必和必拓 (BHP) 2012 Q4 法說會逐字稿

Ladies and gentlemen, welcome to today's presentation of BHP Billiton's preliminary results for the 2012 financial year. I'm talking to you today from London, and our CFO, Graham Kerr, will be speaking to you from Sydney.

I'm also pleased to note that we are joined by various members of the BHP Billiton management team for this important presentation. We've got Mike Henry here with me in London, while Alberto Calderon, Marcus Randolph, and Mike Yeager joins us on the telephone lines. I think Andrew Mackenzie may be on a plane from South Australia on his way to Sydney. They're all looking forward to participating in the Q&A session that will follow today's presentation.

I should also note that Ian Maxwell, who's our President of Energy Coal, is with Graham in Sydney.

As usual, before I begin, I'd like to point you to the disclaimer and remind you of its importance in relation to today's presentation.

This morning, I will provide a general overview of our performance, then I'll hand over to Graham, who will go through the financial results in more detail. I'll then conclude by making some comments about the economic outlook; the outlook for our core products; some comments on our strategy; and particularly note that, in the environment that we find ourselves in, we believe that our strategy and our portfolio uniquely positions us for the changes and inevitable evolution in the commodities demand that is ahead.

So the core elements of today's presentation can best be summarized by the strong operating performance and robust financial results; significant cost savings that we expect during the course of the next 12 months; the strong momentum that we've got in our major businesses in the near term; the substantial value that well advanced, on budget, and on schedule low risk projects that are currently in execution will create; our commitment to continue to simplify our portfolio through the selective closure and/or divestment of unprofitable and non-core operations; and then, the sector-leading returns that our strategy has delivered.

However, let me start off by talking about sustainability, one of our core values. Our charter is at the heart of everything we do. It clearly emphasizes the importance of putting health and safety first, the need to be environmentally responsible, and the role that we play in supporting communities. In that context, we were pleased that we saw a 6% reduction in total recordable injury frequency rate, to the lowest level on record.

Regrettably, we still had three fatalities during that period, which is a constant and salient reminder that we must start every day and make elimination of fatal risks our first priority; no fatality is acceptable. And I'd like to offer my condolences to families, friends, and colleagues.

Let me address now what we believe is a very robust set of financial results that were achieved despite significant volatility and uncertainty in the external environment. Our underlying EBITDA declined by 9% to $33.7 billion, while underlying EBIT declined by 15% to $27.2 billion.

Attributable profit was $15.4 billion; that's a decline of 35% after taking into account $1.7 billion of exceptional items.

Particularly pleasing is that our net operating cash flow was very strong at $24.4 billion. The strength of our low cost, diversified portfolio is additionally demonstrated that there was only about a 1% change in our cash flows from the first half to the second half of the year.

Capital and exploration expense was $20.8 billion. And, as I said, we have a total of 20, largely Brownfield, projects that are on budget, on schedule, with the majority of them delivering product before the end of our 2015 financial year.

The balance sheet remains strong with gearing at 26%; within the parameters of our desired strong single A.

And today, we declared a final dividend of $0.57 per share, extending the unbroken record of a progressive dividend since the Company was formed in its present form. This brings the full-year dividend to $1.12, or 11% up for the period.

Growth in dividends can, obviously, only be achieved through strong operating performance, and disciplined reinvestment in the business. And with that in mind, let's review our performance over the last 12 months.

We've had a strong year of operational performance. The majority of our assets ran at, or near, capacity. The reliability of our facilities, our highly skilled operators, and the successful ramp up of extended capacity all contributed to this outstanding result.

We had a 12th consecutive production record at Western Australia Iron Ore. It was particularly pleasing since we took that decision to invest $4.8 billion pretty much at the depth of the global financial crisis. And that delivering tangible results has really been good to see.

Annual production records were also achieved at nine other operations, including the export-oriented coal businesses in New South Wales and Cerrejon.

However, three of our core businesses were significantly affected by temporary challenges. The associated reduction in asset utilization, which is highlighted on this slide, for metallurgical coal, Escondida, and non-operated facilities in the Gulf of Mexico had a material impact.

The release of latent capacity in these businesses in the 2013 financial year will underpin strong, low risk growth in our businesses. And, obviously, the improvement in production rate will also benefit our unit costs, given the economies of scale.

In that regard, I'm happy to report that production in Queensland Coal has substantially recovered in the last weeks.

Similarly, I can report that Atlantis and Mad Dog facilities restarted production in early August and are ramping up. A stronger contribution from these two major deepwater platforms is expected to increase total petroleum production to approximately 240 million barrels of oil equivalent during the 2013 year.

Finally, a significant recovery in ore grades and milling grades in Escondida led to a very sharp rebound in production in the June quarter. Total production at Escondida during the 2013 financial year is expected to increase by some 20%.

The low cost, high margin growth that is associated with a reversal of these one-off events is, of course, very valuable, particularly given today's environment.

With that, I'd like to hand over to Graham. Graham will discuss our financial results, as well as the initiatives that we are doing in order to deliver substantial cost savings. Graham?

Thank you, Marius. I'm pleased to be here today to present our preliminary results for the 2012 financial year.

As Marius mentioned, this has been a strong year for BHP Billiton, with production records achieved at 10 of our operations. However, weaker commodity prices and cost pressures have presented a challenge for the industry. I am confident that the cost saving initiatives that we have implemented will ensure that we are very well prepared for the challenges that lie ahead.

In this section of the presentation, I would like to cover six major topics; the benefits of diversity and our strong cash flow; the tangible results that our investment program has, and will continue to deliver; the significant opportunity for cost savings in the 2013 financial year; our well-defined growth pipeline and our capital expenditure plans; the unchanged priorities for our cash flow; and royalties, taxes and exceptional items.

Let me begin by discussing the strength of our diversified strategy. As can be seen on this slide, BHP Billiton has a uniquely diversified portfolio. The value of this level of diversification is most evident during times of significant market volatility, particularly given the different drivers that can influence world energy and metal markets.

Three of the better measures of our success relate to the Group's robust underlying EBIT margin of 39%, the strong cash generating capacity of the business throughout the economic cycle, and our underlying return on capital, excluding capital investment associated with the projects not yet in production, of 27% for the period.

It is worth noting that our net operating cash flow reduced by a relatively modest 1% in the June 2012 half year, as a sharp increase in copper production at Escondida, and an intense focus on the Group's working capital largely offset the weaker commodity prices.

If we look at the contribution of the customer sector groups to underlying EBIT, the contrasting fortunes of our various businesses are clearly evident. For the 2012 financial year, the quality of our Iron Ore and Petroleum businesses was demonstrated by their ability to sustain an EBITDA margin in excess of 65%.

In contrast, industrial action significantly affected the performance of our Metallurgical Coal business, particularly in the second half of the 2012 financial year. I will discuss the potential for margin expansion at Queensland Coal as we increase production and reduce operating costs.

Lastly, it would be remiss of me not to mention our more downstream businesses of Aluminum and Nickel. The compression of their operating margins over recent years reflects both structural weakness in their end markets, and substantial cost pressure which has a been exacerbated by weakness in the US dollar.

These results only add to our belief that the [rent] in the industry has shifted further and further upstream.

Now, I'd like to step through the various components of our robust financial result.

Underlying EBIT decreased by 15% from the prior period to $27.2 billion. As you can see from our usual EBIT waterfall graph, the uncontrollable factors of price, exchange, energy costs and inflation reduced underlying EBIT by $2.2 billion.

Weaker commodity prices had the single largest impact on our profitability, and reduced underlying EBIT by $2 billion, net of price linked costs. This pressure was most notable in our Base Metals business where lower prices reduced underlying EBIT by $1.6 billion, net of price linked costs.

A provisional pricing adjustment of $265 million related to our copper concentrate and cathode sales, also contributed to the reduction in underlying EBIT.

In contrast, stronger prices for crude oil, liquefied natural gas and thermal coal highlighted the value of our uniquely diversified portfolio, and the role it plays in reducing our cash flows at risk.

In total, firmer energy prices increase underlying EBIT by $1.6 billion in the 2012 financial year, net of price linked costs. I should note that the onshore US is fully exposed to market prices, with all legacy forward gas contracts now unwound.

Moving away from prices, production losses and cost increases associated temporary operating challenges principally in three major businesses identified earlier, reduced underlying EBIT by $1.7 billion.

A 6% increase in controllable cash costs also had a meaningful influence on our financial results. I will discuss costs in more detail shortly, although I'd like to focus on the strong contribution of volumes first.

As Marius has mentioned, we achieved a 12th consecutive annual production record at Western Australian Iron Ore in the 2012 financial year. The outstanding track record of this business reflects a major contribution that our iron ore operating and project teams have made to the profitability of our business.

In total, stronger iron ore volumes, which included a 19% rise in Pilbara sales to a record 173 million tonnes in the period, increased underlying EBIT by $2.3 billion. In contrast, lower grades and milling rates as Escondida were the primary cause of $138 million volume-related reduction in underlying EBIT in the Base Metals business.

Importantly, this impact is only temporary, and we have already started to see increasing grades and throughput at Escondida consistent with the mine plan. Likewise, the $160 million increase in the volume contribution of Antamina provides an indication of the upside that the recent expansion will deliver.

You will see that we have treated our Petroleum businesses separately in the waterfall charts, as oil fields, by their very nature, decline over time. In that context, while a component of the volume-related variance was attributable to downtime, the major contributor was natural field decline, most notably at our successful and highly profitable Pyrenees facility.

Lastly, I would like to highlight the $1.2 billion volume variance attributable to major outages and disruptions in the period. More about that in a moment.

As mentioned, controllable cash costs increased by approximately 6% in the period and reduced underlying EBIT by $2 billion. On this slide, we have displayed the impact of general cost inflation that encompasses labor, and raw materials, together with the cost impact associated with major outages and disruptions. We have done this in an effort to provide you with as much transparency as possible.

This should also give you an idea of the level of savings that were achievable if we address recent controllable cost inflation and return the major businesses of Metallurgical Coal and Base Metals back to their steady state.

As can be expected, the rate of cost escalation was most severe where we experienced disruptions, outages, or other grade-related headwinds. If you recall Marius' introduction, you will also recognize that the businesses with the highest rate of cost escalation are those same businesses where a lower rate of capacity utilization was recorded.

While these pressures, highlighted in a lighter shade on this slide, will naturally unwind as those temporary one-off issues are put behind us, we have also implemented a number of initiatives that will tackle underlying cost pressure head on.

In our Metallurgical Coal business, we announced in April that we would close the Norwich Park mine in BMA indefinitely, following a review of its profitability. As one of the smaller BMA mines with the highest strip ratio, its viability was tested by general inflationary pressure and the strong Australian dollar. The viability of other high cost operations is also being assessed as part of the broader portfolio review.

In our Manganese business, you can see that the cost escalation was largely mitigated by a decision to close energy-intensive silicomanganese alloy production in South Africa. Likewise, the temporary curtailment of production at TEMCO enabled us to implement other important cost saving initiatives. At Nickel West, we stripped out costs by temporarily reducing mining activity at Mount Keith, and by restructuring functional support with no associated impact on production.

These decisions were made possible by the successful commissioning of the Talc Redesign project.

Looking ahead to the 2013 financial year, unit costs in the Pilbara will fully benefit from the recent acquisition of the HWE mining subsidiaries. One-off costs related to the acquisition reduced underlying EBIT by $156 million in the 2012 financial year.

More recently, we have implemented broader measure across the Group to substantially reduce operating costs and non-essential expenditure in the 2013 financial year.

Operating costs are not our only focus. We have recently completed a major capital review as part of our normal annual planning process, and we have optimized our development program.

We have been working through this process since January, and in the context of current market conditions, our strategy and capital management priorities, it became clear that the right decision for the Company and its shareholders was to study an alternative, less capital intensive design of the Olympic Dam open pit expansion that involves new technologies. This design has the potential to substantially improve the economics of the project.

As part of this review, we have also decided not to commence the expansion of Peak Downs, and we have carefully assessed our minor and sustaining capital expenditure.

With regard to this slide, we've intentionally focused on what we are doing today, and we have provided you with an indication of the expenditure profile associated with our major projects in execution.

This representation also shows that the majority of our projects are expected to deliver first production before the end of the 2015 financial year.

These projects, when combined with the forecast recovery in operating performance at Queensland Coal, Escondida, and the Gulf of Mexico, will sustain strong momentum in our business. In total, we have 20 major projects currently in execution, with an approved budget of $22.8 billion.

Based on this world class [slate] of projects, we expect our minerals and conventional oil and gas capital and exploration spend to approximate $18 billion in the 2013 financial year. This figure includes minor and sustaining capital expenditure, and approximately $1.5 billion of exploration expenditure.

I have intentionally separated the guidance for our onshore US business, given the significant discretion that we have in terms of where and how much we will invest. As I present to you today, we plan to invest $4 billion in our onshore US business in the 2013 financial year, with the majority of our activity to be focused in the oil and liquids rich Eagle Ford shale and Permian Basin.

I should remind you, however, that the rate of investment will be aligned with the external environment. Marius will discuss our work program in more detail shortly.

I would now like to remind you of your long-stated priorities for capital management.

Firstly, to invest in high return growth opportunities throughout the economic cycle; second, to maintain a solid A credit rating; third, to grow our progressive dividend; and finally, to return excess capital to shareholders.

As you can see on this slide, our balance sheet has been managed in a disciplined manner within the framework of our solid A credit rating. This prudent approach has enabled us to grow our progressive dividend at a compound annual growth rate of 26% over the last 10 years.

For the 2012 financial year, we declared a full-year dividend of $1.12 per share, an 11% increase on the prior period.

Over the same 10-year timeframe, BHP Billiton has returned approximately $54 billion of capital to shareholders in the form of dividends and buybacks, an amount equal to almost 50% of our cumulative underlying earnings over the period.

To close my section of the presentation, I would like to touch on royalties, taxes and exceptional items.

For the 2012 financial year, we paid federal taxes, states taxes and production royalties totaling $11.9 billion, representing approximately 44% of underlying EBIT.

Our tax expense was reduced by a non-cash exceptional item related to the Australian MRRT and PRRT extension legislation that was enacted in March 2012. Under the legislation, the Group is entitled to a reduction against future MRRT and PRRT liabilities, based on the market value of its coal, iron ore and petroleum assets.

A deferred tax assets and an associated net income tax benefit of $637 million was recognized in the 2012 financial year to reflect the huge deductibility of these market values for MRRT and PRRT purposes, to the extent that they are considered recoverable.

For the 2013 financial year, an effective tax rate of approximately 34% to 35% is anticipated for the Group, including royalty-related taxation.

Other exceptional items booked in the 2012 financial year included a $1.8 billion impairment of Fayetteville shale dry gas assets, and a $355 million impairment of the carrying value of Nickel West.

Our decisive action to close or suspend various operations, and the optimization of our development program, also led to an impairment totaling $342 million.

Specific actions that contributed to the charge included the decision to study an alternative, less capital intensive design of the Olympic Dam expansion that I mentioned earlier; the temporary suspension of production at TEMCO; the permanent closure of the Metalloys South plant; the indefinite cessation of production at Norwich Park; and the suspension of other minor capital projects.

I should also note that the settlement of insurance claims that date back to the 2008 floods in Queensland led to a one-off gain of $199 million in the 2012 financial year.

Finally, I would like to note that we invested almost $1 billion in the communities in which we operate over a five-year period, consistent with our commitment to voluntarily invest 1% of pretax profits.

With that, I would like to hand back to Marius.

Thanks, Graham. I would now like to discuss the economic environment, the outlook for our core products, and our strategy that uniquely positions as the demand for various products change, over time.

Before I talk about the longer term outlook, however, I'm sure that a number of you are interested also in our short-term view and the status of our order book.

In relation to the short term, concern regarding the stability of the eurozone, and the decline in economic activity that has accompanied the slowdown of the growth in China, is likely to wear on the market for a little while longer.

However, on a positive note, we believe that the support of economic policy that we've seen, broad growth bias is likely to improve in the external environment, beginning in the second half of the 2012 financial year.

Growth in fixed asset investment in China, for example, is expected to support the demand for our steel making raw materials, while a degree of stability in the global economy should limit downside for a number of our products.

As you know, our strategy is to always run our assets at full capacity, take the market price. And in that context, I'm pleased to report that our order books remain full and we continue to sell everything that we can produce today.

Over the longer term, we continue to believe that urbanization and industrialization of some 250 million people in China of the next 15 years, and 1 billion people worldwide, will drive economic growth and demand for our products.

As highlighted on this slide, Chinese GDP growth alone is set to virtually triple between 2011 and 2025, with growth equivalent to almost 25% of current global GDP. Growth in Chinese and Indian GDP, in absolute terms, is expected to exceed the growth in all of the other regions combined.

However, demand is only one side of the equation. The degree to which supply either meets or exceeds demand is the key other consideration. In that context, the differential performance between, for example, copper and aluminum provides and interesting case study.

Now on this slide, on the right-hand side of this slide, we've shown the cumulative growth in demand for these two commodities and their respective price performance.

What can we learn? Well, in copper, a structural decline in ore grades have heavily constrained the supply response. And rising strip ratios and grade declines steepened the global cost curve. As a result, the copper price increased significantly before consolidating in a range that is high enough to induce new supply, and this all despite relatively modest demand growth.

Conversely, in aluminum, prices remain depressed, as rapid growth in Chinese smelting and refining capacity led to significant oversupply, despite relatively strong growth in demand for this product over the period. Ironically, actually if we look at our slate of materials, aluminum recorded the highest demand growth of all of the major traded metals during that period.

I should also add that, in the case of iron ore, the combination of strong demand and the long lead time for large scale investments, resulted in inefficient supply response during some periods, and scarcity pricing at times, even though there is no global scarcity of high quality iron ore resources.

Now, having established that the pace of supply response is as important a contributor to commodity price formation, it's worth looking at the supply outlook for a number of our commodities and targeted commodities.

What we've done on this slide is to express the rate at which low cost supply will meet demand growth, and has met demand growth, from the period starting 10 years back, 12 years back, from 2000 to 2020. So as you can see, we're roughly halfway through this period and, for the entire 20 year period in aluminum, around 80% of the aluminum demand growth over that period has already been met by supply.

By end of 2015, we think that the entire demand forecast will have been met by low cost supply. On that basis, the aluminum market is likely to change at the variable cost of production for the foreseeable future.

In iron ore, the strong financial returns that have been enjoyed by the industry have encouraged substantial investment in new capacity. As a result, the producer response is well advanced. Our analysis suggest, by the end of the 2015 calendar year, about three-quarters of the demand growth for the 20-year period will have been met by low cost supply.

Going forward, therefore, those who invest in iron ore should do so in the full knowledge that supply will meet demand in due course, and that the scarcity pricing that we've seen over the last 10 years is unlikely to be repeated.

By contrast, by the end of the 2011 calendar year, only a quarter of the demand growth in copper over the 20-year period had been met by low cost supply. Quite simply, the world has not yet found an obvious solution to resource depletion and the resource degradation that continues to constrain the pace of low cost supply addition in copper. With 1 million tonnes of copper supply required every year, we continue to believe that prices will be set at a level high enough to induce the development of Greenfield mines and other investments.

Going to potash; in potash, low cost supply has been equally slow to respond. By the end of the 2011 calendar year, only one quarter of the potash demand growth for the 20-year period had been met by low cost supply.

With regard to the outlook, robust demand growth, and a relatively limited set of Brownfield expansion opportunities in this business, suggest that potash prices, too, will be sustained at a level high enough to induce new Greenfield capacity.

I should also note that, given the decline rates of shale gas in the US, it's a situation somewhat analogous to the copper and the potash situation that we just outlined. In that context, we remain confident that US gas prices will ultimately adjust to reflect the economics of incremental investment.

These differences in the supply and in the demand characteristics of these commodities just illustrate why, always and consistently and over a long period of time, we have placed such great emphasis on the superior level of diversification in our portfolio, and the superior asset quality.

BHP Billiton's charter describes our corporate objective, and also describes our strategy. Contained within our charter is a 21 word statement that defines our strategy that says, we're in the business to own and operate large, long-life, low cost, expandable, upstream assets, diversified by commodity, geography and market. It's worthwhile analyzing some of these aspects in the context of our results.

On this slide, we've expressed return on assets as a function of asset turnover and profit margin for BHP Billiton in its peer group. What this clearly shows is BHP Billiton's superior margins and superior returns. This outperformance is as a result of executing an unchanged strategy in a disciplined manner, plus the fundamental quality of our assets.

Consistent with the priorities for capital allocation that Graham described earlier, we've got 20 projects in execution with a total approved project budget of $22.8 billion. The majority of these projects relate to the low risk Brownfield expansion of those same assets that have generated those returns over the last decade.

We're investing in the same assets that generated that outperformance; we're investing more. The commissioning of these projects, plus the return to full production in those number of major assets that we outlined, is expected to underpin significant growth and create substantial value for our shareholders.

Beyond these projects, we have the unrivaled suite of development options beyond those in execution. Given, however, the recent commodity price declines, and the associated impact on cash flow, and changing project economics, given exchange rates, capital costs and so on, we are largely committed for the 2013 financial year. We don't expect any incremental major project approvals over that timeframe.

Of course, as we complete these projects that we're currently busy with, we will allocate future money to those projects that maximize value while considering the balance between short and long-term returns.

In that context, I would like to give you a short update on the projects in execution, which, as I stated, as a portfolio is on budget and on time.

In Western Australia, all of our projects remain on budget and on time. Completion of the Port Hedland Inner Harbor Expansion project in the second half of 2012 will deliver an additional car dumper and ship loader capacity. The project will increase our effective capacity at Port Hedland to approximately 220 million tonnes per annum.

As a result, we will, for a short while, be net long port capacity before our Jimblebar Mine is commissioned in 2014. We are targeting another record year of production in 2013 with growth targeted, year on year, of approximately 5% increase.

In Base Metals, my colleagues Andrew Mackenzie and Peter Beaven recently met with many of you to discuss a quite outstanding and exciting outlook for our Base Metals portfolio. Relatively rapid payback, low risk Brownfield expansion projects that are well advanced, on budget, on schedule, and tracking to plan, are expected to underpin strong growth in our copper business.

For example, the $435 million Antamina expansion delivered first production in the March 2012 quarter. This expansion increases processing capacity by 38%, and underpins a forecast 32% production increase of copper in the 2012 calendar year.

At Escondida, another one of our major assets, a number of projects are currently underway. The $319 million ore access project achieved first production in June 2012. This project underpins the higher grades ore that underpins a 20% increase in total copper production targeted for the 2013 financial year.

Our often overlooked Laguna Seca debottlenecking project remains on track to increase processing capacity by 15,000 tonnes a day.

The replacement of the Los Colorados with a new, larger concentrator in the first half of the 2015 calendar year will increase processing capacity by a further 32,000 tonnes per day.

I think, all up, we're targeting something like a 50% production increase in Escondida as a result of these projects from the trough of production.

In Queensland Coal, as discussed, our Coal business has been severely constrained by industrial action and wet weather over an extended period of time. The strong Australian dollar and general inflationary pressure, as well as soft demand, have placed additional pressure on operating margins in this business.

In response to these challenges, we have chosen to delay the not yet commenced 2.5 million tonnes per annum expansion of the existing Peak Downs mine. The other projects that we're doing in Queensland, the 5.5 million per tonne per annum Caval Ridge project, the Hay Point Stage Three Expansion project with 11 million tonnes per annum, and the Daunia project, remain on schedule, and will deliver first production in 2014.

The capacity of our Queensland Coal business will increase to 66 million tonnes by the end of the 2014 calendar year. So in a number of our core assets, very, very strong growth on the minerals side.

Now lower gas prices have caused us to focus onshore drilling in the US, almost exclusively, on the oil and liquids-rich Eagle Ford shale in the Permian Basin. As Mike Yeager has commented on several occasions, the investment in the Eagle Ford generates high levels of return, with production typically within three months of initial development, and payback typically within a year.

Our onshore US capital expenditure is expected to rise to $4 billion over the 2013 financial year, while production is expected to increase to approximately 100 million barrels of oil equivalent, inclusive, importantly, of a near-100% increase in oil and liquids production.

I note, however, that the flexible nature of production, and shale development program, means that the rate, and the focus, of the activity will continue to be adjusted and aligned with the external environment. Our focus continues to be value and not barrels.

Before I move on, I would like to address the $1.8 billion impairment of the Fayetteville dry gas assets. While disappointing for this dry gas asset against a backdrop of low gas prices, I can confirm that the decision to enter the North American shale business was taken after very extensive deliberation and due diligence. The analysis that convinced us of the potential of this business remains robust. And we are confident that our low-cost position, and broader oil and liquids exposure, will enable us to create substantial long-term value for our shareholders in this business.

So our committed capital expenditure program continues largely on low-risk, high-return, Brownfield projects that will, by and large, deliver first production before the end of the 2015 calendar year. Let me note a few examples.

A run rate of 220 million tonnes per annum in Western Australian iron ore before the end of 2015 financial year; copper production growth of approximately 50% in Escondida; Queensland coal growth of approximately 50% over the next three years, as we recover from the challenges, and as projects are completed.

And then, a reminder that the restart of our Atlantis and Mad Dog facilities producing the most valuable barrels in the world of crude oil and condensate. Then, lastly, accelerated development of our Eagle Ford acreage will put us on track to produce an average rate in excess of 200,000 barrels of oil per day in the 2015 financial year, with a prospect of 80-20 oil and liquids to gas revenue mix. Incidentally, this would make the Eagle Ford the largest producing field in our Petroleum business.

Let's talk about even longer term. We are really fortunate to have a large resource endowment in our major basins which provides us with all of the options required to sustain and grow our business for the foreseeable future, in line with our defined, diversified, core offering and strategy.

Like any past capital commitment, and likely commitments that are being executed right now, all of our projects will continue to be scrutinized multiple times as they move through our approvals' process. And, as always, the highest-return projects will be prioritized.

Value has been, continues to be, and will be, our primary consideration. In that context, we've decided to study an alternative, less capital-intensive, design of the Olympic Dam open pit expansion involving new technologies. And when I say new technologies, these are things that we've been studying for the last six years or so, pretty much since we started the project, that has the potential to substantially improve the economics of the project.

As a result, the Group is not in a position to approve the Olympic Dam project before the Indenture agreement deadline of December 15, this year. We're not yet certain what this means for the Indenture itself, although we are, and will, remain engaged with the South Australian Government on this important issue.

Shifting to potash; in potash we have established a major presence in the Saskatchewan basin, and the team has made significant progress since I last discussed our plans. Two underground shafts, that will support at least an 8 million tonne per annum mine at Jansen, are well advanced, and their excavation is scheduled for completion before the end of the 2014 financial year.

The shaft collars are both excavated and lined to nearly 50 meters. The shaft sinking head frames are being erected. And I was hoping to show you a picture of the boring machines being installed, but we're just a few days too early for that.

In its fully expanded state, Jansen will operate at the bottom of the cost curve, and generate strong investment returns. Existing pre-commitment funding will enable us to further advance this project in the 2013 financial year, as we work, importantly, through the final engineering design, and all of the mining lease conversions that are required before we can take this project to our Board for full sanction. Additionally, in the wider Saskatchewan basin, we completed more than 25 kilometers of exploration drilling during the 2012 financial year.

In petroleum, in the Permian Basin, we have a 440,000 acres, and a significant appraisal program is underway. Early, but encouraging, results indicate the potential for 100,000 barrel of oil equivalent per day shale liquids business, and 60 or so wells are planned for the 2013 financial year.

In Western Australia, we've been investing in growth for more than a decade. I just commented on that decade or more long production records sequence that has been set, which is testament to that investment cycle. As we optimize all of the investments in the supply chain that are stacked up on each other, and we continue to squeeze asset utilization with the development of pieces of infrastructure, such as the Mooka rail marshalling yard, we now see the potential to unlock substantial latent capacity in that supply chain.

Such an increase in productivity and efficiency of our Pilbara assets could, potentially, deliver material growth beyond the 240 million tonnes per annum production rate that we've spoken of previously. The attractive economics associated with what is, essentially, an infrastructure optimization exercise means that our initial focus, as we move forward, will be on the inner harbor, though we continue to progress a dual-harbor strategy.

Investments, over time, have played an important role in the development of our more simple, more diversified, more scalable, and more upstream, business that we often talk about. Our portfolio which, may I note, generates more cash per unit of product, and a higher level of cash flow per employee, than its peer group. The pending sale of our 37% stake in Richards Bay Minerals to Rio Tinto is consistent with our strategy.

I'm, unfortunately, not in a position to provide you with any updates on the progress of this, or the continuing review of our Diamonds business. However, I want to stress, and as I have said in the past, assets must continue to earn their right to be in the portfolio. Our willingness to act decisively if our criteria has not met has been demonstrated over many years, and most recently in the Norwich Park and the silicomanganese decisions.

While I'm not going to identify additional assets today for divestiture or closure, I can assure you that this is a dynamic and ongoing process.

Above all else, we seek to meet, or exceed, our health, safety environment and community obligations, while providing superior shareholder returns. As you can see on this slide, our strong operating performance, and disciplined execution of an unchanged strategy, has delivered sector-leading returns during the last decade for a period of exceptional growth in commodity markets.

During this period, we've returned approximately $54 billion to shareholders in the form of dividends and buybacks over the last 10 years. Our unbroken progressive dividend has grown at a compound annual growth rate of 26% over that period. While I'm proud that our low risk, high quality, and diversified strategy has delivered substantial returns for shareholders over the last 10 years, I think that we are placed to do even better, relative to our peer group, over the next decade.

A lower level of operating leverage, together with our multi-commodity exposure, ensures that we are very well positioned for the eventual mean reversion of industry returns and, importantly, given the diversified nature of our portfolio, changes in the consumption patterns of commodities that will follow.

So with that, I'd like to conclude by summarizing the key themes of our presentation. Strong operating performance and robust financial results; significant cost savings started for the 2013 financial year; strong near-term momentum in our major businesses, particularly as those that have not yet run at full capacity return to business; substantial value out of a large, well advanced, low risk set of projects that are currently in execution; commitment to continue to simplify the portfolio through selective closure and divestment of unprofitable and non-core operations; and sector-leading financial returns that our strategy has delivered.

On that note, I would like to thank you and pleased to your take questions.

I think it's best if we start in London, then I'll move to Sydney, and then the phones. It would help, if you could state your name and then address your questions to me in the first instance, and I will parcel out the questions to some of the other management team members as they fit. If I can have the first question here in London, please?

Jason Fairclough, Bank of America Merrill Lynch. Just a quick question for you on iron ore; you made a couple of comments, you said scarcity pricing of iron ore is unlikely to be repeated. You've previously said that there's a finite window here for supernormal pricing in iron ore. Then you've also gone on to say, today, that you're actually going to be net long port capacity for the next year or two. It feels the writing is on the wall for the outer harbor. You've said, we're pursuing dual-harbor strategy but really, do you need to do the outer harbor?

Jason, options. While we -- sorry, let me step back, our outlook for iron ore hasn't changed very much since Mike made a investor presentation about two years ago. If I go and overlay our most recent forecast with a graph that is on our website of two years ago, there's really not much in it. Post-2025 some tweaks on the scrap rate generation, but by and large in this growth period, no changes. However, while we'd like to think that we have perfect insight, maintaining options in our business is unbelievably important.

The way that I've explained it, many times, is that we cannot start something from scratch if a cash flow wave comes through because of a situation that we didn't intend. We can only deploy cash to those valuable options that are ready to meet that, so we always need to run option long, and we always need to drop off or defer options, as circumstances change.

And I think I've got perfect foresight because I've got a great team in iron ore, but I'm not sure. The iron ore price could be different, and having the outer harbor, if that materializes to the upside, is an immensely valuable option that we want to continue to develop.

Can I paraphrase you, so minimum spend to keep the option alive?

We certainly want to do some development, but commensurate -- we need to stage our activities commensurate with the fact that we don't anticipate any approvals over the next year, Jason.

Thank you.

Des Kilalea, RBC Capital Markets. Marius, do you think that we're seeing a peak in operating cost inflation, given what's happening in commodity markets and perhaps some pushback from companies on labor rates?

[Dave], we are determined to bend the trend. We are determined to bend the trend. On balance, prices have been reverting and costs have still escalated. How are we going to attack it? One, we've got to get the operating rate of those key assets up; we've got to get the volume dilution.

Two, we have to continue to be absolutely determined to close operations that are non-cash generating. It is tough love always in our organization over many, many years that we've got to do that.

Thirdly, as we re-sequence and re-sequence, and next year we will re-sequence our options again, we need to match our development expenditure levels, which are going through the -- some of which is going through the P&L, to the capital sequence. You can't just keep on developing options and then put them on the shelf for a couple of years. So if you know that they're going to move out, you've got to -- so that will save costs.

Then, we need to address the overhead structures that are geared -- what activity levels are they geared. We have to address the input costs, and that will come down, because much of what we consume is actually what we sell. And the combination of all of those things, we are absolutely determined to bend this trend. But I speak for our portfolio, not for others.

Now costs, when people report costs in our industry because there's not a strict accounting definition of how to present it, I get a million different representations and I, as you would do, try and decipher how a broader range of peer groups present that. It's not that often easy for me to do so, so we continue always to look at cash generation.

There is cash generation and your margin, your cash margins, that you've got on your assets, is the clearest indicator of where your cost structures are going, and that's going to continue to be our focus.

Sylvain Brunet, Exane BNP Paribas. Two questions; first on your Shale business. First, could you please --?

Which business, sorry, just didn't hear you?

The Shale business.

Okay.

The first question, whether you could share with us your gas price assumption behind the impairment, or at least the delta in price?

Second, on the number of rigs; I think, if I read slide 23 properly, you were quoting 40 rigs. Is that a decline from last year and by how much?

My third question is on the Nickel business, how --?

Can we just -- I'll come back to that, because I've already forgotten the first part of the question. Let me just try and go back. Shale, we targeted that acquisition 70 rigs, and I think that Mike is talking about 40 rigs or so, maybe a few more, maybe a few less. And Brendan and I were clear to indicate in the results' release that there's a little bit of flex in that, as commodity prices unfold.

Expenditure, I'm going to look for a nod here from my team, from about $0.8 billion spent last year to about $4 billion spent this year on that activity.

I don't have the exact number of average number of rigs that we had in the field during the past period, but I can tell you that the rig declines, on the gas side, has been very, very, very material. From memory, maybe 15 rigs in each one of those two gas fields going to, effectively, two or three, or something like that. So a big change in where the rig counts have gone.

Sorry, just trigger me on the second piece of the Shale question?

Was the delta in the gas price assumption behind the impairment?

Yes, so the impairment was done [on] all processes, to take the price protocols that we've got at year end, i.e., June 30; that's what goes into the calculation, because that's when you close the books. We don't disclose our price protocols, but I think it's fairly common knowledge that, for the short and medium term, our normal practice is to look at observable, transparent markets to the maximum extent that we can. And you should take it as read that that is the practice that has been adhered to as well, even though we've not disclosed that.

And then you had a question on Nickel.

On Nickel, yes. Just to get a feel for how far were you prepared to go in the restructuring of that business, and would you be prepared to describe part of your Nickel business as non-core within the portfolio now?

I think that the guys have done a great job in Nickel. If you look at their cost containment over the last year, Glen and the team, Paul in Nickel West and his predecessor have done an absolutely outstanding job in terms of cost containment. However, they have followed the nickel price down. And so the cost targets that we gave them some time ago, which were targeted to maintain cash generation at the nickel price that prevailed, it's no secret that since we started that process nickel prices have come off more.

So Glen is going to respond to that, and I have every confidence that he and the team are going to do that.

Aluminum and nickel are clearly non-core from an incremental capital investment. That has been very clear for a long period of time. There is no change in our demeanor or status of that.

Thank you.

Peter Davey, Standard Bank. You leave the door open in your statement, no major projects are expected to be approved. So what extraneous event will change that and crack that door back open again? What major event will make you rethink that?

And then just, secondly, in terms of the cost inflation, where is the low-hanging fruit? Which business units? Can you give us any idea?

Peter, the statement was meant to say we would be very surprised if we approved new projects in the next 12 months. So just to be crystal clear on that. We've got a very large work program in place over the next year. We, unfortunately, cannot start and stop things very quickly. We always have to steer things, and we have to build up or build down project teams in order to do so.

I would be very surprised if there is a very material investment that can be triggered in the next 12 months, even if conditions are very benign or we get a surge to the upside, because we started reconfiguring our business. Well, we're always reconfiguring it. I've described it once as you steer on the five-year horizon -- for what you see on the five-year horizon to pop out at the back end what you can do. So the statement was meant to be very, very clear about we are committed, we are comfortable. It's going to deliver, and it wasn't meant to leave the door open.

Now, with you having triggered that, there are always exceptional circumstances, but our base case is we're going to be working on the things that we've worked on.

On low-hanging fruit, for us, it's, well, taking advantage of the raw material price decreases and making absolutely certain that our normal sell-at-the-market price, procure-at-the-market-price strategy flows through the bottom line. I do think that the fact that you are adjusting your rate at which you are engineering new projects to come in, will have a pretty direct knock-on onto cash. That is pretty predictable.

Then the third question is high cost operations, and you've seen where the pressure has been. The pressure has been on our Nickel business; the pressure has been on our Manganese business; the pressure has been on our Aluminum business.

And then, lately, given the coal price decline in a backdrop of a high Australian dollar and a high energy cost, small, high strip ratio met coal and energy coal mines in Australia are at the intersection of those things. And we have to look very, very carefully at what capacity do we want to run in that business and what capacity should we not run.

Being very, very deliberate, in line with, if it doesn't generate cash, we are going to exclude you from the production portfolio, has been our hallmark, and I think you're going to see that continue to be our hallmark, going forward.

I'm going to take two more questions here, then I'll just go to Sydney for a while, to the telephones, and then I'll come back here.

Rob Clifford, Deutsche Bank. What's happened within BHP, the concept of flagfall CapEx? Your big Tier 1 assets, the Pilbara, Escondida had these originally; you appear to be balking at the hurdles now at Olympic Dam and the outer harbor. Under what conditions can you get back to the point where you can be comfortable with that?

Rob, you have to make infrastructural investments at some point in time. If you look at iron ore, we have made a flagfall investment in a complete new rail line, a couple of years ago, and now we want to fill that up.

If you look at the Queensland coalfields, in that Hay Point and in the Daunia, you're basically setting the stage for the next two or so stages of incremental production.

If you look at the shafts that are being sunk in Saskatchewan, that is the infrastructure that is going to be built out to an 8 million tonne per year mine.

I think we shouldn't confuse flagfall with changed economics. In Olympic Dam, high exchange rate, high capital cost inflation, uncertainties about the long-term uranium price outlook, changed economics, not we don't want to strip the open pit. Changed economics, have to go back, find a solution to put less capital in.

And then outer versus inner harbor. At some point, you run out of capacity in the inner harbor. It is a finite thing and there will be a time where you run out of capacity. However, we probably now view that that point is being pushed out, relative to what we saw it a couple of years ago. And we always need to take the high return business first where we can get that. But we have always got to, at some points in time, invest in major infrastructure.

Sorry, [David] and then we'll go to Sydney.

It's a sort of similar question to Rob's but maybe -- on hurdle rates, are they changing at all?

No, David, we don't change things that quickly. We don't have a specific hurdle rate, because things are so associated with product, the shape of the distribution we can expect. We have, historically, said that we hope to achieve a 15% real post-tax return on projects. Well, I hope that the $20 billion that we're investing next year will get a 15% real post-tax return.

So while there's not a specific hurdle rate, probably that gives you guidance on what we think the projects in execution are going to deliver for us, David.

Thanks very much.

Graham, I don't know how the exactly the procedure works in Sydney. Perhaps if there're any questions on that side?

James is handling the mic.

So again, just a reminder, if you could address them to me in the first instance, and then I'll try and route them to some of the other team members, if required.

Adrian Wood, Macquarie. Two questions; first of all, you talk about your commitment to a stable A credit rating. Can you just talk a little bit about whether that means you would be happy to go to single A or even A minus, or if it is a commitment to A plus?

Also, just second on the US Gas business. We've seen what happens when a lot of majors throw an awful lot of money at drilling a lot of wells in the onshore US gas and the impact that it has on the Henry Hub gas price. You, along with all of your peers, are also now all moving into the liquids-rich areas, and we're starting to see the early signs of a similar impact on the NGL prices.

Are you concerned that perhaps a strategy in this herd mentality that we're seeing could end up damaging the liquids rich part of this business as well?

Let me answer the second question, and then I'll throw that to Graham to talk about rating and gearing and so on. Eagle Ford, from memory, has, on a revenue basis at today's forward strip, approximately 20% exposed to C1, so that's methane or natural gas revenues, about 8% or 9% on C2s and C3s -- I'm digging back into my chemical engineering background here -- and then another, perhaps, 10% in C4s and C5s, and then 60% on C6s and longer chains and rings.

Clearly, we're seeing the C2 cracker feed trading at, I'm looking at Mike here, $30 barrel of oil equivalent -- sorry, even less? Yes, and about $60 for the C4s and C5s and then basically, TI for the remainder.

I think that the short-term -- there's a reason why every chemical company in the US is looking for expansion plans at the moment, but I do want to take it down to the characteristics of the individual reservoirs that we're drilling.

We are, basically, not that exposed in the Eagle Ford and, should the Permian be successful, we're, from memory, even less exposed there than in the Eagle Ford. It's basically oil, so I don't know if that helps, Adrian.

As to gearing, Graham, why don't you take that question?

Thanks, Marius. I think the important point I made during the presentation was, our commitment around capital management hasn't changed and, as part of that, we've always seen a solid A as an important part of our capital management principles.

Clearly, over the last 10 years, we've managed within that boundary condition of a solid A, but we've always talked about the solid A being an A and an A plus. If you look at our current position, we're managed towards that direction, we'd see no change.

Paul Young, Deutsche Bank. I have a question on cash flows, and a second one on Olympic Dam. First of all, I look at your FY '13 CapEx, it looks like you will be living outside your means for, perhaps, 1 year. If you look at your CapEx guidance, your progressive dividend and potential cash inflows, you're looking at a $6 billion to $8 billion funding gap for FY '13. I know you invest through the cycle and I know divestments may assist and the balance sheet's strong, but would the Board be comfortable with a $6 billion to $8 billion increase in debt?

And the second question on Olympic Dam. I'm just intrigued about this new technology, about how you reduce the capital intensity on that project. Are we talking in situ leach; are we talking getting rid of the smelter expansion? If you could just give us some more information on that.

Paul, I'll try and give you a very preliminary thing on the second piece first. Dean and the team in South Australia, and before Dean, have been working on on/off leaching of the ores for, I think from memory, for -- maybe even Western Mining may have started on that. They have progressively been scaling that up. They went from lab scale to your normal columns and cribs and so on. That you never know with the ore bodies what it leaches. The leaching cycle on this ore, as you can imagine, is likely to be pretty long before you get there, 300 days or so, maybe a little bit. But recoveries that we've seen in that scale up has been very good.

Now clearly, if you're going to do that, you're going to build not new smelters, you're going to go to a different metallurgical sequence. And while I don't want to be precise on that as the only enabling technology, that is one thing that has come into prominence as capital cost escalation has been very profound.

As to the first question on living within your means, I think that what we've said today is exactly living within our means. We are seeing a changed forward estimate of cash flow generation over a five-year period, and we are adjusting our rate of forward capital deployment in order to live within our means over that time.

Living within our means, as Alex and I used to -- sorry, Graham, to quote your predecessor -- have said many times, does not mean perfectly balancing your cash flow in any given year. But it does mean that, if you take on debt, at a given moment, if it goes outside the parameters that you'd like it to be, you've got to repay that.

So I think that we are comfortable using the balance sheet judiciously, within that overall sequence of capital allocation, and within a target strong single A gearing range.

As you said, divestitures of non-core assets, some of which are visible and some which I spoke about today which are not yet at an advanced stage, but which I clearly pointed out has always been, and will continue to be a core part of the strategy, simplify as you grow, will contribute here as well.

So Paul, I think that, rather than say what does this living within your means mean, I think the announcements today about pace of approval of new projects is a very, very serious and strong commitment to, as we have in the last 10 years, continue to live within our means.

Tim Gerrard, Investec. Just two questions, Marius. First on Alumina and Aluminum, and the second on exploration. With respect to Alumina and Aluminum, was that business subject to impairment testing in the June half? And if not, is it highly probable that that would be done in the current half?

And the second question, Graham mentioned exploration spend probably this year of around about $1.5 billion; that would compare with $2.1 billion last year. I was wondering if you could give us a rough split of that? And given that you've already told the market that minerals exploration will be wound back, it would be interesting to hear what that split would be. Thank you.

Clearly, the Alumina and Aluminum assets were subject to impairment testing. There's a slightly wider band of production and cost outcomes in those assets that are ramping up, which is Worsley.

If I look at the greatest -- our aluminum price expectations and so on, as you know, matches the forward curves. Those have not changed too much. So the biggest variable for us, as we look at our cost structures, continues to be exchange rates, exchange rates in South Africa and exchange rates in Australia. But they were subject to testing, though I do want to flag that we've got one asset that is in the process of ramping up.

In terms of exploration expenditure, I'm going to look at Graham to perhaps help split this out for us a little bit, otherwise, we may have to just come back to you offline. Graham, can you help on the $1.5 billion?

From memory, about $200 million or so is pure (multiple speakers) --

Okay, Tim, [about] half of it is [put] towards conventional oil and gas expenditure. The other half is in the minerals space, of which probably $170 million, $180-ish-million is on copper exploration for new mines. The rest is more focused on drilling out and understanding our current Brownfields.

So $750 million on conventional oil; clearly, we've given you a separate figure for the shale gas. And then $750 million on minerals, of which approximately, in engineering terms, $200 million is on pure Greenfield exploration activity, and almost of that is going into copper exploration, and almost all of that is going into the Andean region.

Graham, perhaps one more question that side, and then I'll talk to the phones for a second? Or two more questions, perhaps.

Glyn Lawcock, UBS. Marius, when you approved Peak Downs and Caval Ridge, I was pretty critical of those projects not even making cost of capital. You've now killed Peak Downs and I know you haven't started it, but you've spent a lot of money doing the studies.

Without Peak Downs, we're building an 8 million tonne washery with only 5.5 million tonnes of output. I'm trying to understand, does this project make sense? Given you were that far advanced, why kill it? And secondly, can we still expect this to make a decent return without optionality being brought into the picture?

Glyn, we talked earlier about sometimes you've got to invest in infrastructure, and clearly, this is a case where we've had to put substantial infrastructure in place.

I think what you're going to see is our coal -- we have every expectation that our Coal business is going to grow, over time. And, as you know, we would like to expand both the Caval Ridge mine and the Peak Downs mine. Those are the highest yield units for us in the year in the market.

We [hadn't] started this project spending money at a high capital cost environment when we were not certain if the market was going to be there. If we could delay at zero cost, that was the decision that was taken.

But clearly, we need to fill up that infrastructure in due course. We have every anticipation that we're going to fill up both the harbor infrastructure, the washing infrastructure and beyond, as we go forward.

Paul McTaggart, Credit Suisse. I just want to fill up on really -- I want to get a sense of what you think went wrong with gas prices in the US regarding your initial work that you did, because it's obviously had a negative impact both on shale gas acquisition and, of course, secondarily, into the coal markets as we've seen tonnage coming out of the US markets.

What do you think were the factors that you didn't anticipate, and what do you think is changing, and how are we going to get back to a rapidly improved gas price, and hence, maybe some relief in thermal coal markets as well?

Paul, perhaps taking a self-interested view, the majority of our investment went to things that had broad shale hydrocarbons exposure, so that's the first thing that I do want to emphasize.

I think, on gas, there are two things that happened. One, we had a very, very warm winter, gas usage was very low; and secondly, the rate of technological advance, i.e., the yield that the individual gas wells delivered, caused more production at given rig rates than people anticipated.

So that means that the industry kind of overshot the number of rigs that they put in on two counts; one, anticipated demand; secondly, anticipated production. What we're seeing now is that rig rates are dropping very, very dramatically.

And I'm, again, looking Mike Henry that's sitting here in front of me -- below 500 rigs now; from 900 to 500, so almost a halving of the rig counts on gas. And in due course, the decline curves will put you back into inducement prices.

What the market says, on a forward view basis, is that that inducement price is at $4.50 or $4.25 at the moment. Capital allocation in this business is pretty efficient, so my view is that capital gets allocated to the marginal unit of production there.

I think, on the coal side, if we just extrapolate a bit further, there's been a couple of other factors apart from just the gas that has been at play here. Clearly, we saw all of the peaking plant -- effectively open cycle gas turbines and other gas turbines that were built during the Enron years, getting put to alternative use, with gas generation for the first time in the last, I don't know, 30 years, exceeding coal-fired generation, in the last months, and that pushing out coal into the export market.

We should, however, also note that the differential movement of exchange rates of some of the producing commodity-based countries, relative to the US dollar, has changed some of the relative economics of coal production as well. And we've just got to take that into account as we look at cost curves, in general, shifting around. And then the last aspect is, obviously, coal production and consumption in China, combined with their exchange rates.

We put all of these factors together, Paul. We probably don't see a dramatic upside in coal prices over the short to medium term. We see recovery in markets, in general, and you've heard positive statements on our overall outlook. But I wouldn't say that we anticipate, or our base plan, is for dramatic changes in coal prices.

Let me just go to the phones here, and then I'll come back to London. If I could have the first question on the phone, please?

We currently have three questions.

We cannot hear; you'll have to turn up the volume, please.

We currently have three questions coming through for you. Heath Jansen, Citi.

I was just interested in the slide you put up, slide 18, which in effect was the supply additions required to meet demand. Just a couple of things on that. One is, could you give us some indication where US nat gas may fit on that spectrum, are we further to the left or right? And do you expect additional demand is actually going to be needed by the end of the decade?

Secondly, that chart matches your capital allocation preference. I know you said you're targeting at 15% real rate of return post tax. I'm just wondering, have you made any differentiation between the individual commodities, i.e., are you running at a lower hurdle rate, say, for potash than you would be for, say, aluminum?

And then just one final question, just in your release you also made note that you're paying retention package to Petrohawk employees, and then you've already paid out $56 million that's been expensed today. I'm just wondering whether you'd give us some details around that and the actual magnitude of those retention payments. Thank you.

Heath, natural gas you -- we haven't done a graph like that because the dropdown in natural gas production, if you stop drilling, is so quick that you absolutely need to continue to invest money in order to maintain production.

So therefore, I don't know what the -- if you stop drilling today what fraction of the gas would fall away over a 10-year period, but it would be an incredibly substantial portion. So you stop investing, your gas production falls away, which means that you go to inducement prices for marginal investment.

On capital allocation, I want to stress what I said here that we do not have a set hurdle rate. My response was in -- have you changed your overall aspiration? No. What do you anticipate you will achieve? Well, if I run through the price dec on the approved costs -- sorry, project costs, that's approximately what I come up with, across the portfolio as a whole.

For individual projects, we always have to take into account, is it expandable; how much is coming after this; what is the downside risk to the commodity price; where is the ceiling and floor prices on commodity prices?

Nickel ceiling price, I don't know, $7.50 or $8 because then you get nickel pig iron, iron ore maybe you've got a floor price in different [levels]. So those things come into play. Political risk, the product that we're in, i.e., what is the propensity for that product to remain at inducement price levels, given the rate of capacity decline, the capacity that other people hold, and so on?

So it is very much a project by project approval in which there is not a single number, magic number, that we need to get over the line.

Then on retention payments; we've probably paid about half of what we committed to. There was, clearly, some short-term commitments, some medium-term, and some long-term commitments commensurate with the level of the organization that we were targeting towards retention.

Perhaps, at a more operational level, retention periods slightly shorter, rising up through the organization in order to give Mike the opportunity to build the organization in a sustainable manner, Heath. I don't think that there's much more that I can say about that; about half of the retention payments have probably been paid out.

James Gurry, Credit Suisse.

Just a quick question on Jansen, given that that seems to the favorite project at the moment. Have you approved enough CapEx to see you through to the completion of the two shafts by the end of financial year '14?

And will you need more, and when might you need more either at the mines or, for that matter, at the port?

James, I'll take the second piece, and I'll ask the operator to just put you back on. But we'll just try and answer that first before we stack up too many questions.

We are not in a position today to approve the full project. Why are we not in a position to approve it? Well, we haven't got -- I always say you need money, you need people, you need resource, and you need all of your permits. We haven't got all of the permits in place yet to give us complete title and [tenure] security over what will be a very substantial commitment.

Tim and the guys need to deliver that. And while they've made good progress, the still need to deliver a number of key milestones there. In a sense, that is a one possible rate-determining step for the pace at which we can approve this.

Second is, we were careful to speak today about this financial year. Things will move around again and we will talk about next financial year when next year comes out.

I don't want to signal a target date for approval today. Clearly, that project has seen some drift out of a couple of months and so on, as we have looked at additional engineering, as perhaps the permitting process has been slightly slower than anticipated. And from memory, we lost a couple of months in setting up the shaft excavation, with very wet weather as well.

So I don't want to target a new date today, but have enough money, pre-approved, to take us through this financial year is what you should take from our comments today.

James, you had another piece, and if the operator can just put you back on, I'd appreciate that.

Yes, just a follow up, just on iron ore, can you tell us, is the window of opportunity's still there or have you missed it? Or is it current cost inflation that you're having an issue with?

Or if you're still running that dual track Inner and Outer Harbor process of optionality, can you talk about whether you would run into pressure with those LNG project that are being built in West Australia?

And just semi-related to that, can you talk about your offshore gas business in WA and how you see that?

James, I don't know how much money we're spending on an instantaneous basis in WA at the moment in iron ore; perhaps $1 billion a month at the moment is going into iron ore, because we're at peak investment.

We feel that we've hit the window of opportunity extremely well. If you look at our growth rates, they're higher than our competition has been over the last five years, principally because we invested money in the global financial crisis, when everybody else shut their projects down.

So we are extremely happy that we've got projects that are basically close to completion. And we've got some near-term bottlenecking, which inevitably is quicker to the market than what we would have been to the market with longer-term projects.

So I'm very comfortable that the Outer Harbor decision is not going to be taken in this year, because we've got plenty to work on. We've got a project team. In fact, we're likely to reduce the size of that project team slightly over the next period, as Jason noted earlier, as we match the pace of engineering to when the project has got to be ready for approval.

But we've got the teams in place; they've built for 10 years; they've been phenomenally successful, and so on. So I don't think that a project team capacity is really the bottleneck here for us. It's the first things first which we've got to work on.

In terms of the gas project, the operators of the two things that we're involved in is Exxon Mobile and Woodside. In the Browse project, I really don't have a lot to add, because we're only a 10.5% shareholder or so in there. And there's a well publicized and well commented on timeframe for Woodside to make that decision.

On Scarborough, I think the way I look at it is that one of the things that will come into play -- it's a fairly early stage project -- but one of the things that will come into play, as that project is examined, is that construction costs in the LNG business in Australia are not cheap, at the moment. It's not cheap because it's a very heated market. And it's not cheap because there are specialized skills involved, and because of the high exchange rate.

So I think what you're going to see, and I'll make a more general comment, is that I think that, as we look beyond the suite of currently committed LNG projects, so that's [Ictis], the three in WA, plus the two or three plants in Queensland. I think that more and more, where possible, operators are going to look at how do we externalize as much of the construction as possible to locations other than Western Australia, for example.

And I think that that will, as we look, and again, I'm taking a medium to long-term view here, I think that you're going to see operators focus more on things like floating LNG and other techniques to take CapEx out of a heated environment.

And something like that, as we progress, that early stage development, as an alternative to an onshore development, you will no doubt start seeing that being examined as well.

Let me just check with the operator. There were three questions; did I take all of them?

Abhi Shukla, Societe Generale.

Let me take Abhi's question, and then we'll move back to London. Abhi?

I have three questions, if I may? First question on your US shale assets; clearly, you are focusing on the liquids there. But my concern is, is that a sustainable process or is it a high grading of a mine, which will mean reward [to this upgrade] within a year or two?

Okay, Abhi, let me just take one question at a time, and then I'll work through all three questions with you.

Basically, what Mike and the guys have got is they've got a preferred drilling sequence in the entire Eagle Ford sequence. Now, obviously, that will change a little bit as the various NGLs and gas price and so on change, because the various pieces of the reservoir responds to those different prices a little bit differently.

But you basically have got a set drilling pattern and you're going to start at the one end and, over the next 10 to 15 years, drill it out end to end until your full field completion has been achieved.

So it's not like a mine that you're high grading. You've got a full field completion piece and it, obviously, goes from the most prospective to the least prospective, within a number of other boundary conditions. But that is no different from how a mine is developed; that you start with a high grade and then you progressively work your way through it.

But we're certainly not cherry picking the asset and poling holes over it. In fact, one of the things that Mike's whole approaches is, minimize the number of movements, maximize the number pad drills, maximize the repeatability and the predictability of the process.

Abhi, perhaps the second question?

Yes, suppose you were to invest something like a $4 billion per annum for the next decade, how will your proportion of liquids to total production evolve? And how much production are we talking about?

Abhi, I lost track of that question, if you could just repeat it quickly?

Yes, let us say you keep on investing roughly $4 billion per annum for the next one decade. So how will your proportion of liquids, as opposed to the rest of the petroleum ratio is going to change? How will it evolve over the decade? And how much total production are we talking about?

Abhi, I can't give you a 10-year forecast today, but we have released some numbers. I suggest you contact Brendan Harris and his team at the Investor Relations, and we're going to take it -- and I'm sure he'll be able to shed more light on that.

Have you got a last piece of your question?

Yes, sure, thanks. This question is on you cash cost of the Petroleum business, and it appears that they have gone up quite a bit from the first half to the second half. Your revenue is down just about $500 million/$600 million, but your EBITDA is down $1.3 billion. So why has there been such a large increase in the cash cost in the second half?

It definitely isn't a cash cost element, but it may be associated with the expenditure and the shale. Graham, I'm looking at you. I don't know if you can answer the question. Otherwise, Abhi, I'll have to get back to you.

But if I look on a barrel-for-barrel basis, actually, Petroleum has had one of the best cost controls, together with Nickel and Manganese, in our portfolio.

But, Graham, I'm looking at you.

Yes, Marius, there certainly is a change in the DD&A costs after the acquisitions of Fayetteville and Petrohawk, so there's a higher allocation to each unit cost. But on a cash cost basis, Petroleum's actually trended very well.

I think you're looking a DD&A number in shale, but again, Brendan and the team can help you.

At the risk of making people mad here in London, I'll close on the telephone lines. I'll take one last question here in London, and then I genuinely do need to close this out. And I'm sure we'll have an opportunity post this to do.

So without wanting --

Tony Robson, Bank of Montreal. The need to improve the technology at Olympic Dam suggests several more years of work is required there. And that would suggest, again, a multiyear delay before the Board ratifies that project.

Well, certainly it's not something within the FY '13 financial year. New technologies have to be proven properly. And as I've said, I think we worked, from memory, on some of these, I just noted one, for the last six years or so. So you do measure things in years as opposed to months. But I don't want to be drawn further than that today.

Look, I'm sorry that I can't answer all of the questions. Let me close.

We've had a strong set of results. Instantaneously, there's three businesses that are going to have huge upside as we go forward. We've got $20 billion of projects that are nearby, well advanced, on budget, on schedule, targeted towards the core products that we target.

We've got an environment where mean reversion actually favors our strategy of higher margin, lower operating costs, lower operating leverage, more diversification, relative to a situation where prices increase and where single commodity companies normally perform better.

So we've got a great story. We've had great results; we've got a great story. We're going to have great growth in a portfolio that we believe is the defining portfolio in the industry, and with growth rates in volume that are very, very material over the next couple of years from things that are on budget, on target, and in core products.

Thank you very much for your time this morning. Thank you.