必和必拓 (BHP) 2021 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the BHP Full Year Results Investor and Analyst Teleconference. I advise to you that this conference is being recorded today. (Operator Instructions) I would now like to hand the conference over to Tristan Lovegrove, BHP Group Investor Relations Officer.

Thanks, operator, and hello all. Thanks for joining for today's Q&A conference -- telephone conference on the back of our full year results and strategic update.

I have with me Mike Henry, our Chief Executive Officer; and David Lamont, our Chief Financial Officer. For those of you who may not have seen the video, it's on our website, so feel free to look at it afterwards.

But with that, I'm going to hand it over to Mike.

Well, thank you, Tristan, and welcome, everyone. There's a bit of news to unpack this morning. Alongside a great set of results and a record dividend, we've also announced today a series of strategic steps that are going to unlock further value for shareholders and set BHP up even better for the future.

I'll touch on the details of the plans in a moment, but first, did want to cover this strong set of results that we've just announced. We achieved these results through many challenges over the past 12 months. And this is all thanks to the talent, hard work and resilience of 80,000 people right across BHP as well as the support that we've had from suppliers, customers, communities and governments around the world.

Now our strong operational performance, capital discipline and the ability to meet the strong buoyant markets that we've had for the commodities that we produced has underpinned a great set of financial results. We generated record free cash flow. Return on capital employed strengthened to 32%. The balance sheet, of course, remains strong, and we ended the year with net debt of $4 billion. That allowed us to declare a record final dividend of $2 per share, which delivers total returns to shareholders of $15 billion for this past year, a payout ratio of 89%. And in the past 3 years, BHP has returned more than $38 billion to shareholders.

Very importantly, of course, these results were achieved safely. 2 years, 2 full financial years running now without a fatality in BHP and we've seen sustained improvement in key safety indicators. We achieved several production records across the company and our 4 major capital projects were executed on time and on budget in spite of the pandemic.

We progressed exploration and development activities in copper and nickel, commodities that are leveraged to the megatrends of electrification and decarbonization. We kept a tight control on cost through the controllable factors of cost which allowed us to extract maximum benefit from high iron ore and copper prices.

If I then -- so a very strong set of results. But of course, we're also announcing today a number of strategic steps for the company as well. These include Jansen Stage 1, the investment in the potash project in Canada. That opens up a new growth front for the company and a future-facing commodity in the world's best potash basin. Jansen Stage 1 itself offers healthy returns, long -- and a very long life with the potential to operate for up to a century or more. So this is an exciting new chapter in BHP's history.

Through the merger of our petroleum business with Woodside also announced today, we will create a top 10 global independent energy company. Through synergies and a stronger combined business, this is going to grow value for BHP shareholders right through the energy transition. Finally, we've announced the intent to unify our corporate structure to a single primary listing on the Australian Securities Exchange. This is going to make BHP simpler, more agile and it's going to set us up even better for the future.

Finally, in closing, the products that we produce are essential to global economic growth and decarbonization. The world is going to need more of copper and nickel for renewable power in electric vehicles but also iron ore and high-quality met coal to produce the steel for infrastructure, including the infrastructure for decarbonization and of course, the world is going to need potash for sustainable global food production.

We are actively positioning BHP to meet the needs of the world, the trends that are unfolding around us. And through doing so, we'll be able to continue to grow value for shareholders and other stakeholders. Now I know that today we've given you a lot to absorb. The -- but if I were to leave you with a couple of things, it would be that as we've demonstrated through our strong results, we're safe. We've got reliable operations, we're continuing to invest in people and technology.

BHP has never been better positioned. We're [matched] it. With the more -- with unification, we'll gain greater efficiency, we'll be more agile. And that, combined with our investment in Jansen and our ongoing efforts around future-facing commodities will ensure that we're a future fit. So we're well placed to deliver value today and value and returns over the long term.

I'll finish there and open it up for questions.

(Operator Instructions) Your first question comes from the line of Paul Young from Goldman Sachs.

Mike and David and team. Well done on the transformational announcements, especially the unification. I want to look at BHP Mike post the exit of the Petroleum division I understand the rationales combining the 2 oil businesses. I do question the valuation though.

But just so that you have said over the past decade or so that oil has provided BHP with more stable margins and cash flow, less earnings volatility versus mining peers. What financial benefits does the board believe that BHP will receive by divesting Petroleum, i.e., lower cost of capital or a higher market multiple if they were just to explore that and what the Board's view is?

And then secondly, I've got a question on growth. If I look at your portfolio, the half of your production growth is from Petroleum, in fact, it is probably 2/3. So look across the other commodities, Jansen Potash, resolution and [OPM] copper et cetera. They're all end of this decade, even early next decade. The question is, do you think BHP has enough future-facing growth options in the portfolio over the medium term?

Okay. Great questions, Paul, a bit to unpack there. And I'm going to ask David to just perhaps elaborate on the -- or talk to the point on cost of capital and so on.

But let me talk first about the back half of your question, which was around growth and how we see the portfolio. Clearly, and I've been clear on this for the past 1.5 years, we want to secure more options in future-facing commodities and we're building momentum around that. So we have made inroads on the exploration front with a number of exploration tie-ups over the past year.

We're continuing to invest in innovation to get more out of the resources that we already have. And you'll see -- you would have seen recently that we have an offer out there that's supported by the board for a company called Noront in Canada, which I acknowledge is a longer-dated growth option. But then you couple that with the investments that we've announced today in Jansen. And I think you can see that we are, one, building momentum; and two, unlocking some nearer-term opportunities for growth in future-facing commodities.

The other thing I would note is that we are -- we will see growth in copper, for example, in the coming years through the Spence Growth Option that we've just seen first production from. We have more stable operations at Olympic Dam. We'll continue to look at how we can debottleneck that asset, and we have some growth on the 5-year horizon from Escondida as well.

So some growth, more to do. But importantly, we're positioning the company to better in terms of the proportion of the portfolio that's weighted towards future-facing commodities. David, perhaps if you might just want to comment on Paul's question around the benefit of diversification and cost of capital.

Yes. Thanks, Mike, and thanks for the question, Paul. I think just to set the context a little bit here, as we look forward over the next 5 years, petroleum would have been roughly 1/3 of our overall capital expenditure. So one of the things that comes through the announcement today of the merger with Woodside, is we now actually take that capital out of the portfolio, put it into an entity that will be better able to manage the overall portfolio and the growth as an energy producer in the oil and gas side of things.

And so I'll just point out that the shareholders that wish to still have exposure to that still do as part of the overall equation. Certainly, what you've seen though over the last couple of years is the overall cost of capital for oil and gas producers has increased and where we're at now, it's pretty much on a par with where we would see the Minerals business. That wasn't the case a couple of years ago.

And so that has had an impact to our overall cost of capital. And we think that the shift here enables us to prioritize more capital into those future-facing commodities that Mike mentioned and gives us a better return in that context.

So look, I think that's a good -- just 1 final point, Paul, on your question. It's a good point that David makes around ongoing access to the growth and upside, which comes back to your point around valuation as well. We think the valuation here is compelling. And of course, we're unlocking further value for shareholders through the synergies. But in addition to that, shareholders who see even greater value, of course, we hope that they will continue to hold the merged entity, and we'll be able to enjoy any upside. Operator, next question.

Your next question comes from the line of Jason Fairclough from Bank of America.

Yes. Congrats on the announcement. It's great to see somebody taking a view. Just a couple of quick ones for me. So first on the portfolio. So fascinating strategic moves today clear pivot away from carbon with the exit of oil. I guess, Mike, how are you thinking about the remaining portfolio of products, which have a high Scope 3 carbon footprint?

How will BHP be involved in this issue of decarbonizing steel. And then second, just on the DLC reunification. Can you remind us which assets actually remain in the PLC? I think it's mainly just thermal coal. And so is the sale of those assets a prerequisite for the collapse of the DLC?

Okay. So let me address those in reverse order, Jason. Assets that remain on the PLC side of the business are the 2 remaining thermal coal assets. So that's Cerrejon and New South Wales Energy Coal. And then we have Pampa Norte and Antamina or the assets to remain. And know the sale of those assets is not a prerequisite for unification because even with those assets there, less than 5% of BHP's profit is now being generated on the PLC side of the business.

So we think unification is compelling either way. Now in terms of the -- your question around portfolio and Scope 3. We also announced today and I recognize that because of everything we've announced it probably wasn't the first thing that jumped out at people. But we are committing to go forward with a say on climate advisory resolution at this year's AGM which will be centered on our climate transition action plan.

So we'll be elaborating further on our views around how we address climate change going forward. But I would take you back to last September, when I announced a series of new climate change targets and goals and one of those was a series of actions around Scope 3. And so what you've seen us do in the past 12 months is enter into quite a number of collaborative partnerships with steel mills and in the maritime industry to decarbonize those value chains.

What's been less visible is some of the investments that we've been making into breakthrough technology companies that we believe can further drive decarbonization of steelmaking over the longer term. Now we do believe that those technologies will take time to get -- come to full fruition and get deployed on a wide scale. And in the intervening period, we think that steel mills are going to need to drive more efficient blast furnace operations.

That's going to require higher-quality hard coking coal. And so we think that there is a value opportunity for the best quality coking coals, and we have the best of the best in the BHP portfolio. The final point I'd note, Jason, is that as the decarbonization thematic strengthens, we're expecting there to be infrastructure upside for all the infrastructure that's required for decarbonization. That's going to require more steel, and that will be a benefit to iron ore and met coal.

Your next question comes from the line of Liam Fitzpatrick from Deutsche Bank.

Congratulations on everything you've announced. Two questions from me. So firstly, on the DLC collapse. Based on your analysis and I'm assuming the advice that you've had, can you give us any color on where you expect the ownership shares between Australia and Europe to trend to, say, once 2 years post completion.

And do you have a view on where you think that valuation discount between the LSE and the ASX will move to. And then secondly, on kind of the growth in M&A point, maybe I'll ask Paul's question in a slightly different way. Does the exit from Petroleum make you more on the lookout for bigger M&A opportunities in copper and nickel or do you expect your focus to remain very much on earlier-stage opportunities?

Okay. Great. Thanks, Liam. So I'm going to ask David to jump in here shortly. But if I just talk about a few of the points that you've raised, and again, I'll do them in reverse order. So growth and M&A, we were clear well before the decision now that we've taken on creating this new top 10 independent E&P company with Woodside to grow in future-facing commodities. So that intent remains unchanged.

But we've demonstrated that we're going to be very disciplined about how we go about doing that. And the -- we have 4 levers available to us. One is innovation, get more out of the resources that we have more economically. Two, exploration. Three, early-stage entry and finally, M&A. Given where commodity prices have been at and therefore, where asset valuations have been at, we have been very focused on the first 3 of those.

Now in the fullness of time, if opportunities arise for M&A and those opportunities compete well into the capital allocation framework, of course, we'll be ready to pursue them, and unification will give us greater ability to do so with maximum ease and in the most competitive way possible. So part of the unification is about giving us greater strategic agility if and when opportunities arise. But know, by stepping out of petroleum, it doesn't cause us any greater focus on capturing more future-facing commodity opportunities than we already had.

Your question around what do we expect is going to happen with the valuation. So here's the thing. Nothing actually changes in terms of the underlying BHP business. Management remains the same. The board remains the same. Most importantly, the assets remain the same. So all of the cash flow that we're throwing off today and that we're seeing as a result of this incredibly strong operational performance, that remains exactly the same post-unification as it is preunification.

And so if we look at the kind of the ASX and the value that is imputed into any single Limited share, it remains unchanged. And the question might come about, about franking credits, and we will still be able to issue fully franked dividends on -- for -- under Limited for a long time yet.

So we certainly don't see any of the underlying fundamentals that are driving value for Limited currently changing at all. David, is there anything you'd like to add to that, including the question around how we see ownership to play out over the coming 2 years as things settle.

Look, Mike, I think you've covered it off well. In the context of -- at the end of the day, you said, the fundamentals underlying the Limited share price don't change. The assets still remain the same. What we do have now though is, obviously, with the franking side of things, we're not having to use the DDS to fund a dividend across to PLC, which then doesn't get distributed directly to shareholders, whereas what we will have as a single entity on the ASX, whereby the franking will be available directly to shareholders of Limited now.

So that's something that at the end of the day, we'll leave it up to the market to decide what that value of that is and how the share price performs. But we'll leave that to the likes of yourselves to work through. But from our side of things, this is about simplification and ultimately making the organization a little bit more agile as well.

Now Liam, I'll just close out by saying I am personally very keen to ensure that the PLC shareholders in BHP today continue to hold BHP. And our commitment to this market, given the depth of the market here, the amount of active money that flows through the FTSE means that this is going to remain a very important market for us going forward.

And therefore, our engagement, ongoing engagement with shareholders here isn't going to change. Probably the final point I would note is that in terms of actual U.K. domiciled shareholders in terms of beneficial interest, it's about 25%. So there's a lot of international money on the PLC side of the business that we'll be certainly seeking to have continue on with Limited.

Your next question comes from the line of Hayden Bairstow of Macquarie.

I hope you are well. Just on the copper nickel assets. I mean, there's obviously a fair bit of focus in the presentation about future-facing commodities, et cetera. Just keen to understand sort of how you think you can make things like Nickel West and Olympic Dam actually meaningful contributors to earnings for sure the Olympic Dam had a better year, but still not really making any money. So just understanding sort of how you're thinking about those assets and how you can bring them to a point where they become more meaningful.

Sure, Hayden. So look, the -- thank you for recognizing the improved performance at Olympic Dam because I've been quite clear that precursor to Olympic Dam being a positive contributor to BHP's portfolio is reliable operations. And we've been investing in improving operational reliability and asset integrity remediation for a few years now, all part of a multiyear program of work, that combined with improved capability on the ground has led to this record production under BHP's ownership.

Now what are we going to be doing going forward? Well, there will obviously be a bit of the investment that falls away as we get through that asset integrity program. But in addition to that, we'll be looking at further debottlenecking opportunities for Olympic Dam in the near term, which will give us a bit of upside. And then longer term, we have the Oak Dam resource that's adjacent to or nearby Olympic Dam, we'll be looking at what opportunities can be unlocked between Olympic Dam and Oak Dam.

Nickel West, we've obviously been just through a very significant resource transition, so moving out of old mines into new mines and the team there has done a good job of effecting that. As with Olympic Dam, we want to ensure that we have very stable, reliable operations as a platform then from which to grow.

One of the things that's been less visible to the market perhaps has been the significant shift that's been underway around the products that we produced and who we sell to with a very significant -- from memory, it was 85-plus percent now of Nickel West products being sold into the battery market from almost nothing a few years ago.

And you would have seen some of the recent agreements on that front, where Nickel West is seeking to be the preferred or a premium supplier of nickel for the battery market globally. Final point I would note is in the case of copper, Olympic Dam isn't our only asset. Of course, it's one of many.

We're unlocking near-term growth in copper through the more stable operations at Olympic Dam, the upside at Escondida for the next 5 years and the Spence Growth project, but we're looking to do more both in copper and in nickel. And it comes back to the 4 levers that I mentioned earlier, and we're certainly focused on all 4 of those.

Your next question comes from the line of Amos Fletcher from Barclays.

I wanted to ask firstly about the timing of the unification announcement and particularly why now? Is there a prerequisite to get it done ahead of the Woodside transaction? And secondly, can I ask what has driven the cost of unification to fall so materially?

Okay. So part of the answer to your first question, Amos, is in the second question around the falling costs. And I might ask David just to touch on that in a second. But if I just talk to the broad point around timing.

The broad answer to that is over recent years, we've seen changes in the BHP portfolio that have seen profitability -- the amount of profit being generated on the PLC side of the business fall quite markedly to now where it's sub-5%. And so the -- if we step back and look at what is the natural state for the company and how we go about making BHP as efficient and agile as it can be going forward unification makes a lot of sense.

But in order to affect that, we have to think about what's the cost of doing so. And is -- where does it sit in the stack of priorities. And what's happened -- so what's -- if I bring it into the near term around what's happened that allows us now to proceed with it, it is cost coming down quite markedly. And the priorities that I spoke about earlier that rank higher up the stack, managing through COVID, driving performance in the company, building momentum on the future-facing commodity side of things.

The teams, I think, has done a great job of getting on top of all of those. And they're either out of the way now or they're being well managed. So it opens up the ability for management to progress this, in particular, in light of the lower cost. Now you did reference the petroleum transaction there. The Petroleum merger with Woodside is an example of what becomes easier to do in a unified structure, but it's not a prerequisite. So 1 isn't dependent on the other. But I do note that, that sort of merger or demerger or any M&A activity going forward is made easier under a unified structure. David, do you just want to speak briefly about the cost, please?

Yes. Thanks, Mike. Let me start by actually saying it's worth just noting that what we're talking about here is quite different to what was originally proposed by the Elliot side of things whereby it's the Limited being the headcount, and that does have some impact.

We've flagged that there's about $1.2 billion in reduction in costs. The remaining costs are largely stamp duty related in the acquisition by Limited of the PLC shares. Then the bulk of the reduction of the $1.2 billion is driven by partly tax losses, and you would have seen at the half year, we derecognized the tax losses for New South Wales Energy Coal on the basis that they wouldn't be utilized. So that benefit has gone away.

And then the other major component is the resolution that we got on the marketing structure as well as part of the settlement that we reached with the ATO. So that's the bulk of the $1.2 billion reduction.

Next question comes from the line of Myles Allsop from UBS.

Just again on the DLC and obviously, the cost dynamic has changed. But you also a few years ago, talked about the practicalities of getting the shareholder vote over the line for each set of shareholders. Can you just remind us what the vote is. I think it's 75%.

And have you talked to any shareholders whether in Australia or in the U.K., and that 25% of index funds, do they typically vote in these situations? Because clearly, that would be a blocking stake for the PLC vote as such. And then maybe just on Jansen as well. Just as you said these consensus prices to get to your 12% to 14% IRR. Is that still around $340? I mean if you spot for potash prices, what would the IRR be there?

Thank you, Myles. So look, I'm probably going to pass the question on Jansen pricing. Roughly, it's in that space, but I will ask David to speak to that. Just on the issue of shareholder vote. Yes, it's 75%, both for PLC and Limited. Question of have we had engagement with shareholders? Of course, we have ongoing engagement with shareholders over time.

But in respect to the specific announcement today, that engagement unfolds from here. We think the case for unification is pretty compelling. And when we've spoken about practicalities in the past, of course, that was given the circumstances at the time when costs of executing unification were much higher, whereas costs have now come down.

So we think that it's become easier to effect. We have examples now of where the company's ability to manage the portfolio and create value for shareholders is demonstrated or can be demonstrated to be simpler under a unified structure. And we have a live example of that currently with the petroleum transaction. So we think that combination of lower cost, the inherent logic of a simpler, more agile company being better for shareholders over the long run. And then that backed up by the live example that we have underway around the merger with Woodside, we think is something that will be supported by shareholders.

David, would you like to speak perhaps to Myles' question on potash pricing and IRRs?

Yes. Thanks for the question, Myles. As you correctly said, we've quoted 12% to 14% as the internal rate of return. I will also just reference here that there's not only the price but you also need to think about the FX component into the overall mix. That 12% to 14% is based on both CRU and Argus prices. And certainly, if you look forward on the CRU, they're about $341, roughly where they're at and Argus is sort of $292. So there's a bit of a mix in that. And then we've referenced that as part of that range that we see on the 12% to 14%.

Clearly, spot prices would be a positive to that. But I would just say to you, we don't sort of look at spot prices as being a sensible way to view an internal rate of return for a project that is as long as this one. So quite frankly, I don't know what it is.

Myles, the -- just probably the other thing, just back on your question around the vote, I do want to be very clear here that for active funds, we're -- well, for all PLC shareholders here, we're very keen to see them continue to be part of BHP or hold the shares for the secondary listing or directly in the primary listing.

And we think that they'll all see the upside or the positive story in simplification. Now you did mention 25% of PLC being index funds the number is actually about 14%, 15%. But yes, I think the overall story here is very strong.

Your next question comes from the line of Alain Gabriel from Morgan Stanley.

I have 2 short questions. The first is the simpler structure will allow you to focus on the RemainCo and the biggest asset there remains iron ore. Should we think about this business as being on autopilot? Or should we think about some growth options being exploited in the next 2 to 3 years? That's the first question.

And the second question is on capital allocation. Can you give us a teaser of how you expect that -- the framework to change when the dust settles around the portfolio changes, including how you plan to manage your balance sheet and net debt target changes?

Okay. Terrific question. So no. One thing I can say definitively is no business in BHP is on autopilot. I do take your point, though, around growth or not. And in the case of iron ore, it's all about value. And so we elected a number of years ago now to really position this business to compete going forward. And that was through making our operations much more reliable through ensuring that we were managing costs as tightly as possible. And you know we continue to be the lowest-cost major iron ore supplier in the world and through improving the average product quality of our suite of products out of iron ore recognizing that going forward for the reasons I spoke to earlier about last steel mills wanting to become more efficient we needed to further uplift our product quality.

And we've done that with the South Flank investment that we brought on recently, which will give us higher average Fe grade and an increased proportion of lump. All of those things go to the ability for the business to be able to compete most effectively going forward, generate maximum margins and therefore, maximum value for shareholders.

Now when it comes back to growth, we will -- there's no intent to pursue a growth agenda in iron ore today. If market circumstances ever warranted investment in growth, we will be positioned to be able to do so, but we're going to be very responsive to market circumstances or market signals on this. If I then turn to capital allocation, this is something that David is very passionate about.

I'll just start before I hand it across to David, by saying that the capital allocation framework has worked wonders for the company in recent years. And I think we've been able to demonstrate our discipline in applying that capital allocation framework. So the broad belief in the capital allocation framework remains -- and the resolve around it remains unchanged. If anything, as strong or even stronger today than ever. But David, you might want to enrich the response on this.

Yes. Thanks, Mike. Let me start. Your question was what will change. Let me tell you what won't change. That is that we will continue to maintain a very strong balance sheet and that we will also look to continue to pay at least 50% of our -- as a payout ratio on the dividend side of things.

So no change to those fundamentals. You did ask, can you get a bit of a teaser? What we have said is that we'll come back to the market in February as part of the half year results to actually outline what fundamentally may or may not change in relation to that.

I'm mindful, as I said earlier, around about 1/3 of our capital over the next 5 years would have gone into petroleum. So obviously, the portfolio change does free up that, and we will need to have an assessment of that. But at the moment, I'm afraid you're not going to get too much of a teaser rather than wait until February when we actually have a chance to do that due diligence around that and come back to the market. But strong balance sheet and dividends at 50% still is the mantra.

Your next question comes from Saul Kavonic of Crédit Suisse.

Just a couple of key questions here about the Petroleum spin-off in particular. So more of an admin question, but I noticed in the report you talk about a USD 15.4 billion valuation for Petroleum division. I want to get an understanding of value here, what oil price are you using to get to that valuation?

And if I look at the recent market cap of Woodside, the scrip offers value closer to, I think, $13.8 billion. So why are you expecting a discount versus the valuation you've put in the report here.

David, would you like to answer the question about pricing?

Well, certainly, when we've looked at the deal structure as such, we've had a look at a range of prices and obviously had a look at our own internal view, but also against market consensus and also where we see some external pricing as well. So I'm not going to tell you exactly what our price forecast is.

But certainly, we're very comfortable with where we've got to through both the due diligence that we've conducted on Woodside, but equally of their due diligence on us, and we think that the 48-52 equation is an appropriate mix. Now obviously, that's as at the 1st of July 2021. And we will continue to ultimately need to go through the regulatory and the requirements for approval to get the transaction done. But effectively, we've come to a point on a consensus view with them around the pricing that we've used to get to that 48-52 split.

Look, probably the -- I would just want to reiterate that the -- a couple of things. One, in considering transaction value, you have to -- it would be appropriate to look at price over a period of time. But the second thing is that there's upside here for shareholders in terms -- because BHP shareholders, those shareholders who elect to remain part of the merged entity, are going to have access to the value that they would have had access to anyway plus synergies and any further upside that they see in the market.

So this isn't quite the same as a sale. This is a merger. And BHP shareholders will continue to have exposure to value, including the value that gets unlocked through synergies.

Your next question comes from Tyler Broda of RBC.

Great. Mike and David congrats, honestly a big bang, it's great to see action on the portfolio. I have 2 questions. The first one, I guess, in context of the share prices, you could say PLC trades at a discount or that Limited trades at a premium, so the fracking credits, et cetera. Just curious, how did the 1-for-1 unification ratio arise? And is this effectively required because of the shareholder agreements?

And then secondly, just on the tax losses from thermal coal. You've written those off, but are those still available considering product prices have been much as they have? And is it possible within a transaction that those could be monetized?

Yes. Great. So I'll ask David to speak to the tax losses and then David after you are finished, I'll speak to the unification ratio.

Yes. So certainly, what we have done is as long as we hold New South Wales Energy Coal, they will be able to access any tax losses that exist. So whilst we have derecognized those, they aren't lost in that context.

But the key that sits with that is, obviously, we've had a look at the longevity of that and where do we see ultimately those utilization being used. And it would certainly be a long period of time before we would be able to utilize a substantial portion of those tax losses.

Is there a way to monetize those? No, in short, because they're linked to that entity. And there's obviously requirements around continual ownership and continuity of businesses. So there is no way that we are able to actually monetize those other than see the New South Wales Energy Coal business utilize them.

Now, Tyler, coming back to your question around the unification ratio. Perhaps the easiest way of thinking about this is we start from the perspective of wanting all PLC shareholders who currently own BHP to continue to own BHP. Today, they have access to our future dividend stream. And through the one-for-one exchange, they will maintain access to exactly the same dividend stream going forward.

For BHP Limited shareholders, preunification they have access to that same dividend stream, and it will remain the same after unification. So for all shareholders, be it shareholders on the Limited side of the company or the PLC side of the company, you continue to own BHP. Things will remain unchanged in terms of the returns that they'll see from BHP going forward with that ratio. Other than, of course, we think that BHP is going to be set up better to continue to grow value and returns going forward, but that's a separate point.

Your next question comes from the line of Sylvain Brunet of Exane BNP Paribas.

Thanks for doing the changes to the portfolio. My first question on DLC changes. Can you confirm there will be no impact of BHP weight in indices? And if you could also just clarify on the timing. I thought I understood from the webcast that you implied the Petroleum demerger would come first in Q2 next year. And my second question is on Chile. Have BHP revisited its risk analysis on the country at all after recent events? And how protected are your fiscal arrangements there, please?

Okay. So look, on Chile straightforward, of course, we consistently constantly revisit or reassess risk in all jurisdictions and for all parts of the portfolio.

We've recently been through an industrial relations negotiation in Chile at Escondida, which has taken away 1 of the local risk or has managed it effectively. So that's the agreement that we reached at -- with the big union at Escondida. In terms of the broader social political kind of unrest that's existed there, the country is going through a process of defining a new constitution. There has been discussion about royalty increases, as you're aware.

If we look at kind of recent commentary on that front and discussions that have been occurring in the Senate, I think there's growing recognition of the importance to the nation of maintaining competitive fiscal settings. And so the process will run its course, but we remain confident in the investment that we have in Chile.

Now how protected are we? We do have the tax agreements in place for both Spence and Escondida running to different time frames. But there is a period of time before we would see impacts arising from increased royalties. On your point around Petroleum demerger first, I think if you look at the timings, you'll see that the expectation is that unification will complete first and then petroleum, but the 2 transactions aren't codependent or interdependent.

And then finally, your point around BHP waking in the index, I should be clear here, Sylvain, that we basis the rules for FTSE Russell currently, we don't expect that BHP would continue on in the FTSE index because the rules won't allow for it. But of course, in Australia, we would become a more significant proportion of the index.

And we'll continue to be in MSCI and so on. Yes, I'd probably leave it at that Sylvain other than just to reiterate that notwithstanding the fact that we'll be coming out of the index, we're extremely -- or very keen, and I'm personally committed to ensuring that shareholders in PLC remain shareholders in the new unified entity.

Your next question comes from Richard Hatch of Berenberg.

Mike, just 1 clarification point and 1 question on iron ore. A couple of percentages were flying around there, but just for a point of clarification, is your understanding that of the PLC line it's 14% to 15% of the PLC line is held by index funds. Is that what you said?

That's correct.

Right, cool. And then the second question is just on iron ore costs and CapEx. I appreciate that you said that you have got some challenges in terms of inflation and higher diesel prices, FX and such like. But perhaps that came in a bit above where I was looking for in terms of cost.

Can we do anything? Or are there any other kind of opportunities there that you can see into the medium term to try and bring those costs back down again, I guess, they will naturally come down if the iron ore price falls and royalties come off. But is there any kind of anything operationally there that you think you can do to try and address any of that inflation that you see?

Well, yes. In short, Richard, and that is -- of course, that's baked into the numbers that we provided to the market. But I think the team has demonstrated a particularly fierce commitment to running that business as reliably and as productively as possible. And that's why if you kind of net out the noise of inflation and iron ore prices and so on, you'll see that we have improved our relative ranking, let's put it that way, or competitive position when it comes to cost.

Now there will be some things that are outside of our control. The high iron ore prices, of course, this is a good news story on a net basis and that high iron ore prices will increase third-party royalties and go through to the cost of inputs like steel.

But again, on a net basis, that's actually a positive or a good news story for BHP and shareholders, but we don't want to rest just on that. We want to be controlling costs as absolutely tightly and be as lean as we possibly can be. And I think we've got a multiyear track record now of demonstrating our ability to do that and that resolve remains.

Your next question comes from Rahul Anand of Morgan Stanley.

Some big announcements today strategically so congratulations on that upfront. Look, I have 2 questions. One is on DLC and the second one's on iron ore.

For the DLC, I just wanted to probe a bit. I mean in terms of the PLC vote, in a hypothetical scenario where you don't get that over the line how would you unlock the shares in the new Woodside, given the difference in market price for each of the lines, which would mean that there'd be a benefit for the PLC holding under a share-for-share arrangement.

That's the first question. The second one, Mike, you're in the process of obtaining the port expansion license for Port Hedland from 290 to 330. Any updates there? And obviously, the system exited the year quite firmly at that 290 level. Can you perhaps outline some of the investments you need to make in order to push to 310 and the 330. And is that move to 310 still driven by market despite you being the lowest-cost producer?

Okay. So I'll come at those in reverse order, Rahul. The securing of the license to go to 330 is still a work in process. Important to note why we've sought that so and I've tried to be clear on this previously. It wasn't -- it shouldn't be read as an intent to go to 330. It's meant as an intent not to get stuck at 290.

For all the reasons I outlined in response to the previous question from Richard, the team has been doing a wonderful job of really ensuring that, that business is humming. And you see that through kind of some of the peak rates that we reached throughout the course of the year.

And so we were faced with this bizarre situation of potentially ending up having to shut down the operation at the -- in the final 2 weeks of a given year because we had eaten up our allotment and that would be clearly an unfortunate place to be. So we wanted to get -- we wanted to free ourselves up from that. And the natural tranche to seek was up to 330.

Now what we've said previously is that if market circumstances warranted, we have a relatively easy ability to go to 310 or low capital intensity ability to go to 310. And that would be through some investments in debottlenecking at the port and some upstream mine capacity.

But we're not starting from the perspective of we want to trigger those because it would only be in response to market circumstances and the market remaining stronger for longer. So I hope that makes it clear as to why we've sought the extension. And two, that we would -- we have the ability to go to 310 and then to 330, the 310 tranche is particularly low capital intensity, but we would only pursue that if market circumstances warrant.

Now thank you for the question on the DLC because I think you're -- this goes exactly to the point of unification, making BHP more agile and that under a unified structure, you don't need to deal with questions like that. And our expectation is that, that simplicity so the compelling rationale for proceeding with unification in addition to being more efficient and management being more focused, there's real-world benefits that come in terms of BHP's ability to manage its portfolio for the future going forward. And we think that, that's going to be seen, understood and supported by shareholders.

Your next question comes from Kaan Peker of Royal Bank Canada.

Mike, David, I hope you're all doing well. Just a first question on the reassessment of the net debt target, given the strong margin and free cash flow generation by the Petroleum division would exit suggest that the range is reducing, i.e., a lower net debt number?

It's just the crux of the due diligence David is referring to? And the second question, circling back on Rahul's question. I know, Mike, you mentioned that the merger and the DLC aren't interconnected or codependent, but if the approval wasn't -- that 75% approval wasn't received for the DLC collapse. How do you see the merger progress in the PLC shares? I know the scenario is most probably considered. But can you give some detail on that? And if there is any sort of escrow period post the merger with Woodside.

Okay. So David, do you want to address the question in respect to the comments that you've made about net debt, and then I'll come back and answer the question about unification and the Petroleum merger.

Yes. So certainly, just to reiterate, what we're going to need to do is obviously evaluate what we see as the appropriate level of net debt. So as I said earlier, we'll come back to the market in February as part of the half year with where that sits.

But what we're very focused on is ensuring again, that we still maintain a very strong balance sheet that we reward shareholders appropriately, and that's where we've got to that 50%. And then the rest of the principles behind the capital allocation framework will apply to the revised portfolio.

So I just want to reiterate that what we're not doing is throwing out the principles behind the cat. We will now just apply those principles to the change in portfolio that we actually see post. And that's what we need to do. So I'm not going to preempt where that lands today. but we will come back to you in February and give you a view. But the principles still apply.

Look, and just to answer the question about the non -- my comment about the 2 transactions being -- not being interdependent, that's absolutely the case, not interdependent.

And we think that the Petroleum merger with Woodside makes absolute sense for shareholders in both scenarios because of the more resilient, stronger, more competitive company that gets created through the merger of these 2 portfolios and the synergies that get unlocked.

Now I don't want to speculate about what would happen if unification weren't in place. I would just reiterate that it's a perfect example of why unification does make sense and why board and the management are so very committed to unification. We think this is absolutely the right thing to do for the company longer term. It's going to make us more efficient, more agile and that agility matters every bit as much going forward as it may have been in the past.

I would also come back to the point that this means that we're going to have on share price for BHP globally.

It's going to be the same share traded fungibly in Australia, South Africa, U.K., U.S. And here in the U.K., we want shareholders to continue to hold BHP, but it's going to be a BHP that is set up even better for the future. And to that end, my commitment is to continue to have all -- every bit as much engagement, if not more, with U.K. shareholders going forward because we recognize this market is important and we value the shareholding that we do have out of PLC, it would just be in a different form. It would be in the -- through the secondary listing here or directly into the primary listing in Australia.

Your next question comes from Peter O'Connor from Shaw and Partners.

Dave, congratulations to a lot of news, and it's been very positive. I have 2 questions, easy ones and an observation. To kind of hit you with the observation upfront. So the DLC, there's clearly a lot of interest, and you can probably sense we're all keen it goes to a collapsed structure. But can I say there's a degree of frustration, particularly the straining that we've been going into the DLC sold out at a discount to PLC and now bringing to PLC back in at a premium.

Disappointing in hindsight, I know it's not your role back then, but just as an observation. My 2 questions are the vote. Is it 75% of shareholders that vote or 75% of the registered must vote in favor?

David, perhaps you can answer to that on a technical basis.

Yes. So Peter, it is of those that voted. 75% of those that voted.

Got it. And just back to the earlier question, another simple one, Mike, the 310, does that require a car dumper or is that only if you would at some stage in the future to go to 330 or beyond 310 would you need a car dumper, i.e., can you stretch the existing port to get you to 310 of that minimal CapEx you mentioned before?

It depends on who you ask, Peter, in that, of course, Edgar and I are both very focused on productivity and getting more out of the equipment and infrastructure that we have. So I wouldn't want to say at this point that it would absolutely require a car dumper.

But of course, if we ever came to the view that adding another car dumper is the right thing to do in terms of adding business resilience or a little bit of capacity to get there, we have the plans in place to be able to do so. But first priority is to ensure that we're getting as much out of the capital that we've already invested as we can.

At this stage, I will now hand the call back to Mr. Mike Henry for the final remarks.

Okay. Well, thank you. Look, everyone, thanks for joining. I know it's been a huge amount of news today. I want to make sure that in all of the kind of the strategic announcements today that we don't lose sight of the of the results, a very strong set of results, all founded upon much more reliable operations.

And BHP has really never been better positioned than we are today. That frees us up and it may -- now is the time to progress with unification that's going to set BHP better up for the future and to continue on this path of growing our exposure to future-facing commodities, as we've shown today with the investment in Jansen, but also with all the other momentum we've built up through the other things we've done on the exploration front and so on over the course of the past year.

So we're opening up an exciting new chapter in BHP's history, and I look forward to engaging with many of you in the coming days. Thank you.

Ladies and gentlemen, thank you for your interest. You may all disconnect.