equal, with GDP, because people consume more energy as they try and be more comfortable and live a modern life.

In that context, the world will make energy choices. And what I always say is the world has pretty much used copper for various applications for the last 5,000 years or so. But we moved through wood and whale oil in a relatively short period of time, which means that the choices that the world has to make in the energy space are more dynamic than perhaps the choices it has to make on the metals side.

Or perhaps the metals usages patterns are such that, while there are slight changes in consumption rates differentially between metals, there's not widespread one metal completely pushes out another one; where in energy, that has happened and will happen again. We don't know how those things will happen. But there is no energy source I think at the moment that is entirely issue free.

On the one hand of the spectrum, you've got land asset issues and carbon intensity on coal. You've got land asset issues and other environmental issues to be addressed in the gas space. You've got geopolitical things in the liquid field space. And on the uranium side, you've got various issues around the nuclear space.

Our general view is that we try to be in all of those energy spaces. We try not to put all of our eggs in one basket. I think, on balance, our capital allocation will probably be somewhat skewed to lower carbon fuel sources over time, not that we will stop investing in energy coal, quite the contrary.

But if I look at the total portfolio investment basis, lower carbon fuel is probably likely to go up as a proportion. And our basic strategy is just to continue to adjust to invest in patterns as we go along. That probably doesn't give you a lot of additional insight, but that's how our strategy works as a Company.

Alex, let me just hand back to you for a couple of questions?

You can go first, Glyn and then Neil.

Two quick questions. Firstly, if I just do the quick math, $30 billion of operating cash flow, I think that's what the market thinks you'll generate next year as well. You've got your CapEx. You've got the dividend adjusted up; plus the Petrohawk as well. That pretty much consumes everything you've got, hence, no buyback, I appreciate that.

But are you comfortable at that sort of gearing level, given the uncertainty that's out there? It was only two years ago things halved or even greater than that. The world doesn't feel great. Are you comfortable with the level of gearing at this level, given your CapEx spend? Or is there a risk we may have to shelve something that's in the $80 billion program to squeeze Petrohawk in? That's the first question.

And I guess [it leads to an equity question] --

Let me try and answer that, Glyn, and I'll get back to you and I'll leave the mic open then.

On the gearing, we are comfortable that a 27% post Petrohawk acquisition, 27% gearing. The economic environment that we see there, i.e., the range of potential outcomes and our desire to be a strong A is not incompatible. So that's how I would describe it.

Comfort is always a strong word, but we think that where we are is consistent with what Alex and I have always said in terms of gearing levels at particular points in the cycle, and so on and so on.

I think that we will have to revisit that decision in six months' time. But I do not see any knock-on effect on CapEx programs, and so on and so on at this point in time, other than the normal capital allocation decisions, which we make every day, which is to try and put as much capital into the best projects. But clearly, we have not digested in our internal planning on a five year basis what comes out of Petrohawk and what we've got in the current portfolio. But no, you should take no read from this discussion today that there is either any desire to decrease or increase from what we've said before, Glyn.

And the second question?

Yes, the second one is, the plc, just interested in your thoughts. I imagine it probably comes up for discussions regularly, but it's now up at -- 30-plus-% it's been out to. Does it worry you at all, or is it just a fact of the market, or if it goes to 40% for whatever reason, does it become an issue? And why do we have the plc? What is the plc giving us at the end of the day?

Obviously, a topic that has, not only at Board, but get's discussed regularly between managers. Alex gets particularly annoyed about the blow out in the spread from time to time, but our view is that the market capitalization of the Company overall is the market capitalization, and it's a question of whether you see it as a premium for limited or a discount for plc.

Our conventional view is that if you put the two together you wouldn't change the market capitalization of the Company, so given where you are at a particular point in time that will transfer value from some shareholders to others. But we shouldn't look at that total -- we shouldn't look at there is a value creating opportunity on a net/net basis by putting those two things together. Basically, if you put white and red together you going to end up with pink is how I look at that.

And from a total perspective, I continue to believe, we continue to believe, that having -- I live by the Paul Anderson mantra, which is we should look at this as a net benefit not a net cost, because, over time, you'd never know when you were going to be able to use UK paper. And I think we're comfortable with where we are based on that.

Now, first Neil here, then we go to Tim.

You talked in the presentation a bit about the lagging costs --

I'm a little worried, Neil; Alex didn't seem to recognize you there for a few minute, so.

You talked about in the presentation about the lagging costs that you've seen, and you've included a chart which just shows a rate of cost change has been a little under 5% last year, and nothing the year before, but 9% the year after. Are you alluding to the -- you think costs -- and these are not including foreign exchange rate moves, are you alluding to you think costs are going to increase in local currency rates a lot more that the 5% we saw last year in the coming year.

It's important that we just reflect just on what that chart shows that you're looking at. It's the -- Alex will probably scold me for this; it's the [super] inflation chart. So it's the chart that excludes currency and excludes the general inflation rate in that country, and that is a specific inflation on top of that.

It's meant to be a measure of what additional cost pressures, outside of general inflation and outside of currency-related moves we get. And that's important to understand that in the first instance. The chart is produced to give you insight into how we see costs, not to look at the total cost efficiency of the Company, which we present in different ways.

Having said that, I think Alex and I are very clear in our communication that the price rises we've seen on our revenue side lag by between six and 12 months, and we're going to see them on the cost side in due course.

And, Alex, I don't know if you want to add to that.

No, the five years have paid out, Marius; that was the perfect explanation. It takes time, but we just want to alert so you're not surprised if you see a squeeze coming there, because the things that we produce and a great deal of the things that we consume, just through the production chain and the value-added chain takes a while to hit us back.

And the proportion of price variation that you saw this time in terms of the increasing EBIT to the proportion of cost is not normal. So that means that there is cost coming in the system.

I sometimes read in the broader industry that people say prices are going to go up and costs are going to be moderated; not true. We don't live in a world of suspension of belief. If prices go up, producer currencies are going to go up, and my input costs are going to go up.

And we are going to work unbelievably hard to have the best resources, with the lowest unit usage of these things, and so on, and so on. And have most of the price movement fall through to the bottom line, try and variable-ize. But the reality is if my revenue loading goes up, my cost line, as expressed in US dollar terms in particular, is going to go up as well.

I've just got a question with respect to exploration spend. In total, you're looking to spend next year -- or this year now, about $20 billion, and I understand something like 75% of that will be in growth capital. So of the remaining $5 billion I understand about half will be sustaining and about half on exploration. So to be spending $2.5 billion on exploration, can you give us a little bit of insight into the split perhaps between oil and minerals?

And, also, just your philosophy on the minerals exploration; there was a time quite a few years ago when you were willing to spread your risk with financing the juniors. Maybe you could comment a bit on the minerals exploration philosophy and level of spend? Thank you.

Tim, I'll ask Alex to just comment on that split between minerals and petroleum for just a second. If you split the $5.5 billion and say it's $2.5 billion of exploration and you split it in half again, you're probably not far off the truth. But I'll ask Alex to put that in less engineering terms, than I just did.

If we look at the --

Tim, we didn't the split, but Marius just got you probably close to where you want to get any way. But it is -- what you have to understand is probably not too far from where you are.

But the minerals one encompass not only the greenfield exploration, which is actually a small portion of the whole, but it's mostly the brownfields exploration. And you saw there increases in resources at base metals; you saw the ones in iron ore. So it's part of a program where we have now for several years that we are really looking at the back yard and bringing those resources into our tables.

On the petroleum side, what you see -- what you saw this year was a depletion of exploration numbers, because of the moratorium in the Gulf of Mexico. So what you see is we're picking up on next year where we left before the moratorium. So it goes back to that $1 billion plus -- around the $billion level petroleum exploration.

Yes, Alex, just on that last point to comment. When we have the petroleum exploration, it's from memory $500 million or so, $550 million for the half -- for the year. That is not only the moratorium in the Gulf of Mexico, but also the knock on effects in some other jurisdictions where there were some delays as well.

And just to emphasize the point that Alex made. The majority of our minerals exploration is [on running] -- I'm looking at Andrew; 50 drill rigs at Escondida, 40 draw rigs in the Pilbara, and so on, and so on.

Andrew is modestly ramping up the greenfield exploration spend, working things like [Chubliac] West Musgraves, and a number of other programs that he's worked on over time, which is now going into the drilling phase. But that is a relatively modest increase. And probably our greenfield to brownfield ratio over time is something like 75%/25% of that order of magnitude on the minerals side.

Alex, perhaps one more question.

You flagged the Outer Harbor as a significant part of that original $80 billion over five years CapEx program. You've also this year succeeded in protecting your existing infrastructure in the Pilbara, in terms of operating capacity and denying others access to that capacity, given that it is operating at capacity.

I just wonder, in terms of the Outer Harbor, how you see the potential for requests for access to that particular infrastructure when up and running; and what kind of strategic position you believe you come from, in relation to any such requests. Thank you.

Lee, difficult to comment on something which hasn't happened yet, but our general approach would be he who takes the risk should have the return. So I probably don't want to go beyond that; going anywhere beyond that is probably speculation on my part. But clearly, situations where one party takes the risk and another party benefits, [alters] investment decisions, and I make that comment in a general sense, not only in the Outer Harbor sense.

Let me go to the telephones, Clare, if we can.

[Tony Rosito, Darman Rowe].

I was wondering if you could comment a little bit about --

Lyndon Fagan, RBS.

Just a quick -- going back to Port Hedland, there's been a review Price Waterhouse --

Jeremy [O'Keith], Millennium.

[Just on the Petrohawk] transaction, I was wondering in terms of the capital structure, how you guys are planning to address --

Jeremy, it's Marius. We've got a lot of bounce on your line. I'm going to try and answer the question, but you will have to speak very slowly and very deliberately.

Sorry, Marius. Is this better?

Yes.

Okay. That was just another question on Petrohawk. I was wondering how you guys are planning to address the Petrohawk bonds that are outstanding, and if you're planning to call them, if you're going to use the equity call or not?

Jeremy, no plans at this stage, but I don't know if Alex wants to add additional comment on that.

Okay, he's quiet, Jeremy. He's not going to say a word, which probably means I've already said too much.

Clare, if we can have the next question, please?

We have no further questions on the line at this time, Marius.

Thanks. If we can move to London and I'll take a final couple of questions here in London, right at the back, perhaps.

Just a couple of questions; quickly, on your $80 billion CapEx profile. A lot of this will be enabling CapEx, so returns have been great for the last five years. But what is the [RR] agenda, spread roughly on the $80 billion in your -- using your long-term projections.

And then secondly, perhaps also looking, thinking about the CapEx on [on the length of permit], some of these appraisals that you've done in the past have been pre the EIA approval, and therefore you haven't been able to make re-assessments for the CapEx spend on that. Is there any assessment already internally, of what kind of CapEx over-runs we could see in -- projects like that.

And finally on the CapEx side, it's just a philosophical question; I know you don't hedge the revenue side. But CapEx costs have clearly gone up, and you expressed anticipation of further increases of that, and potentially a currency-related increase. Is there any thought on hedging CapEx plans, going forward?

So let me answer those in reverse order. We do hedge the CapEx. We hedge that by investing throughout the cycle, and we hedge that by investing in different geographies. That is ultimately the way that we think about it; we have no plans at all to go to the currency-hedging of CapEx programs. We're going to continue to give them to you in US dollars, manage them mostly in the local currency, and take the currency risk there, because we think that it's the portfolio and the strategy that ultimately, over time, plays out.

In terms of CapEx revisions; internally, yes, in Olympic Dam there is a team which is engineering, doing the definition, which is a lot of the front-end engineering and design for the project. And out of that engineering and design, concurrently with that, we are doing the costing, so that when we get to the point of sanctioning we will have an update.

But we never put out capital estimates ahead of sanctioning. Simply put, because you become a hostage if prices of products are high, and operating currencies are high, CapEx changes. You're happy with that CapEx, but if you put it out when product prices were low and operating currencies were low, you immediately profile as having had a blow-out before you've sunk a penny. So over the last 10 years we've just realized that the only place to put out a number is when we sanction a project.

Yes, on your first question, there are, what I would call, flag-fall investments here. Clearly, in the Outer Harbor you are going to amortize some infrastructure which is capable of doing 200 million or 250 million tonnes of iron ore, over a production profile that will only over time ramp up to that. That's one element.

The second element is the pit at Olympic Dam, to get to that constant strip ratio over time, that moving about 1 billion tonnes of material, is a sort of a pre-investment over a 100-year mine life.

And then the third element of flag-fall is probably in the -- to a lesser degree is some elements of the Bowen Basin expansions have that nature as well.

And the fourth element is the shaft system, in particular at Jansen, where you're building the surface plant in 2 million tonnes module increments. But on day one you're basically putting a port in place, that can handle the entire capacity, and you're putting a shaft system in, that can handle four modules in total. Those concretely, those four elements, really constitute almost all of the enabling things.

The way we look at that is that we cannot run a portfolio that has only got brownfield investments. Those things effectively, if we leave out the Bowen Basin, effectively are the three big greenfield-type investments that we're making. We're comfortable with the total level of flag-fall contained in the $80 billion.

And I would say that for a portfolio as a whole, we haven't really adjusted about a 10-point differential between brownfield returns and greenfield returns. Historically we've said 15[%] and 25[%]; I don't -- I'm not aware of any work that we've done that either pulls those two further apart of compresses that.

Okay, can we just get a signal on time here? So -- so let me take one more question, here in London, perhaps? Hi, Nick.

Marius, it's obviously early days in terms of Petrohawk, but in terms of the personnel that you've retained there and also at Fayetteville, are there any synergies that you haven't anticipated? And what sort of implications could that have for operating costs and operating skills, going forward?

Nick, I would say that Mike would describe this as an addition to the portfolio, not a combination. And he uses those words, because if I describe something that was a combination, it would be add WMC to the Minerals business; strip out all of the overhead, synergize between various things and so on.

Mike would very much characterize these two acquisitions as an addition to the portfolio. Clearly, we believe that they are long-term skills that we will build on top of what we've bought; but I don't think that we anticipate any combination synergies at this point in time.

For us, the real thing will come to what extent we can continue to get the drilling costs per well down, the recovery of resource down and, hence, the units of -- and continue down that experience curve, as the gas industry has continued to do over the last couple of years. That really is where most of the effort and most of the people investment will be made.

Okay, I'm going to check one last time on the phones if we -- we perhaps allocated a little bit too little time to the phones, let me check one last time on the phones if there are any more question, and then I think we will close after that.

Marius, we have no further questions coming through from the line.

Okay, Alex, any last question?

One last question here, Marius.

Just to finish off, still with Petrohawk; I notice on slide 18 you've given GDP estimates out to 20% to 25%. And if you look at developed market, it's rather anemic, at just about 1%, of which the US is obviously the largest economy.

I'm just wondering, in this type of environment, how Petrohawk's going to make the returns that you need, given that sort of economic backdrop. Or is this really going to be a story about trying to reduce costs, given that prices may not appreciate terribly over that period of time?

Then second to the Petrohawk question, is in terms of maybe getting some early runs on the board, are you looking to try and bring in the Permian in the next couple of years, and drag out some liquids?

Craig, perhaps a couple of things. One, over time the world will arbitrage calories better. Our immediate forecast that we made when we acquired the assets, basically, took our conventional price protocols, which you know how they work. We essentially take forward markets for the traded periods that they're available and visible, and then we transition them to some long run price.

I should be at pains to point out that to counteract that, normally acquisitions that we make is not predicated on some step change in prices and so on. So that's point number one.

Point number two, is in a diversified portfolio, two of the benefits that our balance sheet brings is what our cost of capital is, relative to what an explorer's cost of capital it.

And what our ability to fund is through the cycle versus what an explorer's -- and I use the term explorer just to draw out the nuances. Obviously, Petrohawk is a producer as well. But at the extreme, an exploration company's got a very high cost of capital and no ability to fund, whereas a diversified player has got a low cost of capital and ability to fund. That financial synergy clearly plays into that and it's manifest by Mike hoping to drill at a rate that Petrohawk wouldn't have been able to drill on its own.

Simply put -- in simple terms, Petrohawk was, I think, investing more in drilling than its revenue line. That's not a sustainable situation forever. That's why they sold equity six times and they had, I don't know, a dozen sales' transactions of assets. So that's the second thing that I would point out.

And then the third thing is this industry has been on a cost reduction and efficiency improvement experience curve over the last couple of years. Our anticipation is that that has not yet been completed and as this has turned into an industrial process, with replicability, continuous improvement learning and so on. So we expect that experience curve to continue to progress, Craig.

So if you take those three things into account, in particular, not taking a huge view on prices, we -- that's how we evaluated this acquisition. And cognizant, importantly, of what our unchanged view, and I see Jason smiling here at me, on low OECD growth rate has been. And somebody asked us three years ago, what is your view on world recovery, is it V, is it W and so on, and we said, it's L; it's down and then stays there for a long time in the OECD. And we really haven't changed our view over that period of time. So that went into the acquisition of Petrohawk.

Okay, I think we're just about complete. It's been our pleasure to have you here this morning.

In summary, we think it's a strong set of results. We're laying the foundations for continued long-term diverse growth in the portfolio, which will give us more opportunities for value creation. And we thank you for your time and attention there this morning. Thank you.

This concludes today's conference, ladies and gentlemen. If you would like to hear any part of the call again, a recording will be available shortly. Thank you for joining, you may now replace your handsets.