必和必拓 (BHP) 2015 Q4 法說會逐字稿

Welcome, everyone, to our 2015 annual results presentation. I'm here in London and Peter Beaven, our Chief Financial Officer, joins us from Melbourne.

In a slight break with tradition we don't have any of the business presidents with us, either here in London or in Melbourne. Dean Dalla Valle, our Chief Commercial Officer, is with Peter but our business presidents have been given a couple of weeks off from doing this normal chore of investor presentations and roadshows. And they're all in the field driving safe productivity. I hope so. That's what I asked them to do.

But anyway, let me point you to the disclaimer and remind you of its importance to this presentation.

And so, a bit on the structure: I'm going to provide an overview of our strong operational performance and the solid financial results that we've just reported for the 2015 financial year.

Peter will then go into that in a lot more detail and then I'll share our outlook for our commodities and explain why we're well positioned, both to fund our dividend and continue to grow through price cycles.

Our productivity drive has generated strong cash flow. It's funded the dividend, reduced our net debt and we continue to invest in everything we said we would do, in growth.

We are confident in the future demand for our commodities. Cycles are part of our industry and that makes it easier for large, low cost producers like us to move away from our smaller peers.

Improved productivity has stretched the capacity of our existing operations and increased volumes at very low cost. With the prospect of much more to come on this front as we fully realize the simplicity premium of the South32 demerger.

We've also cut the capital required for growth but we remain focused on value and we will only approve projects when the time is right.

Now, before I go into the details of our performance, I do want to reflect on our most important priority, which is the health and safety of our people.

We're all deeply saddened by the tragic loss of five of our colleagues in this past financial year at Worsley Alumina; Olympic Dam; Blackwater Coal; Manganese South Africa; and Escondida. These fatalities have had a permanent impact on families, friends and our workforce.

The health and safety of our people must come first and so across BHP Billiton we've interacted with the whole workforce to reaffirm our commitment to their safety and wellbeing, and to insist any work that is unsafe must be stopped.

It is vital that we all remain vigilant to make sure that all of our colleagues return home safely every day. Nothing matters more.

In the 2015 financial year all our commodities had lower prices. Nonetheless, our operational excellence and the flexibility and increased capital efficiency of our investment delivered robust results and our margin remain the best in this sector.

Our strong cash flow from operations not only secured our dividend and growth, it also kept our balance sheet strong. Underlying EBITDA decreased by 28% to $21.9 billion; net operating cash flow by 25% to $17.8 billion; and free cash flow by 26% to $6.3 billion.

But in spite of this, we've increased our progressive dividend by 2% to $1.24 a share. And at current spot rates this represents an increase of 28% in Australian dollar terms, or 12% in sterling.

We've reduced capital and exploration expenditure by 24% to $11 billion so that at the end of the period our solid A credit rating remains intact and net debt had fallen by 5% to $24.4 billion.

Our production performance has continued to improve and we've delivered production records for iron ore, metallurgical coal and petroleum. And our copper production was unchanged as strong performance at Escondida offset the impact of an unplanned mill outage at Olympic Dam.

Since the 2013 financial year, total production from our core portfolio has increased on a copper-equivalent basis by 27%, which was well above our guidance. And the latent capacity within our core businesses and the capabilities of our people will carry this momentum forward.

In the 2016 financial year, productivity will be the only source of volume growth at Western Australia Iron Ore where volumes are now forecast to increase by 7%.

In the Black Hawk and the Permian onshore oil fields, where we acted decisively in the face of lower prices to reduce annual investment by over 50%, improved recoveries and lower drilling costs will deliver stable production.

The unique advantages offered by our simple portfolio and our integrated model have reduced costs faster, further and more sustainably than our peers. And from their peak, our average unit costs have fallen by more than 30%.

In the 2015 financial year at Western Australia Iron Ore we delivered a 31% reduction in unit costs, which fell to just $17 per tonne in the second half of the year. At Queensland Coal we reduced operating costs by 23% to $65 a tonne, and at Escondida we lowered unit costs by 8% to $1.07 per pound. And finally in our onshore US business, Black Hawk drilling costs declined by 19%.

These are outstanding results and they reflect our unrelenting focus on productivity and costs, and there is much more yet to come.

In the 2016 financial year we will continue to reduce our costs so that at Western Australia Iron Ore we now forecast unit costs, before freight and royalties, of just $15 per tonne.

At Queensland Coal, we expect unit cash costs to fall to $61 per tonne, despite the loss of low cost Crinum production which becomes exhausted. At Escondida, on a grade-adjusted basis, we expect to reduce unit costs by 15%. Lastly, in the Black Hawk, we expect drilling costs per well to average just $2.5 million.

We've built a strong track record over the last three years and delivered productivity gains of over $10 billion and we'll continue to deliver lower and lower costs as we run our operations more and more safely and more and more efficiently.

So I'm now going to hand over to Peter, who will talk to our financial performance in more detail and then I'll come back and talk about the outlook for our commodities and our opportunities for capital-efficient, high-return growth.

So welcome, Peter.

Thank you, Andrew. Our quality portfolio and continued focus on productivity across our operations has underpinned another robust set of results. Despite challenging conditions and a significant decline in commodity prices, we increased our dividend, we reduced net debt, we cut costs faster than anticipated, we've maintained our sector-leading margins and we generated strong free cash flow.

Looking at our financial performance on a continuing operations basis, excluding South32, there are four areas I'll cover. To start, I'll present our usual EBIT waterfall for the Group and for each business. I'll draw your attention to a few specific items in our accounts. I'll talk to our ability to generate free cash flow through the cycle. And finally, I want to highlight the strength of our balance sheet.

We've divided our EBIT waterfall into uncontrollable factors on the left and controllable factors on the right. Weaker commodity prices alone reduced underlying EBIT by a considerable $15.2 billion. Now, putting this number into context, it's approximately two-thirds of last year's EBIT.

Inflation reduced EBIT by a further $433 million, although this was more than offset by a favorable exchange rate.

Macro conditions have made for a challenging year, but we continue to achieve outstanding results in the factors that we can control. In total, these factors contributed $3.8 billion to EBIT. A 9% rise in copper-equivalent production, increased EBIT by $3 billion. Growth volumes contributed $1.8 billion, while better productivity for no capital cost added $1.2 billion.

Our relentless focus on being the best and most efficient operator across our businesses reduced controllable costs by $2.7 billion. In total, our productivity efforts added $4.1 billion two years ahead of target and we see much more to come.

These solid results were partially offset by an increase in non-cash charges, which reduced EBIT by $1.3 billion and this includes a number of items that I'll cover later in this presentation.

Now, to each of our four pillars in turn. Our petroleum business delivered strong performance, contributing $1.9 billion to underlying EBIT, despite lower prices across our product suite.

EBITDA margins remain high, 63%, and production increased to a record 256 million barrels of oil equivalent. It was partially offset by higher non-cash charges, which reduced EBIT by $639 million.

The rise in non-cash costs was a result of impairments on non-core asset sales and higher depreciation charges associated with the increase in onshore US liquids production. The rate of depreciation in our onshore US business will continue to rise as the production mix increasingly shifts towards liquids.

We've significant improved our capital productivity in petroleum. In just three years, we've become the industry leader in Black Hawk completions. As Andrew mentioned earlier, we're now projecting our Black Hawk drilling costs to decline to $2.5 million per well next year, a 50% improvement from the 2013 financial year.

We prioritize value over volume. We've responded to market conditions by decreasing our level of capital expenditure in the onshore US by over 50% next year. But we've preserved our ability to ramp up production both quickly and efficiently as the market improves.

Now to discuss improving productivity in copper. Lower costs enabled this business to contribute $3.4 billion to underlying EBIT, despite the impact of weaker metal prices. With EBITDA margins of 49%, the strength of this business is clear.

Our operations continued to improve productivity, with lower controllable cash costs adding $1 billion to EBIT. Unit cash costs at our operated copper assets declined by 14% during the year.

At Escondida, an 11% increase in truck utilization supported an 8% decrease in unit costs, excluding the impact of Escondida's voluntary redundancy program. This is a one-off item. Its implementation has reduced employee headcount by over 20% and will sustainably lower the fixed cost base.

This unit-cost reduction is even more impressive given water restrictions, industrial action and severe wet weather conditions we experienced.

Non-cash charges reduced EBIT by $839 million and reflected higher depletion and deferred stripping amortization, in line with increased material mined. It also included a $199 million asset impairment at Cerro Colorado, reflecting permitting uncertainty for the proposed mine life extension and lower copper prices.

Now turning to the exceptional margins in iron ore. The quality of this business continues to underpin free cash flow generation, despite the 41% fall in average realized price. EBITDA margins remain outstanding at 59%, supported by our continued focus on efficiency.

Centralized shutdown management has significantly improved the availability of our ore handling plants, which have typically been a bottleneck at the mines. As a result, productivity volumes increased underlying EBIT by $823 million, while growth volumes from Jimblebar contributed an additional $1 billion.

We continued to make exceptional progress in lowering unit costs, with cash costs declining 31% to $19 per tonne this year, or $17 per tonne this half. Our focus on productivity will continue with a further reduction in unit costs to $15 per tonne anticipated in the 2016 financial year.

The quality of our ore bodies in the Pilbara, their concentrated position and lower strip ratio cannot be replicated and this is supported by a lower sustaining capital requirement of $5 per tonne. And I'd also like to highlight that this includes the minor investment at Jimblebar required to stretch out capacity to 290 million tonnes per annum.

On to coal where we remain profitable in a tough environment. Lower prices alone reduced underlying EBIT by $1 billion. However, our coal business still delivered EBIT of $348 million.

Queensland Coal's unit cash costs declined to $65 per tonne, and they're now more than 50% below their peak as improving productivity and reducing costs at all our operations continues to deliver substantial benefits.

This enabled our coal business to generate $500 million of free cash flow this financial year. It's an enviable position for many of our peers, where continued low prices across both hard coking coal and thermal coal are putting enormous pressure on much of the industry.

In the 2016 financial year, we expect unit costs to decline by a further 6% to $61 per tonne, representing an almost 60% reduction in four years.

Given the subdued price outlook, it's essential that we strive for benchmark levels of productivity. This will require everyone from leadership through to the front line operators to be focused on rapidly and safely lifting operational productivity.

Now I'll draw your attention to a few specific items that affected Group profitability this financial year.

Included in underlying EBIT are impairment charges of $828 million, of which $328 million related to onshore US non-core asset sales, $199 million to Cerro Colorado, and $79 million to Neptune.

Onshore rig termination costs of $123 million as we responded to market conditions, and deferred near-term production for future value; and as I mentioned earlier, costs of $188 million associated with the Escondida voluntary redundancy program.

In addition foreign exchange movements affected our financial results. While attributable profit included a benefit within net financing costs, this was more than offset by an unfavorable FX on our tax expense.

Our 2015 financial year results also include a number of exceptional items.

In the first half, we recognized an impairment for our Nickel West asset, and de-recognized the deferred tax asset associated with the minerals resource rent tax following its repeal.

Last month we announced a $2 billion impairment in our onshore US business. The gas-focused Hawkville accounts for the substantial majority of this, reflecting its geological complexity, its product mix, and amended development plans. Importantly, this impairment does not reflect the quality of our broader onshore US business.

And finally we recorded a $2.2 billion accounting net loss on the demerger of South32. This was primarily a result of the difference between the initial trading value of South32, and the book value of the demerged assets.

Moving on from other items, our improved operating and capital productivity supported free cash flow of $6.3 billion.

As I already highlighted, we delivered $4.1 billion of annualized productivity gains two years ahead of target, and our improved capital efficiency and flexibility has resulted in a 24% decline in capital and exploration expenditure to $11 billion.

We now expect capital and exploration expenditure of $8.5 billion in the 2016 financial year and $7 billion in the 2017 financial year.

The value this delivers, for example, is evident in our iron ore business. Although no major growth capital has been approved since 2011, we have continued to grow.

In the 2015 financial year productivity alone accounted for 50% of volume growth and in 2016 will be the sole source of growth. Despite prices declining by two-thirds from their peak, our margins were 59% in financial year 2015.

Against this backdrop, expansion of our low cost capacity has proven to be absolutely the right strategy. We're delivering strong -- we are delivering stronger margins today than the last time iron ore prices were at current levels, back in 2007. And yet we're achieving this with more than 2.5 times the level of production.

Our demonstrated capital expenditure flexibility, coupled with strong gains in productivity, allows us to protect free cash flow and preserve our strong balance sheet.

This best-in-class performance, along with our pipeline of high return, low cost growth projects underpins our commitment to our progressive dividend.

This year we increased our full year dividend by 2% to $1.24 per share. This equates to a distribution of $6.5 billion. This means we have now returned over $65 billion to our shareholders over the last decade.

This level of cash return is almost $35 billion higher than our nearest mining peer, and twice as much as any other company listed on the Australian Stock Exchange. It's a track record we're rightly proud of.

And finally to our balance sheet. Net debt fell to $24.4 billion at period end, for a gearing ratio of 25.7%. Simply put, our balance sheet is strong, and we remain committed to a solid A credit rating.

We operate in a cyclical industry, and we manage our balance sheet accordingly. A strong balance sheet has provided us with the confidence to increase our dividend, and to continue to invest in our business.

In conclusion, we've delivered another solid set of results, in a challenging environment.

Despite significant falls in the prices for each of our key commodities, we've maintained sector leading margins; we've delivered our productivity target two years early; we've demonstrated capital flexibility; we've strengthened our balance sheet; and we've generated strong free cash flow; and all this while continuing to invest in our growth pipeline.

With a strong set of results, we're confident that we'll maintain our disciplined focus on value, and commitment to returns to shareholders. Back to you, Andrew.

Okay, well thanks, Peter. I'm going to turn to the world's markets and the outlook for our commodities.

In the 2015 financial year the global economy grew at a modest rate.

In China, Government policy has recently cooled the property sector and some fixed asset investment, and it's also giving more weight to reforms that will bring about the transition from investment to consumption, secure jobs, and improve competitiveness, and importantly the environment. And this is all going to increase personal incomes, and grow domestic demand, especially for industrial metals, energy and fertilizers.

As we look at things today, there are signs that the Chinese economy has begun to bottom out, and that the second half will be stronger than the first. Longer term, in emerging economies other than China, rising population, wealth creation, urbanization, will all increase demand for all of our commodities.

We now expect Chinese crude steel production to grow more slowly, driven in the medium term by recovery in the construction sector as current levels of property stock are absorbed and by growing consumption by the machinery and transportation sectors. We forecast Chinese steel production to peak in the mid 2020s, at between 935 million and 985 million tonnes per annum.

The reduction, however, in the growth in demand for pig iron, metallurgical coal and iron ore will be less, because lower steel growth and a number of other factors will reduce the supply of scrap that competes with pig iron. Even so, prices will remain subdued and high cost operations will continue to be curtailed.

So at Western Australia Iron Ore and in Queensland Coal, as you've heard from Peter, we continue to increase the efficiency of our infrastructure to maintain competitive margins and stay at the very bottom of the cost curves for both iron ore and coal.

The copper and petroleum markets are still attractive, though, for long-term growth projects. Until 2018, new copper projects under development will keep supply and demand broadly balanced. But, thereafter, grade decline will trigger new brownfield capacity and, longer term, new greenfield projects.

In crude oil, the market is rebalancing; the rig count for US shale oil is now 50% below its 2014 peak and industry capital expenditure is forecast to reduce by approximately 25%.

Over the coming years, new capacity for the production of petroleum liquids will be required, since annual consumption is expected to increase by more than 1 million barrels per day, and annual supply is predicted to decline by 3 million to 4 million barrels per day. So that's 4 million to 5 million per day of additional capacity required.

Now to gas: although the US shale industry has, very successfully, unlocked large quantities of low cost natural gas, we still expect demand to increase and, over time, to induce higher cost supply.

We set our targets on value, with volume growth an outcome, not an objective. So as a result, we'll only pursue opportunities for growth at the right time. The quality and diversity of our portfolio, and its security of tenure across all our growth options, combined with the strength of our balance sheet, make possible such a flexible approach.

So we are confident that, towards the end of this decade, we will return to annual growth rates nearer our longer-term trend of [14%]. And this will be achieved, first and foremost, with expansions that deliver growth in volumes and free cash for very low to negligible capital, and achieve average returns in excess of 40%.

For example, at Escondida, the completion of the water supply project in the 2017 calendar year, combined with the extension of the life of the Los Colorados facility, will give us three copper concentrators to offset the impact of grade decline and secure a strong recovery in production volumes.

At Olympic Dam, the move into the higher grade southern mining area will deliver extra volume at low capital cost. In our onshore US business, we continue to increase our understanding of the Permian, where we now see ultimate production of potentially over 150,000 barrels of oil equivalent per day.

And as you've heard, at Western Australia Iron Ore, productivity alone will increase the efficiency of our infrastructure. And we now see the opportunity to achieve 290 million tonnes per annum without significant new capital investment.

Finally, at Caval Ridge, since the capacity of their washplant exceeds that of the mine, as their market conditions improve, just the addition of new mining fleet can expand the production of high quality metallurgical coal at very low cost.

Beyond these near-term, very low cost, highly capital-efficient opportunities, we have the financial strength to invest in our attractive suite of medium-term opportunities for growth, such as the development of the hypogene resource at Spence, or a low risk, modular underground expansion at Olympic Dam, and the Mad Dog phase 2 development in our petroleum business.

But to repeat, we will only invest when the time is right, because we have long-term security of tenure and can use this to take more time to further improve capital efficiency, and to reduce the cost of holding these important growth options.

The unrisked value of our growth portfolio under our long-term price forecast is over $40 billion. And its average rate of return for our preferred opportunities is in excess of 20%. In total, these plants can deliver at high rates of return over four times the copper-equivalent units that we currently produce at Escondida.

Our commitment to our progressive dividend is resolute. And this means that, in every half-year reporting period, we aim to maintain, or grow, our dividend per share. This is a commitment which has withstood many previous cycles and is, and remains, a key differentiator relative to our peers.

It is testimony to the quality and diversity of our assets and to the distinctive operational excellence and capability of our people. In this context, in the 2015 financial year, our cash flow from operations secured both our dividend and investment in growth. And our ability to deliver further improvements in productivity and capital efficiency underpins our dividend, balance sheet and future growth.

In the 2016 financial year, we now anticipate capital and exploration expenditure of $8.5 billion; that's $0.5 billion below the guidance I gave just a few months ago. But the in 2017 financial year, as Peter said, we anticipate further flexibility so that investment will decline to just $7 billion.

But I repeat, the increased capital efficiency that we've achieved means that these reductions will not, in any way, slow our planned growth.

Looking ahead, our quality asset base, further cost reductions and improvements to capital efficiency will generate strong cash flows, unlock high margin volumes, buttress our progressive dividend, and make sure we emerge even stronger from the current cyclical lows.

Thank you. We're now pleased to take your questions.

Jason Fairclough, Bank of America Merrill Lynch. Just briefly on growth and where to from here; if we look at consensus estimates for the next year, they're lower than consensus dividends. And if we look at your new CapEx numbers, they look like they're lower than depreciation. So it seems that you're paying out more than you're earning. You're spending less than you're depreciating, and yet you've still got this target in the medium term for 5% growth. How can I square that?

Well, you can square it by talking about productivity. We delivered $10 billion and that was before we actually demerged South32. We now are unlocking a substantial simplification premium to create more productivity, which means that, in capital terms, as you've heard an example from the Black Hawk, we can now do what we previously thought [we couldn't, we require] one unit for half a unit. And that allows us to continue to squeeze the capital we require to grow.

You've heard some of our production, our cost flow targets coming through, which are new today, so these are unit costs. And they're effectively a further increase in the 30% reduction in unit costs we've already announced, which gives us a bit more cash flow as well.

We do have a strong balance sheet, and it's even stronger as a result of repaying about $1.5 billion/$1.4 billion of debt that I think is on the upside of expectations. So I think this gives us the resilience to continue to balance our ability to look after the progressive dividend, to grow for the future, to maintain a stable balance sheet, and do it all safely.

Could I just follow you up on this? In terms of the productivity, could you talk a little bit about the extent to which you see the productivity as BHP specific, versus maybe just more general flattening of the cost curves across the industry?

Well, I think, when you compare our productivity to our peers, we're running somewhat ahead. And I think we are fully intent of increasing that distance between us and the rest of the cost curve so that we can, at least, translate some of that into higher margin and, therefore, higher returns for our shareholders.

Okay. Thank you.

Myles Allsop, UBS. A couple of questions. First of all, on the dividend, if you're not going to get credit by the equity markets and your dividend yield's almost 8%, why don't you go and have some fun and look at buying acquisitions? In oil, you may be able get some Tier 1 assets; in potash, there's potentially some assets and options there.

Should we assume that it's over your dead body that the dividend gets cut because you're so focused on it? Or could you see the Board changing their view on the dividend if the equity markets won't give them credit?

And then secondly, you mentioned around -- in the presentation, there could be $40 billion of hidden value from these untapped projects. Could you just give us a bit more granularity of what you're thinking of there and what assumptions you're making? And is that NPV? Because it's a huge amount of hidden value potential in the portfolio.

Over my dead body sounds a little strong but it's almost right. You shouldn't doubt the commitment of every single person who works for BHP Billiton to look after this progressive dividend after we've made sure our balance sheet's strong and our operations are safe. So it is a pretty strong commitment and one that we feel is a part of the compact we have with many of our shareholders. And we have fun doing it by the way.

The other sources of fun are still possible because of the strength of our balance sheet and what we've done. And, of course, we'll look at the possibility of acquisitions but we will not overpay. And for us, the bar is very higher for the type of asset we have. We've created this stunningly simple portfolio comprised of almost exclusively Tier 1 assets. I do not want to lose that focus by buying things which don't meet that standard.

So if a thing comes along and it's a steal, we'll be ready to move for that. But I think there are ways of doing that without compromising our commitment to the dividend.

So to the value, it's really just calculated on our prices, assuming that we execute everything that we've talked to you about. And that doesn't include, for example, things like exploration success at Trinidad. But it does include, of course, a second shaft that would allow us to double the production out of Olympic Dam.

It does include going ahead with Spence. It does include going ahead with Mad Dog 2. It does include perhaps pulling forward some of our gas developments, like the Haynesville, by reducing their cost so it would work at current prices; something we're working hard on at the moment. And ultimately includes the possibility of doing something in potash.

But they're options and they, of course, will compete with each other for capital and for other uses of our funds. But we have fun looking after the dividend as well, as well as having fun doing acquisitions. It motivates us all.

Menno Sanderse, Morgan Stanley. Clearly, this year has been a bit of a demand shock I would say. So it's interesting to see that BHP has refreshed its views, for instance, on steel. With respect to that, two parts to the question. First, has the Company reviewed demand estimates, particularly for China, for other commodities, so met coal and copper and potash at the same time?

And secondly, what's the risk that this cut is a bit like the sell side and myself, that you make the first cut but it's not really one you need to make, there's another one following, another one following. So how confident are you that your team has really taken a very conservative view of this new estimate?

No, we've taken a realistic view. We redo our forecast bottom up in incredible detail every six months. And you've seen evidence of what we're predicting in steel, which of course really dictates what will go on in iron ore and met coal. But we do similar things for copper and as much as we can, in line with the majors, we do the same things for oil and gas.

But I think back to China, as I said, I think the signals coming out of China are more mixed than we're reading about in our newspapers. There are some, if you like, signals that might be on the bearish side. But there are signals that are more on the bullish side.

And I think taken as a whole, what they show is that China is taking a course that we've talked about, myself and Marius for over three or four years. As it moves from being investment-driven to more consumption-driven, we see its rate of growth coming off.

But they're doing it in a way that we feel strongly confident that the Chinese people are going to pull themselves through the middle-income trap and in doing that, they're going to create stable growth for decades to come and demand for our products that we think is worth investing in.

Clarke Wilkins, Citigroup.

Thanks for the additional data on the costs and things like that. Just looking at the Queensland coking coal cost or the Queensland costs in terms of the 6% reduction expected for this year, you've got a 12% or so currency benefit. What are the other factors holding back costs dropping there further, given that some of the high cost operations are being closed? Is it just dealing with labor productivity? Or is the stripping ratio increasing there?

Well, coal was probably the leading-edge business in reducing costs in the first place. And they've taken about $3 billion of their costs out already. But as I mentioned, the Crinum mine finally becomes exhausted and that's relatively low cost. So with that removal from the mix, it boosts the average a bit.

We've got a number of fairly significant shutdowns coming up and longwall moves are adding to costs that weren't present in the year, or certainly in the half-year just closed. I think that's about it. But don't doubt our resolve and Mike Henry's commitment to do a lot better than that.

But I think all things considered, a reasonable estimate for next year at the moment is $61 per tonne, with an intention to go better through continuing to lead a charge on productivity there that they've done so well in the past.

Okay, thank you.

Peter O'Connor, Shaw & Partners.

Two questions, firstly on CapEx and secondly on costs. When you spoke in Barcelona, you gave the CapEx target for FY15 at $12.6 billion. Is that number in line with the $11 billion that you've just delivered?

I don't remember that number. Maybe you could get with the IR team afterwards. I'm actually -- because I'm so forward looking, I forget what we've cut it to. But the FY16 number is -- I think it was $11 billion and something. But obviously, we're now saying we're going to come in around $8.5 billion and obviously intend to drive that down in the same way I spoke about coal. And then we'll go $7 billion for FY17.

Okay. And on costs, a follow-up from the last question. So within the iron ore costs in particular and the Australian coal cost in particular, is this the granularity in the moving parts that drives that? I note in the footnotes you've said that the currency forecast in May was $0.80, it's now $0.74. Are there any other specific drivers we should be aware of that have seen that quantum step-down in just three months?

Absolutely. We are driving very hard to increase the availability of all plant and equipment and its utilization. Peter quoted a few numbers, which I won't quote again, it's what we're doing there. We're looking very hard at our supply costs, less on the price but more on just waste not, want not and being much more efficient with our resources. And challenging ourselves, right down to the individual level, as to how productive we can be day after day and do our job better tomorrow than we did yesterday.

So all of that, the whole organization, right to its fingertips, is excited and urgent about what it can do in delivering productivity but first and foremost to do that safely.

Just a follow-up on the CapEx side. I've just got your presentation up from Barcelona in front of me. The number you quoted there was $12.6 billion CapEx in exploration, which came in at $11 billion. And I'm just intrigued how in, with six weeks to go in the FY15, the number could have changed by that amount. Did you not spend at all for the last six weeks? Or was there something that didn't get committed to? Or was there any reason why that CapEx didn't go out of the door and helped with the debt reduction.

But our capital expenditure for the year just closed was $11 billion. I think maybe we could take this offline. There's a lot of numbers flying around.

Yes, sure.

We'll take one from here; Rene?

Just in terms of -- you've alluded to the fact that there's upside potential beyond the 150,000 barrels of oil equivalent per day at the Permian and we're seeing continued progress on costs at the Black Hawk in terms of drilling costs. Could you give us an indication of where completion costs are as well?

And then when you think you may be in a position to give us a bit more color on the Permian, in terms of capital intensity, given that it's a slightly more challenging operating environment.

And then on copper, the same sort of question really on the Spence hypogene, in terms of timeframe on a green light there, what are we looking at? And any update that you can provide on the discussions at Cerro Colorado and whether that'll be a firm decision by the end of the year. Thank you.

Okay, I'll maybe do it in reverse order. We still haven't got everything signed off but things are looking better, that we will achieve the permit to continue to mine at Cerro Colorado.

On the Spence hypogene, we have to time this into market at the right time and we have to get the benefits of capital compression by leaving it in the study phase. But it is moving closer and we'll certainly provide an update when we have our investor tour to copper in, I think, it's October of this year.

But the intention would be with some of those projects, is to put them into the market at what we think might be the perfect time in terms of the bottom of the cycle, where we can actually go to a lot of the construction companies and get some of the keenest prices that we've been able to achieve for almost a decade but marry them towards some incredibly capital-efficient designs.

But we're talking about plus or minus six months here or there as we move into FY16 and through FY17 and I'm sure Danny will talk more about that if you go and see him in Santiago in October.

I think -- I'm not over the exact detail of the completion cost of the Permian but you can imagine that in everything we're doing -- across the oil industry now, people are working on all the elements of cost: finding, development, lifting and SG&A. We're leading the charge here so that we can potentially develop the Permian at lower prices than we currently thought were appropriate -- previously thought were appropriate and, obviously, we're not doing anything very much at the moment.

We only have two -- we were at 10, we're going down to nine rigs and we'll probably drop another rig, given the kind of prices that we're seeing at the moment, but we'll only have two at the most in the Permian. Really holding land at the moment until we feel the time is right through compression in our costs and technology and maybe some recovery in the crude price.

And when we're ready to act, of course, we'll tell you the conditions that we're starting to ramp up drilling but, of course, we're not completing anything in the Permian at the moment. We only have one frac spread operating and that's in the Black Hawk.

Tim Huff, RBC Capital Markets. Two quick questions, actually. On the back of Myles's question with respect to the div; although you see the div as something you definitely don't want to be cutting, how is free cash cover of the div moved up in terms of priorities and financial metrics?

Quite clearly, CapEx, you've given visibility two years out which is really helpful and your medium-term view on China is a bit softer, so I was just wondering if you could come in a bit around that.

And also the $15 a tonne; again, with your view on steel in China and lower CapEx going into FY17, do you see the necessity to take that below $15 a tonne in the medium term? Thank you.

Our intention is to continue to drive lower. And I believe with the things that we're doing at the moment and the motivation of our people, we will go lower in time. But $15 is the guidance for next year. And then we'll see what Jimmy and the team can do. But we never give up and we're -- right across our businesses we still see a lot more productivity to be extracted, in part from the simplicity and focus that we get from South32.

I think in terms of how you're looking at it, obviously, we have to look after our balance sheet and keep it strong and keep it solid A but, although I've guided to a capital for FY17 of $7 billion, clearly there is still further give in that and if prices are low, it may make good sense to defer some developments until we see prices are higher. And that might be the appropriate thing to do. We have a lot of capital flexibility and we still have balance sheet flexibility and still to stay in solid A. So our commitment to the progressive dividend is both strong and underpinned from several angles.

That's great. Thank you.

Paul Young, Deutsche Bank Research.

Peter is sitting, by the way, very quietly in Melbourne. I'm very happy if a couple of you have got questions for him. But go ahead, Paul.

Two questions, Andrew, on your oil division. considering production's now declining. First of all, just on the US onshore, with the drop in well CapEx, I'm interested in what you see as your current breakevens for both the Black Hawk and the Permian. And also what your view on the oil price is for the next 12 months.

And then on conventional growth, Andrew, you've got Mad Dog 2 but this is next decade really so just curious about if the exploration at Trinidad and Tobago, which you seem to be banking on, is not successful, what is the strategy to grow the conventional business? Thanks.

Okay. Well look, the Black Hawk is still a good business even at these prices. Returns are in excess of 30%. And we don't quite know what the breakeven price is in the Permian. Clearly, it's a bit north of where we are today. I think in the past, we've talked about numbers as high as $70 but I'm very confident that the way the team are working that they will bring that down but I don't have a number for you today.

We're not banking on Trinidad. We're optimistic about Trinidad and we do like Mad Dog 2 and we do think that, a bit like Spence hypogene, there's a chance that we and BP can bring that into the market at a time when we think capital will be particularly cheap and possibly it will be well primed for a little bit of upswing in the price in the future in the way you've described.

But we are looking in Mexico and we are, in things I can't talk about at the moment, looking at the possibility of where we could buy something at a price that we think was appropriate but we will not overpay. So I think we have several ways in which we can extend our petroleum business both onshore and in the conventional business.

Thanks. Thanks, Andrew. And just on the conventional strategy, the inorganic-led growth you mentioned there about potentially buying something. What basins and listen, I've heard [Tim] (inaudible), but what basins do you prefer when it comes to conventionals?

Well, I don't want to give away too many of our secrets but we're fairly clear that we like fairly, if you like, conventional conventional and so we're not chasing things in the Arctic or tar sands. We're into areas, offshore areas. They can be deep water, that's what we're good at. And areas with large areas of yet to find, where there's a fair degree of political certainty.

Okay. Thanks, Andrew.

Glyn Lawcock, UBS.

Andrew, I want to push you a little bit more if I can on costs and maybe Peter will add a little bit. Just when you look at the costs, I'm just wondering, if you think about it, we get -- Jimmy likes to talk about utilization, availability and rate.

So if you think about that and look at the business where it was, say, a decade ago, where are you on that journey? Can you get back? If I look at iron ore, 2005 costs were about $11 a tonne at the same exchange rate today. If you think about tonnes per [man], where do you think you are on the journey? Are we 80% of the way there to where you think, getting back to those peak availability, utilization and rate metrics? So just curious where you're heading.

Well, I don't like to put too many limits on it, Glyn. There was a chart in one of the slides I showed that more or less demonstrated that what we've done so far is across our portfolio we've brought costs back down to where they were in, say, 2005, 2006, and clearly we want to keep driving them down further, perhaps, hopefully, to the levels that you've spoken about there.

I think when you look at things like availability, utilization and particularly for a mobile fleet and benchmark them against the more static operations or classic manufacturing operations, then there's an awful lot still to aim at and that's our intent is to aim it.

Okay. And Andrew, just a second question. Just on the 5% volume growth guidance. Just wondering beyond 2016, what oil price or what assumptions have you made on commodity price, particularly oil, to drive that 5% volume growth? Do I need to see oil back up and you commit to more rigs, more spending in the US onshore for me to get that 5% growth?

Not necessarily because we have a number of things that we can do in the near term, which are across all of our commodities. Conventional is there as well as non-conventional oil. We have things in copper I spoke about, things in iron ore and things in coal.

So no, we assume that some of them will come off but I wouldn't provide you with a guidance on cost and, anyway, it wouldn't be entirely helpful because it's my strong conviction that we're -- sorry, a guidance on price.

It's our strong conviction that we're going to actually reduce costs so we could make things work at prices that today would not work. And I think the answer to your first part of your question is there's so much to aim for there and I think the industry with us in the lead will capture some big prizes as a result.

So could you do it with $1.5 billion a year of CapEx in US onshore?

Well, remember what we've said. We've reduced the CapEx requirements onshore, if you leave to one side and we're working on that moment, the cost of completion by 50%, over two or three years, so who knows, we can maybe do it with even less capital, and do more for less, which is what we keep pushing.

Right, thanks very much.

Ben McEwen, CIBC. It might be a question for Peter. But looking at slide 23, which provides maintenance capital expenditure guidance of about $2 billion, if I apply the $5 a tonne, for Western Australian Iron Ore and then the $6 a tonne Queensland Coal, that gives me about $1.5 billion maintenance CapEx.

That implies $500 million for the remainder of the portfolio, so I was just wondering that seems low in the context of FY15 CapEx for those divisions of about $9 billion. So I was just wondering if there might be some additional granularity on that maintenance CapEx, please.

Sure, I'm happy for Peter to provide that, since he hasn't answered a question yet. So go ahead Peter.

I think the way we've -- we allocate that sustaining capital is truly to maintaining the integrity of the existing gear.

So going forward, we also have embedded in some of that guidance, $5 a tonne, and so on, some to improve the existing. So for instance, as we talked about, there is some amount allocated to improving the capacity of iron ore, moving from the 254 we have today, 254 million tonnes a year, to the 290 million tonnes.

So we can get with you and provide a little bit more granularity if you wish to model that but, I think safe to say, as Andrew was saying, the important thing is to know that in -- that we have, we should always of course, maintain the integrity of our existing operations.

That will consume around about $2 billion a year. The balance of above that, that we've got in our capital guidance, our capital expenditure guidance, is absolutely tremendous opportunities, but in extremis, it would be something which would have to be weighed up against the other calls on the capital, such as returns to shareholders and maintaining a strong balance sheet.

Yes, I think there's one $1.5 billion in the capital budget, of $8.5 billion, for this year, that's minor capital. Includes things like infill drilling in oil, but it also includes part of the $5 a tonne that you mentioned in iron ore.

And another portion of it is in the $2 billion that we have to do to basically maintain the plan and integrity. So you really have to add the $2 billion to the $1.5 billion. Now some of that $1.5 billion is infill drilling and oil.

So we do have a little bit more to play with, in the other businesses than you think, within that $2 billion. Okay, does that help?

Yes, thank you.

Sylvain Brunet, Exane. Just following up on petroleum, if perhaps you could help us with some guidance beyond the current year on the breakdown between liquid part and the dry part.

My second question following up on the dividend, is it fair to assume that you are not prepared to draw from the balance sheet, to pay the dividends, if need be, depending on prices? Thank you.

There's a lot of numbers, I don't have them all in my head, in the breakdown of liquids. But you'll have seen from Peter's presentation, we've increased liquids production from the onshore by about 67%.

And then what we are mapping out at the moment, we can more or less stabilize that going forward. So therefore, what it means is that there is a reduction in the gas portion, as we wait for some recovery in the gas prices. But I don't have the exact details. S

Sylvain, we think about it a bit differently than the way you thought about it at the moment, beyond, that's what the last slide about, beyond the $2 billion that we must do, to sustain our business. Then we would regard capital as coming to some extent, after the dividend, and so that capital is -- which we can do, and we fund through increased productivity, is to some extent, a greater discretionary item, than we would ever inflict on our dividend. Which, as I said, we want to buttress. And our resolve is very strong to keep it.

And that's how we see it. At the moment, as we go forward, as I say, we can make the whole thing work and keep our balance sheet strong, for a capital expenditure of $8.5 billion this year, and $7 billion next year. And obviously the progressive dividend, which is around $6.5 billion.

Lyndon Fagan, JPMorgan.

A few questions. Firstly, just back on slide 23, where looks like there's about $5 billion of growth capital. I'm just wondering how much flexibility do you have in that FY17 CapEx guidance should conditions deteriorate further. And I guess, further to that, how much of the CapEx budget is unapproved by the Board? So discretionary, if you like.

And then the next question is just reflecting back on the South32 demerger, you've made mention of the phrase simplification premium. I'm just wondering if you could perhaps expand on what you mean by that, and how we should measure the success of the demerger, because at this stage, I guess you've lost $1.85 billion of EBITDA. It cost almost $1 billion to do it. I'm just struggling to work out how to justify it in my own mind. Thanks.

Okay, well, so just trying to -- the capital you refer to on slide 23, there's a lot of flexibility there. And a large part of it has not yet been approved by the Board. So we can use that flexibility if we require it.

Our intention of course, is that we can -- we maintain it, and we maintain our investment in growth, unless we can constrain it more through capital efficiency, through the delivery of cash through productivity.

Which links to my other question. We're guiding increasingly to what we do to unit costs, and how all of our savings, whether they come out of overhead, or whether the operating costs flow through, to the unit cost for iron ore, the unit cost for coal, unit cost for copper, and so on.

I would just put it to you that being able first of all, to deliver our $4 billion target early is an indication of the focus that's come onto management. I can tell you a lot of overhead, much more than we thought would happen, is disappearing from the Company, with more to go at. And you've heard our conviction, and you've heard our forecasts, which suggest there's an awful lot more to come.

I would just put it to you that a goodly proportion of what's yet to come has been enabled by having a much simpler Company, where we can connect things up much more. We can aggregate costs at a higher level, than would have happened if we hadn't had South32.

But it's also just from management having the time to see through and spend an awful lot more of our days, probably a lot more in the business [presence], worrying about the availability of plant and equipment. And making sure that best practice that improves that travels at lightning speed around our organization.

Thanks.

Just to follow up on that theme. You've talked previously enthusiastically about the manufacturing -- or opportunities from manufacturing and aviation industry, in terms of changing practices in the mining industry.

I guess things like fleet availability feed through in various different ways from long-term capital intensity, maintenance medium term, and then some short-term gains. And I think at this stage, you're not comfortable putting any real numbers around that, in terms of guidance for the near term.

But could you talk about it a bit more holistically, on a five-year view, or from a blue sky, what you're seeing internally?

Yes, I can do. We can put firm numbers about it. Peter put some into them. I'd have to go back, I don't remember them all in my head, about some of the improvements that we got at Escondida, in terms of availability. So we can be quite concrete about them, and the IR team can follow you up afterwards with all the examples.

But do you know, rough numbers, our average availability sits in the 70%s for mobile equipment. We strongly believe we can move it into the 80%s or even higher. Sorry, it sits in the 80%s, we believe that we can move it into the 90%s. And then on utilization, we tend to sit in the high 50%s and we believe we can move that into the mid 70%s.

And that's more like a manufacturing operation. And they're the kind of targets that we have in our maintenance shops around the world.

And is that a three to five-year view is it, in terms of getting there, or what's the journey time?

I think they're aspirational. We're putting particular focus on it. It'll be interesting to see what rate of progress we've made in 12 months time.

What we've tended to see is some of the better performers have moved ahead, and we're now having to deal more with the laggards.

James Gurry, Credit Suisse.

Let's make that the last question from the phones, then I'll take one final question from here, okay? So go ahead, James.

Congratulations on a reassuring result in these difficult markets.

I've got two quick questions. Just in copper, how long do you think you'll be running the three concentrated strategy at Escondida? Is it going to be a five-year thing or a 10-year thing, or is it going to run even longer than that?

And in potash, can you just give us a bit of a project update? You seem to remain committed to the concept of it being a possible pillar for the Company. Are you passed the peak point of risk in terms of the shaft development, and are you spending still -- I think the last number I've got in my head is about $500 million a year, on this.

Okay, so -- sorry, I was concentrating on the second question, which I'll answer, then you can remind me of the first one quickly.

But we're spending at $350 million a year. I expect that to go down. I'd like to think we were passed the peak point of risk. We've certainly I think, resolved all the issues of stress around the shafts and what is the appropriate level of temporary reinforcement, as we sink the shafts.

But until we've actually got -- taken one shaft all the way to the bottom, and encouraged -- and seen all the geology and so on, then we can't be quite confident that we've passed the risk through. But we're making good progress.

But I would stress that this is a very long-term investment. We're not in a hurry. And we'll probably take several more years of completing those shafts, and looking at the market, before we commit to any more expenditure.

And I should say at this stage, there's no risk that we will overspend the money already allocated to complete the shafts.

Remind me again of your first question, sorry?

It was just on the three concentrated --

Yes, it's certainly more than five years. And we'll see how it goes. Our intention would certainly be to stretch it to 10. Okay, so final question from here?

Jake Greenberg, Bank of America Merrill Lynch. Just a follow-up on Jansen, can you give us some thoughts around potash pricing? We've seen all oligopolies breakdown in iron ore, and in oil. Do you have any sense of where potash markets are, and any thoughts about pricing, going forward, particularly in light of weak crop pricing?

No, but I think the weakening, I'm not sure it's completely collapsed in oil, but the weakening if you like, of an oligopolistic or cartel-like structure, and certainly that's what happened in potash, makes it much easier for us to model. And generally we're quite good at that.

I think if you look back, our predictions on the whole, for things like coal prices, iron ore prices and copper prices, have more or less come in with what we've seen. And that's why we have confidence in many of our predictions, going forward, to invest.

As market become less cartelized and less politically controlled, they're easier to predict, and so for a Company like us that really understands markets, it means we can time our investments more effectively. And I would say that we would predict -- we would attempt to predict the potash price now, assuming it's a completely free market.

We certainly have scenarios for oil which assume it's a, certainly, free market as well. But that's one of I think, several outcomes to the current turmoil in the oil markets.

Okay, I think at that point, we'll close. Thank you for listening, and thank you for all your questions, and look forward to meeting many of you in a more intimate setting in the coming few days. Thank you very much.