必和必拓 (BHP) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the BHP Half Year Financial Results Investor and Analyst Q&A Session.

I advise you that this conference is being recorded today.

(Operator Instructions) I would now like to hand the conference over to Mike Henry, Chief Executive Officer, BHP Group.

Thank you.

Please go ahead.

Well, thank you, everybody, for joining us.

I have David Lamont here with me today, our new Chief Financial Officer.

I'm going to ask David to say a few words in just one second.

I'll provide a very brief introduction before handing across to David.

You will have all seen the results, a very strong first half both operationally and financially, record interim dividend of 101 cents per share, and we have underlying operational records at Wayúu in terms of production, Escondida with concentrator throughput and the best production performance in 5 years at Olympic Dam.

Projects have all remained on track.

We saw delivery of first production from both Atlantis Phase 3 and SGO during the half, and we undertook a well-timed acquisition of a further 28% stake in Shenzi.

We've continued our efforts around building up more options in future-facing commodities, and our track record of ESG leadership with new climate change commitments announced and tangible action taken during the half 2 against those commitments.

All of this, of course, thanks to the 80,000 people working across the company who have really stepped up in the face of COVID to ensure that we've been able to operate safely and very productively through this period.

So business is performing well.

Strategy is intact and advancing.

And the outlook, as we flagged, we see as being quite promising for commodities.

So a pretty compelling picture for BHP and continued strong shareholder returns and value creation.

David, would you like to say a few words before we open it up?

Yes.

Thanks, Mike.

And let me start by saying it's great to be back at BHP after more than 15 years, and I'm delighted to be joining such a strong leadership team.

BHP has achieved an impressive first half result.

Net profit before one-off items was up some 16% to USD 6 billion.

And the reliable and consistent operations, combined with the higher iron ore and copper prices, delivered strong and stable cash flow, reaching USD 9.4 billion in net operating cash flow for the half.

Impressively also was our underlying earnings before interest tax and tax and depreciation, which was up some 21% to USD 14.7 billion at a margin of 59%, which is the second highest in the past 2 decades.

Also, return on capital employed was 24%, the highest that it's been in the past 9 years.

And we were also able to keep net debt at the bottom end of our target range.

So my initial impressions of BHP today is that it is clear that the capital discipline and social value are fundamental to how the company thinks about every decision, and I'm a fan of that approach.

So with that, I might hand back to Mike, and we'll look to take questions.

So we'll just open it up directly, operator, for questions.

The first question comes from the line of Alain Gabriel from Morgan Stanley.

I guess most of the questions have been answered in the overnight session.

My question here is on climate change.

And you have laid out a comprehensive strategy to tackle climate change and has set targets for Scopes 1 and 2. I'm curious to hear your thoughts about Scope 3. How do you plan to approach this topic?

And should we expect any change in how you set your targets to include Scope 3 in the near future?

Thanks for the question, Alain.

And the -- so we -- I am very focused on committing to things that we believe are going to make a tangible difference to the world's ability to meet the climate change challenge.

Therefore, what we focused on are actions where we can bring BHP capability and funding to bear on technological solutions and policy advocacy that will help reduce emissions in the supply chain.

We've targeted 2 specific areas, being ocean freight as one of the world's biggest bulk freight charters.

We believe that any effort we invest there can have disproportionate impact.

We can magnify the impact of our efforts.

You've seen us launch the world's first tender for LNG fuel bulk carriers.

And then the second area we're targeting is steelmaking because we believe that the position that we occupy in that industry enables us to work in partnership with steelmakers on the technological advancements that are going to be required to reduce the emission's footprint of steelmaking.

And we've announced 2 partnerships in the past few months, one with China Baowu Group and the other one with JFE.

So this focus on tangible action that will lead to actual reductions in carbon emission is certainly our focus.

It's what sits behind the goals that we've set, and we'll continue to get the runs on the board against the backdrop of that intent.

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

A couple of questions from me.

Firstly on thermal coal disposal.

I just wanted to ask a question around sort of structure on that given that there's probably no real market price for the assets, and you can argue that they might struggle to fund themselves as a separately listed entity.

So does that mean the responsible rundown and rehab is the most likely outcome now, do you think?

No, Amos.

So the -- as I announced last year, when we first spoke to the market about the intent to divest, that was very early in the process for us.

We recognize that the environment is quite dynamic.

And so we did give ourselves a range of options, but the focus is really on demerger into newly listed vehicle or a series of trade sales and various variants therein.

That continues to be the focus, but we said it was going to take up to 2 years.

We're 6 months into that period and still progressing a range of options.

Okay.

And then secondly, I just wanted to ask on Jansen.

I guess the market is pretty cautious about the project.

Can you let us know what the current IRR is on it and what long-term potash price we'd need to see to generate a 15% return on IRR, please?

Yes.

So I don't want to -- in due course and certainly before we ever came forward for a sanction, we have further engagement on the latest fundamentals as we see them for the marketplace and the project.

I don't want to front run that by giving new numbers now.

What I can say is 2 things.

One, we continue to see potash as a commodity is attractive.

And we believe that towards the latter part of this decade, early next decade, we will see more price support as the market moves back into balance.

And the mega trends we see playing out around us, including the world's kind of renewed commitment or further commitment to addressing climate change, all bode well for potash fundamentals.

But of course, against the backdrop of those positive fundamentals, we also need to have a project that competes well under our capital allocation framework.

To that end, I spoke last year about my intent to really unpack the project, make sure I understood it, was behind -- across the detail.

And I've also -- in reviewing the project and brought in some third-party fresh eyes to review the various assumptions.

And as a result of that, we've taken a more conservative -- we've applied a bit more conservatism to some of the assumptions, but we've also found other opportunities to take some of the things that were intended to be part of the initial project and move them out a bit in time.

So in the round, we're still expecting capital to be within the range that we've spoken to the market about previously.

But as to how we see the price outlook beyond the fact that we do see there being better price support in time and how we see IRR, I'd ask that you just leave that for a bit later in the process.

One of the other things I would note is that in addition to the ongoing work that we have underway on the project or the -- on the ground project, we're also still walking in our port solution.

And so that's one of the unresolved items, but we're quite optimistic that we'll get that -- chase the ground in the coming months as well.

Okay.

And then maybe just one last one.

Are any of your Gulf of Mexico oil assets and the growth plans in the Gulf impacted by the Biden administration ban on new permits in federal waters?

It's -- so the broad plans, no.

And certainly, the operating assets, we are continuing to run well and we remain confident in.

But clearly, it's still very early days in interpreting what the Biden administration ultimate policy will be and what the recent decisions imply.

The whole of the industry is still working through that.

But at this point in time, I still expect that we'll be able to progress our plans as intended.

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

Look, I think you touched on this a little bit overnight, but I just wanted to sort of revisit it.

So you've written down the tax loss carryforwards in thermal coal, which looks like a prelude to an exit.

And ultimately, without putting words in your mouth, you're essentially getting rid of the tax losses that previously were cited as an obstacle to collapsing the DLC.

And so I guess the point is, does taking this write-down set up a discussion about reconsidering the future of the DLC?

Okay.

Thanks, Jason.

So the DLC -- and David, you might want to comment on this, in particular, the comments around the tax losses and so on.

But in terms of the broad DLC, that has been under review over time.

It remains under review.

You're right, the divestment of energy coal does address one of the costs that we had spoken about for a collapse, but there's a range of things we need to consider in terms of risk, cost and then the ultimate value.

And we continue -- we will continue to assess that case.

But of all the things I'm needing to deal with currently and the management team is needing to deal with, it's not at the top of the priority list.

I don't want to say that we're not cognizant of it and giving it attention.

It will remain under review.

But first priority, second priority, third priority are continuing to manage the risk of COVID, driving performance in the business, securing the portfolio of options in future-facing commodities and continued ESG leadership.

David, Jason did reference the tax situation at New South Wales Energy Coal.

Would you like to provide some comments on that?

Yes.

Thanks, Jason.

So just to be absolutely clear, we haven't lost the tax losses that are attributable to that part of the corporate structure.

What we have done is we've derecognized the asset that was attached to those losses.

And that really is on the back of the fact that we've announced, obviously, that we're looking to exit the energy coal assets, which clearly include the New South Wales Energy Coal portion.

And therefore, the likelihood of us using those losses has diminished.

And so we derecognized them.

But they aren't lost to the organization.

It's just unlikely that we'll be able to generate enough profit in that part of the corporate structure to actually utilize the losses.

And just picking up on Mike's other point, I would just also reference that one of the costs that still would sit is the stand duty that we would have to pay on any unification, which is linked back to, obviously, the DLC side of things.

So as Mike said, we need to look at the business case as it's presented and understand the benefits, the risks across the structure.

But it'd be fair to say that we like simple.

So we do start from the premise of all other things being equal.

We like simple.

It's just a matter of prioritization and then the ultimate kind of overall assessment of the business case.

Okay.

Look, just as a second question, if I could, ask you a little bit on oil.

I mean if we look at it, depending on the year, it's somewhere between 7% and 10% of revenue and EBITDA.

And on our numbers, it's getting down towards sort of 5% of group NAV.

Is it really worth continuing to reinvest in this business?

I know it's -- BHP has got a lot of history, but it is really getting down now to the point of, I won't say insignificance, but it's pretty close.

Well, the -- so first of all, we won't make any decisions on the basis of the oil and gas having been part of the portfolio historically.

So that doesn't inform the thinking at all other than that's given us a certain capability set and set of relationships that we can derive value from.

But we are very clear-eyed about our decisions around oil and gas.

And the reason that it remains in the portfolio is because we see the investment fundamentals as being attractive in oil and gas for a period of time.

We're very aware of the long-term trends that are playing out, but we think that the fundamentals around oil demand in the near to medium term and then the supply side fundamentals in terms of natural field decline, the need for more investment in new production compounded then by the recent pullback in investment across the industry, particularly over the course of the past year, we think, provides some attractive opportunities to generate shareholder value and returns for a period of time.

And the industry -- we see the industry as being attractive for at least a decade and likely beyond.

Your next question comes from the line of Myles Allsop from UBS.

Great.

Just a couple of questions.

One following up on the coal demerger.

I mean are you -- or demerger or sale.

Are you considering kind of creating a kind of combined thermal met coal type entity?

Or are you looking at thermal met coal as 2 separate entities that have to be dealt with individually?

Well, so if we were to go down the demerger route, Myles, it would be together.

Partly for efficiency reasons, we also think that portfolio would be more attractive, both for scale reasons, but also for product mix reasons than stand-alone entities.

That's kind of the working hypothesis at -- or planning basis at this point.

But again, that's not the only option.

We'll also be looking at a competitive trade sales process.

Okay.

And that includes Cerrejon, obviously, and the Samarco, not just the Australian sort of coal in the thinking?

Yes.

So we're -- it's New South Wales Energy Coal, BMC, which is the met coal -- one part of the met coal assets in Queensland and our stake in Cerrejon.

Okay.

And so going back to the DLC because there's a little bit of interest that's been starred over the last month or so.

But given that you've got this bumper dividend coming through, do you expect to use the dividend share mechanism to pay the dividend to the PLC?

Or if not, how much distributable reserves is still left in the DLC?

I might ask you to comment on that one, David.

Yes, we will, in short Myles, so that is maintained the past practice.

So you will use the dividend share mechanism to pay the PLC dividend?

Or do you have enough distributable reserves?

No, we will be using it.

I think that it's shrinking over time, but we will still continue to use it.

The next question comes from the line of Dominic O'Kane from JPMorgan.

So 2 quick questions.

I mean just going on from the previous question.

Your capital allocation framework is very, very clear with the net debt target range.

Is it right to be thinking about a share buyback to the company through calendar 2021?

Or is the dividend distribution that you've just announced, sort of how we should be thinking about this preference for dividends?

And then second question is just, I guess, given the material change in commodity price environment, what are the sort of longer-term brownfield options we can start to think about in some of your base metal product lines, specifically copper?

Okay.

Well, I might take the question on brownfield options.

And then, David, I'll pass across to you for the question on buybacks versus dividends and so on.

So the -- so let me start by saying that we've been quite constructive in our view of long-term supply and demand fundamentals for a range of commodities, but certainly, nickel, copper, potash.

And that's what sits behind the intent that we've announced previously to secure and create more options in those commodities over time.

That will afford choice to future generations of management and shareholders as to how to shape the portfolio and the extent to which to increase portfolio exposure to some of the megatrends playing out around that.

Now the brownfield options available to us, one, I would call out the fact that SGO expense has seen its first production in December.

So we already have some growth coming on in the near term.

Over the medium term, the options that we have are around -- and I'll cover copper first, and then I'll move to nickel.

So there's -- and I acknowledge that we've had a couple of fault starts on this, but at Olympic Dam, priority #1 is securing operational reliability.

That will allow us to consistently produce at higher levels than we have historically.

And having just stood down the BFX project, which was an underground high grading project, we'll go back and look at what other options are available to us in the fullness of time to extract more of that resource.

And this may come back to how we go on applying innovation to allow for greater recoveries of the resource, different smelting processes and so on.

We have the resolution project, which is in brownfield.

It's a greenfield project in the U.S. together with Rio.

We have another semi brownfields project in Oak Dam in South Australia, which is a recent discovery.

The drilling work there continues to be positive, and we'll look at how we can further -- how we can develop that resource over time in conjunction with the decisions that we take around Olympic Dam.

That's kind of in terms of what we have currently.

We then have a further effort underway around exploration, early stage entry and various partnerships.

In the case of nickel, we have the ability to expand production at Nickel West.

So little known fact perhaps is that we hold the world's second largest resource base of sulfide resources.

The challenge for us is how we go about extracting more of those economically sooner, and that's where we'll be looking at different processing options at Nickel West and debottlenecking of existing infrastructure.

Then, of course, like in copper, we also have exploration efforts underway.

David, on the question around buybacks?

Yes.

So I think the first thing I would say is you pegged it right in the context of how does that fit within the capital allocation framework.

So we've been pretty clear in how we actually want to utilize the cash that we have.

So it does sit with that minimum dividend, firstly, of the 50% and how that plays out.

But specifically, then when we come to the excess and what will we do with that, we do look at obviously a range, and a buyback is something that certainly is considered, but we felt this time around that it was appropriate to reward shareholders through a cash dividend.

We will continue to look at things on a half-on-half basis.

Looking forward, also, as I said, what other uses we potentially have for that capital.

First priority is obviously to ensure that we maintain our capital in relation to the sustaining and looking after the operations, but we want to maintain that strong balance sheet.

And as you said, rightly, $12 billion to $17 billion is where we're looking for the net debt.

So in short, every time we come to look at how we will distribute the excess cash that we have, our buyback is something that we consider along with a cash dividend this time around.

We thought it was appropriate to award shareholders directly with the cash dividend.

Our next question comes from the line of Liam Fitzpatrick of DB.

Two questions from me.

Firstly, on Jansen, just on the timing.

The approval point has been delayed several times, most recently because of COVID.

Is this summer kind of really crunch time where you will make a final decision?

Or is there a possibility that it could still be delayed beyond this summer?

And then secondly, just on -- coming back to petroleum and the strategy there.

I think it was back in November 2019, which seems a long time ago, when you outlined a potential scenario or strategy where you could grow volumes aggressively.

Is that still sort of a part of the strategy and something that could still happen if the market is there?

Or should we kind of forget about that as a potential volume outlook for that business?

Okay.

Thanks, Liam.

So in terms of Jansen, you'll have to correct me if I'm wrong here, but I think we've said middle of the year.

So we haven't -- and I appreciate that, that's kind of roughly summer, but it's -- I just want to point out that we've said middle of the year, Liam, so maybe it's a slightly wider range.

What I would say is the project remains on track to be able to take a final investment decision on it in the middle of the year.

Now as to your question of could it still be delayed, I don't foresee any delays at this point in time.

So we certainly still intend middle of the year.

And if that were to change, then we'd be clear about that.

In terms of petroleum, I think what we said back in 2019 was that we have options available to us to be able to grow petroleum.

So it's a part of the portfolio that is option rich, albeit those options are at various stages of maturity.

So some of them still pretty early stage.

Our intent at the time was to continue to mature those options and then selectively progress the best of those options, both in the context of petroleum, but also of the rest of the group when we put everything through the CAF.

Where do we sit today?

We're continuing to progress these options, be it Trion, be it the things we're progressing down in Trinidad and Tobago and the further opportunities we have in the Gulf of Mexico as well as, of course, Scarborough here in Australia.

So we continue to have a rich set of options with relatively low breakeven, sub-$40 and high IRRs.

But as we bring these projects through the development curve, assuming they still stack up, we then have to decide what order to sequence them in, not just within petroleum context, but within the overall BHP portfolio context.

Final point I'll make on this is that we did -- I was clear last year that we would invest in a very balanced way in petroleum.

So as we seek to grow shareholder returns and value through investing in new production in petroleum or brownfields production, we would also look to divest more mature assets.

Okay.

If I could just have a very brief follow-up.

Could you remind us on the 2022 -- FY '22 CapEx of $8.5 billion, how much of that or how much allowance is there within that number for unsanctioned projects?

David?

I must admit, I don't know that off the top of my head.

I'll come back to you later.

Tristan, do you...

Yes.

Tristan will pick that out on.

But we did -- as part of this result, and you obviously picked it up.

We did flag that there will be some further FX headwinds in relation to the capital.

So that's what we're calling at 8.8 at this stage.

Our next question comes from the line of Carsten Riek of Credit Suisse.

Most of my questions have been answered.

Just 2 from my side on the cost side.

You mentioned the cost overrun in the met coal business, which seems to be above the FX-related headwinds.

How do you want to fix that?

Or do we expect further cost increases in Queensland?

And the second one on copper.

Copper surprised positively.

My question is, did you take advantage of some of the measures provided by the Chilean government to cushion the cost impact due to COVID-19?

And if so, do you expect that to be reversed in the second half of 2021?

Okay.

So the -- let me be clear on the met coal costs.

We've said that we are maintaining guidance for the year on met coal.

I think what you're picking up on is the costs are higher in the first half than they will be in the second half.

Now what is that due to?

That's due to some costs associated with planned maintenance in the first half.

Now that planned maintenance then results in less volumes.

So there's a bit of a compounding effect there in terms of unit cost.

And then there has been some heavier weather in December, and then it flowed on into the next half as well.

But overall, costs are still within guidance.

In the case of copper, what you're seeing come through is the -- in the way that we budget, we had budgeted for -- so we -- we're budgeting for certain COVID impacts in terms of reduced manning on our operating sites.

And we -- that has been a little bit better than we were expecting in the first half of the year.

So the production has been relatively strong, but it's continuing on longer in the year.

So we expect the COVID impacts for the remainder of the year to be continuing or a little bit more protracted than people were expecting.

And in addition to that, we've seen some heavy weather off the coast of Chile, which is quite unseasonal or unusual, which has impacted the ability for shipments to move out in the early part of this half.

So overall guidance, we've said, will be maintained for the year, albeit we've brought up the bottom end.

So we've tightened the range, but we've elected not to change guidance for the full year.

Okay.

Our next question comes from the line of Tyler Broda of RBC.

Great.

I guess it's a bit more of a philosophical question.

The industry is a wash for cash.

We're going to see cycles for sure, but it looks as though cash payouts are going to stay robust.

Underlying this are low growth rates and investment into what looks like sort of secular increases in demand in many commodities.

I guess from your standpoint as the head of the industry's largest company, like how do you think about the current industry setup on a medium term view?

I mean are you worrying at all about there'll be a sort of a 2010 through '13-esque kind of growth boom and its associated problems?

And as an extension, are there any rising opportunities from pursuing acquisitions in your view?

Okay, Tyler.

So having been through the previous headiness of some of the times that you're referring to and then the pain of cleaning up from those times, I think certainly that, well, within BHP, there is a ton of focus on maintaining cost discipline.

So not letting costs run away from us and certainly maintaining capital discipline.

And hence, the reiteration of our commitment to the capital allocation framework and the continued provision of a pretty tight set of numbers on forward CapEx because we don't want to end up where we ended up previously.

Now having said that, the other thing I would note is we believe that this approach of very disciplined decision-making and sharp focus on productivity will still allow us to grow in line with the opportunities the market will present.

However, we do need, in our view, to secure more options for that growth to be in future-facing commodities, so things like copper and nickel and so on.

In terms of your question around, well, how much of that comes through acquisitions, given where asset values have gone over the past 6 months, the big focus is on exploration and early-stage entry, which, of course, has a bit a longer time horizon on it, but I see as still being more attractive than potentially losing our way with an ill-timed acquisition.

It doesn't mean that we won't consider acquisitions.

Of course, we will.

We have to.

But we have to ensure that any acquisitions we pursue are for good assets and that we're doing so at the right price and not getting carried away by the market.

Our next question comes from the line of Richard Hatch of Berenberg.

Congrats on a good (inaudible) numbers.

Just 2 questions.

First one is just on costs.

What kind of cost inflation are you seeing run through the business at the moment?

And is that a worry for you?

And off the back of that, if you look at the forecast exchange rates you're using for your cost guidance, we've seen stronger Chilean peso and Aussie dollar.

So how much of a headwind is that as we move into the second half and thereafter?

And then the second question is just on working capital build.

Would you be able to give some kind of clarity as to how that unwinds and over what period, please?

Okay.

I will actually ask you to take both of them.

Yes.

Not a problem.

So Richard, on the cost inflation side of things, I think it's important to firstly note what are we comparing to.

So in the prior corresponding period, one reference point would be asset, whereby we were actually effectively getting that for free in relation to just how the market had reacted initially to the COVID impacts, et cetera.

So off that base, we are seeing some cost inflation come through, and we flagged that in the numbers in relation to the second half versus the first half as well.

Offsetting that or impacting that also is obviously the FX that you called out.

As a reference point for you, in Western Australia and Iron Ore, we actually saw a 2% reduction in costs in local currency.

But when you roll in the FX side of things and the fact that the underlying business is about 90% AUD, we saw certainly the U.S. dollar costs increase through.

So we haven't updated the cost guidance from the FX side of things.

It is as we had originally said at $0.70.

So clearly, you can see, though, that if you apply 90% effectively to Iron Ore, and it's the same in the coal side of the business here in Australia, that gives you a good sort of ready reckoner, if you like, of just what that impact is looking like.

On the working capital build that you saw, roughly, a bit over half of it is actually price related.

So it's sitting in receivables.

Obviously, what we did see is an increase, especially in December, for a number of the commodities from a pricing perspective.

And therefore, that's sitting in receivables.

And yes, you'd expect that, that would unwind over the remaining period of this year.

On top of that, we did see some inventory build.

And again, that's largely timing related.

But obviously, we did have some record production, as you know, in both Iron Ore and also in Escondida that is flowing through.

So a fair chunk of that is timing related and should look to unwind.

Unwind over the course of this year, yes.

This year.

Our next question is from Danielle Chigumira of Bernstein.

Great.

One follow-up on petroleum for me.

So obviously, we saw the acquisition of Shenzi and wanted to get some color around whether further acquisitions potentially of U.S. offshore assets would that be incompatible with your longer-term climate goals.

So thank you for the question, Danielle.

I'll take this one, David.

The -- so we don't see it as being compatible at all.

And the opportunistic assets that are timed well -- opportunistic acquisitions timed well and which are countercyclical will remain in scope for us.

Now coming back to the underlying question of why is that not incompatible, it really has to do with time horizons.

So we've been quite clear that we see oil and gas becoming less attractive over time, but because we believe demand is going to be resilient for a period of time.

At the -- in the end, oil underpins so many of the processes and products that support life as we know it today and will for some time.

We think there's going to be some support for demand.

Even if demand is declining, we believe that natural field decline is going to be quicker.

And therefore, fresh investment in the industry is going to be required to meet that demand, and that will support price fundamentals.

Off that -- against that backdrop then, we believe that over the course of the next decade, the industry will remain attractive for investment.

Now having said that, BHP is very focused and have been strong advocates for action to address climate change, but we believe that, that action has to be focused on advancing the technological solutions that will allow for decarbonization of supply chain.

The policies that will support those technological advancements occurring and changes in consumer behavior.

Now it's very hard for BHP to impact on consumer behavior, but we can impact on technological advancements and policy.

And so you see a lot of effort on our part in those areas to actually reduce global emissions.

Our next question comes from the line of Tim Clark of SBG Securities.

I just got 2 quick questions on copper, please.

It's sort of more medium-term type questions.

If I look at Escondida in my model, we're mining quite significantly above long-term reserve grade.

And I wonder if you could just speak to the profile of when we -- when and how we move down towards that reserve grade and potentially any sort of thoughts that you've got on how to mitigate that decline.

And then the second question just on Olympic Dam.

I was a little bit surprised looking at the net book value of $8.9 billion and the BFX project falling away that we didn't see an impairment to Olympic Dam.

And I just wondered if -- I'm concerned that perhaps I'm underestimating the profit.

Okay.

Well, look, thanks for the question.

David -- I'm sorry, you cut out there for one brief period of time.

Would you mind just repeating the last part of your Olympic Dam question?

I heard you say up until I'm concerned that I may be underestimating the profit, but then you cut out for a brief period.

Apologies.

I'm just concerned that I might be underestimating future profitability of the $8.9 billion net book value (inaudible).

Okay.

So David, I'll ask you to take the Olympic Dam question.

So perhaps if you can start with that one, then I'll come back to the first question.

Yes.

Let me say quite openly that as I joined the organization back in December and, obviously, on the back of the impairments that we did take in the energy coal side of things, Olympic Dam was a focus for me as well coming in.

Now what I can say to you is clearly -- and I would reference the performance that we saw in the half for Olympic Dam, was the best that we had in 5 years.

And so we certainly see that with the ability to maintain that asset are around the 200,000 tonnes that it certainly becomes a contributor to the organization as opposed to where it obviously is at the moment.

And I'd reference here -- if you look at the return on capital employed slide in our pack, you will see that it clearly isn't covering its cost of capital today, which should give you some indication as to how we see that moving forward in the context of the operation.

I would also just point out, it is a long-life asset.

So it's a very large resource and reserve that sits underneath Olympic Dam.

And so the challenge that we have now is how do we ultimately look to utilize that position that we have.

But we certainly did.

And as I said, coming in new -- with a new set of eyes, we certainly did test pretty hard the impairment of that asset and feel very comfortable that the future will deliver above that net book value.

Okay.

And I'll come back to the first question around the Olympic Dam grades.

So you're right, production over the next.

Escondida.

Sorry, what did I say?

Olympic Dam.

Escondida.

Escondida grade will decline over time, but we'll continue to see strong performance over the next 5 years and certainly higher at the back end of that period.

Now I think the real question then is, well, what are we going to do to try to mitigate the decline in grade?

And you've seen some of those actions already underway over recent years.

So we've called out for a few periods now the fact that we're getting record throughput through the concentrator.

So that's been one of the things that we've been doing to offset the more recent declines that we've had in grade, and that effort will continue.

And that's -- the combination of that focus and our 3-concentrator strategy has allowed us to maintain production at an average of around 1.1 million tonnes per year.

So lots of effort going into uplifting productivity, and then we'll continue to look at other productivity measures and other innovations that we may bring to bear at Escondida over the medium to long term, albeit acknowledging that with the grade decline that's occurring in due course, we will see a decline in production.

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

My first question is on the dividend payouts.

You consistently basically paid above the minimum 50%.

Do you think, obviously, it's a good problem to have?

Is there a case where you could consider rating this minimum level as a way for income funds to bake that into their assumptions?

And second, Vale basically secured some framework agreements with authorities around Brumadinho, do you think that could accelerate the regulation of the Samarco situation there?

Any sign of your dialogue making some progress there on the back of that or not really?

Okay.

I'll take the question on Samarco, and then I'll pass to you, David, on dividend.

But -- so then, what I -- so first focus around Samarco, we have to keep in mind, it's actually progressing the underlying work of remediation, resettlement, compensation and, of course, restarting Samarco itself.

So we've had success in the past 6 months in terms of getting Samarco back up and running.

That provides benefit into communities and to local businesses and so on.

We've had -- we've been making some much stronger progress in terms of compensation.

Environmental remediation has continued, and water turbidity levels in the river and so on are back to pre-dam failure levels or better.

And now the resettlements themselves have progressed more slowly than we'd like because they've been most disrupted through COVID, but we are making some progress there.

So I just wanted to get that out there.

Now your question is around the Brumadinho settlement on Vale, don't want to comment on the terms of that, but we -- of course, there's always an openness to sitting down and discussing the situation at Samarco.

But that's -- the primary focus is actually getting the work completed, and that has to happen in all circumstances.

On the dividend side of things, I think we've been pretty standard in saying that the 50% is the minimum level, and you should think about that through the cycle.

And so if you look at what we have actually done, we've clearly paid out above that, but I would still say that, that 50% is a robust number alongside the cycles that we potentially have ahead of us.

So I don't see that we'd be looking to raise the minimum up.

(Operator Instructions) Our next question comes from the line of Myles Allsop of UBS.

Yes.

Just following up on Samarco to start.

So do you see that still as a core part of the portfolio?

Are we getting close to a point where you may consider exiting it?

Or do you need to see all the remediation work done before thinking about exiting?

And what's on the balance sheet at the moment?

I'm surprised there's no write-back of the impairment.

Now it's starting to pay for the environmental costs.

So we have a provision, obviously, but the asset itself is valued on the books at 0. David, do you want to elaborate on that?

And then I'll talk about the portfolio question.

Yes.

So certainly, you would have actually seen that we did take a further charge actually in the half to the provision.

So yes, it is pleasing that Samarco is up and running, but that did occur in December.

And that does at least enable us into the future that, that cash that's been generated in the asset can go towards some of the costs, et cetera.

But we did actually take an incremental roughly 300 into the provision, which is largely linked to delays in costs that we saw alongside COVID impacts, alongside the housing that we need to obviously do.

So to that end, certainly, it's pleasing that Samarco is up and running.

That will help, but we're certainly not in a position to write back anything at this point.

Now in terms of the question around is it core to the portfolio, the answer is no.

Of course, Iron Ore as a commodity is core to the portfolio, but not that particular asset.

But the focus at this point is all on completing the kind of the remediation, resettlement and compensation work there.

Okay.

Maybe another quick question on Iron Ore.

And when do you expect to hear back on the (inaudible) license for Port Hedland?

Look, it's a work in process.

I don't have an exact timing on that, Tristan.

No.

Look, I don't have a timing to give you, unfortunately.

What I will say is that these processes are always quite extensive and technical.

So there's a lot of work that occurs around in terms of information exchange, assessment of things, but we have a long track record of going through these processes and being able to demonstrate that we can meet the conditions set out by the regulators.

So my expectation is that this will be like previous processes.

We'll need to work through any concerns that the regulator has on any of the kind of the environmental front, but I'm confident that we'll be able to demonstrate our ability to run at those higher rates safely and in a way that meets community expectations.

Okay.

Maybe one very last question for David.

Where do you see -- as fresh pair of eyes in the business, where do you see the biggest opportunities?

Where can you make the biggest impact with BHP over the next couple of years?

Yes.

Look, let me say upfront that one of the reasons that I came back to BHP and joined BHP is fundamentally, it's not broken, but it's a matter of how do we continue to evolve and move things forward.

So joining the strong leadership team and the strong operational performance is a great foundation.

So I'll catch the next comments in that light.

I mean one of the things that I would say is we need to obviously be pretty agile in how do we go about making decisions moving forward.

One of the experiences that COVID is the fact that we have actually pushed down where decisions need to be made across the organization.

The operations probably, thankfully, I think it was good.

The corporate weren't able to get out there and visit them and they could get on and focus on what they need to do.

So I think how we leverage that and maintain it into business as usual once a vaccine is there and we're out and able to travel more that we ensure that we push accountability down and we are agile in our decision-making, which clearly, the world is moving at a rapid pace, and we need to be able to keep step.

We have another question from the line of Dominic O'Kane from JPMorgan.

Mike, just as a follow-up question, as sort of the fallout and the policy becomes clearer in Australia with the Aboriginal Cultural Heritage Bill, is it now fair to say that there'll be no discernible impacts on your short- to medium-term production guidance?

Or is it still -- are they still sort of unknowns within the legislation?

So a few things to say on this.

One, we've been strong advocates historically of modernization of legislation, and that is pre -- that advocacy was pre Juukan Gorge.

Two, we have a long history of establishing and maintaining strong trusting relationships with traditional owners.

Obviously, in light of what occurred last year, we're redoubling those efforts.

And specifically in respect of South Flank, we have now established the Banjima Heritage Advisory Council, which provides us a further platform to have dialogue with the Banjima people, the traditional owners of the land that South Flank is based in.

Three, the South Flank remains on track to deliver first ore in the middle of this year.

So it definitely continues on track.

And then finally, all of the businesses near-term and medium-term production and cost targets also remain intact.

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

Mike, come back.

You did -- just a question for you on green steel.

So you've made some early-stage investments in the new green steelmaking technology, along with Vale, I think, and then you've also signed this MOU on decarbonizing steel with JFE.

I guess if the question gets to the right place, might it make sense for BHP to try making iron in the Pilbara again?

Yes.

I think the operative word there, Jason, is again.

And look, it's -- so you're right, we have invested in a green steel start-up, very small amounts of capital.

We've also been clear that we do believe over the long term, some of these technologies, be it green hydrogen based steelmaking and so on that they will see penetration into the steel industry.

We just don't think that the economics are there for that to happen in the near to medium term.

And so from my perspective, that's certainly not a focus for BHP.

We will work downstream with customers to help them further some of these technologies.

And you see us making that investment in the start-up, which is partly about understanding these things better.

But we have to allocate our capital to things that we have particular capabilities around and where we believe that there is the appropriate fundamentals to allow us to drive high returns on that capital, and we don't see that as being in -- we don't believe that we've got the capabilities to build and operate a green steel facility, and we don't see the returns as being there in the -- certainly in the foreseeable future.

Just, I guess, on a related topic, Mike, we are seeing some of the mining companies go out and actually building their own solar plants.

Again, do you think that is something that makes sense for BHP?

Or is your cost of capital too high?

Is that something you just underwrite through a power contract?

So you've seen us underwriting kind of either directly or indirectly some of these facilities to the renewable power contracts that we put in place in Chile and here in Australia.

I would say, though, that these things are always a little bit location specific.

So even if you look at our current business, we buy most of our power off the grid, but for specific circumstance

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