Welcome to BHP's online information session for shareholders. I'm Gab Notley, and I'm joined here today by Mike Henry, our Chief Executive Officer, and David Lamont, our Chief Financial Officer. Very excitingly, we're actually back in the Melbourne office here. It's been a while since we've been here. In the past year, a fair bit has happened at BHP. We made some big announcements last year, and just recently, we've announced our half-year results and interim dividend. We've got lots to talk about today. Shareholders have sent in some great questions, and they're all keen to hear about some of the announcements that Mike and David have made, and the numbers, and get a feel for where the company is going. I'll do my best to put as many of your questions to Mike and David in the time we've got this morning.
Mike, I might start with you. Could you give us an idea about the half-year results and what you think are some of the highlights of BHP's performance?
Sure, Gab. It was a solid half. Yeah. Operationally, things are going quite well, so, reliable delivery of operational performance. The thing that we all have to be proudest of is that we hit our three-year milestone in terms of being fatality-free at BHP. You know, given the challenges we're facing, by way of COVID, wet weather in Queensland and so on, the fact the teams have been able to deliver very safe performance has been something that we're all just so happy about. You couple that reliable operational delivery with very strong markets for many of our commodities, and that's what's allowed us to deliver this record set of earnings for the first half and record first half dividend.
Now, it wasn't just about operations in the first half because we've also managed to progress some of the big strategic moves that we need to make to create the BHP of the future. I include within that the decision to proceed with the investment in Jansen Stage 1, which opens up a new front for growth in potash for BHP. Potash is a commodity that's going to help more efficient agricultural production going forward, more efficient and more sustainable farming. In addition to that, we've of course announced the merger of our petroleum business with Woodside, which is going to create a bigger global top ten independent energy company better able to navigate the energy transition. We've consolidated or taken a number of steps to consolidate our coal portfolio.
Of course, we've successfully announced unification last half and have recently completed unification of BHP, which gives us a simpler structure and a better platform from which to continue to grow the company over the long term. Of course, I can't forget to mention our Climate Transition Action Plan as well, which we brought forward during the half and which received very strong support from our shareholders. In that plan, we lay out how we think about the climate action, our decarbonization commitments, and so on. It was a very big half. The shareholders are seeing the benefit of that strong underlying operational performance in strong markets.
A lot happening, Mike. You mentioned the dividend. David, I might actually turn to you now. One of our first questions is actually about the dividend, and that's obviously very important to our shareholders. I have a question here from Peter who says, "As a self-funded retiree and shareholder, I'm vitally interested in the board's forward strategy on dividends." We also have another question around share buybacks from Anthony. I wondered if you could respond on those topics.
Yeah, certainly, I appreciate the question. Let me start by saying with the dividend that we announced, we've now returned $22 billion to shareholders in the last 18 months. Substantial amount of money going back to shareholders, which we see is critical alongside our overall priorities associated with the Capital Allocation Framework. That was put back in place in 2016. As part of that process, we guarantee that we'll deliver 50% return to shareholders as a dividend. Over and above that 50%, we then look at what's the best way to evaluate and return money back to shareholders. Every 6 months, the board, in conjunction with management, look at how much cash should we return to shareholders.
That amount over the 50%, we consider whether that's further cash dividend or whether or not it is actually better as a buyback. There's a process that we step our way through, applying the Capital Allocation Framework, understanding that it's not a discrete decision. We need to consider all of our global shareholders and the different bases that shareholders look at that. It is also important to note that with the shareholders and with the dividend that we've paid, it's a fully franked dividend, and there's additional franking benefit that goes to the Australian shareholders as part of that distribution.
This half, when we assessed all of that, we thought it was better to top up through a cash dividend than it was actually looking at a buyback. As I said, it's a six-monthly review process that we do with the board, and we'll continue to look at the best way to return money back to shareholders.
You'll update shareholders each six months as part of the results announcements?
Yes, certainly. For this half, as we said, $1.50 per share will be paid to shareholders on the twenty-eighth of March. Associated with that, if you take today's exchange rates, that'll be about GBP 1.10 for our UK shareholders and AUD 2.10 for our Australian shareholders, as a dividend on the 28th March.
Mike, can I turn to a different area? We've had some questions from shareholders, including Wendy and Nazim, around the impact of unification. They've also asked what it means for them, and in the context of taking unification and the new net debt targets, is that a sign of more mergers and acquisitions for BHP?
Okay. Thanks, Gab. Well, there's a bit in that question. I'll probably ask David to speak to net debt, but I'll talk just firstly about what unification means and what you know shareholders should be reading into it in terms of the growth and M&A outlook. What does unification mean? I can say what it doesn't mean. There's no change to the BHP business in terms of the underlying assets, the board, the management team. This great set of results that we've just delivered and everything that underpins that remains the same going forward. Same strong set of underlying assets and portfolio, same management team, same strategy. What it will give us is a more efficient business, so a simplified business.
It will make us more agile and able to move more quickly and capitalize on opportunities over time as we do seek to continue to reshape the portfolio and grow the BHP business for good value and returns. Now, what does it mean in terms of mergers and acquisitions? We have a clear intent to continue to grow value for shareholders. Now, M&A is but one lever in that regard, so there's a lot of other things that we do. First focus, of course, has to be delivering even more value from the assets that we already have. We do that through a strong focus on continuous improvement in productivity.
At the same time, we want to look at how we can bring innovation and technology to bear on liberating more of these great resources that we already have more quickly and for higher returns. We've increased our focus on exploration and early-stage entry and so on. If the right opportunities arise on the M&A front, for the right value at the right time, then the unified structure will better enable us to pursue those. David, I might just ask if you can comment on net debt.
Yes, certainly, Mike. What we did announce was a new range from $5 billion-$15 billion in exchange for what was previously the $12 billion-$17 billion. There's two aspects to that. One, we widened the range, and two, we reduced from 17 down to 15. Now, the reduction is largely a reflection of the petroleum business moving to the merger with Woodside and that coming out of the portfolio. The widening of the range is really, as much as anything, a reflection of how we're currently producing. I mentioned earlier the dividend that we're looking to pay out of $1.50 USD cents per share. That will be some $7.6 billion. Clearly, if we only had a $5 billion range, we would be outside of that on paying out this round of dividends.
We've widened the range. Importantly, though, we're very much focused on maintaining a resilient balance sheet. That's what drives the overall net debt range, and we wanna make sure that we are resilient in that sense because we are in a market that has volatility alongside the overall cash flow of the business, and we reflect that in our overall net debt range.
Thanks, David. You mentioned the petroleum merger with Woodside. We've got quite a few questions from shareholders who are starting to think about that and what that means for them. I might just read a few of them out, if that's all right, and ask you to address them. We've had questions from Greg, Michael, and Douglas. They wanna know when the merger will be complete, how many shares will BHP shareholders receive, and when they receive them, what are the tax implications for shareholders of the merger?
Another couple, Rob asks if there is a cutoff date for eligibility for Woodside shareholders or if shareholders can keep buying BHP shares up until the merger and still receive the Woodside shares. Finally, one from Bevan, who also has a technical question. He says, with the Woodside shares being issued as a franked dividend, will this be in FY 2022 or FY 2023? A lot of technical questions there. Maybe I could ask you to address them.
Yeah. Well, let me see if we can unpack all of those questions as part of this answer. Let me start by actually saying what was very pleasing in the six months was the performance of the underlying petroleum business. It continued to meet our expectations and guidance that we'd given. Equally, you would have seen just recently Woodside came out with their results, which were also strong. The fundamental basis of the merged entity holds up. We do think the two companies coming together and merging will create a more robust business to help the world's energy transition that'll occur, and it will create one of the top ten independent energy companies in the world.
Now, in relation to the overall performance and timing, that's very much driven by the Woodside annual general meeting that they need to have and the shareholder vote. As part of that coordination, which Woodside have given some indication that they're looking to have that, certainly in the Q2 of this calendar year, that will establish a record date. Up until that date, BHP shareholders will be entitled to Woodside shares upon the completion up to that record date. I can't give you a specific date at this stage because it very much is driven by the Woodside timing as such. Again, what we do see as part of that is on completion that the expectation is in that Q2 of this calendar year.
Mike, I might now ask you to address some questions that we've had on decarbonization and emissions reduction. Hannah in particular asks how BHP aims to ensure it will continue to be profitable in a carbon-constrained global economy, and also what is BHP doing to reduce its own emissions?
Great question. You know, a number of the things that between David and I, we've spoken about here today are, you know, around the portfolio and what we're doing to reshape the portfolio. I also mentioned the Climate Transition Action Plan. On portfolio, and the question was how are we going to ensure that we remain profitable through the energy transition or through decarbonization. Of course, we want to make sure that we're exposed to those commodities that have the greatest upside as the world decarbonizes. We really released a bit of analysis, I think it was last year, possibly the year, maybe even the year prior, where we set out how we see different commodities performing in a faster decarbonizing world.
One of the insights that came out of that was that pretty much all of the commodities will remain in the BHP portfolio after the series of transactions that we currently have underway will have upside in a faster decarbonizing world. A 1.5 degrees Celsius world or where the global temperature increase is limited to 1.5 degrees Celsius. That world and the faster decarbonization that accompanies it will be of benefit to copper, nickel, potash, and even higher quality iron ore and higher quality hard coking coal, as the steel industry seeks to decarbonize, we'll see some upside. We're ensuring that we have the right portfolio to benefit in a decarbonizing world.
Now, of course, in addition to that, we have to decarbonize our own operations, and we have to ensure that others in the supply chain are able to decarbonize theirs, and we have a role to play in that. What we've been doing is we've committed in our Climate Transition Action Plan to a 30% further reduction in our own Scope 1 and Scope 2 emissions by 2030. That's on path to being net zero by 2050. We've set out a goal of seeing net zero for the whole of our value chains. That includes downstream, also by 2050, and we're working with customers, in partnership with customers to help them achieve that ambition.
We've entered into partnerships with customers who comprise about 12% of the world's steel production, for example, to support their efforts to decarbonize. We've entered into a number of innovative shipping arrangements where we're stimulating new technologies to be brought to bear to decarbonize global ocean freight and shipping. In our own operations, period on period, so relative to the same period a year prior, in the last half, we reduced Scope 1 and Scope 2 emissions by 16%. Well on track to achieving our 30% by 2030. That's by a very large shift to renewable energy to power our operations, particularly in Chile, but we've recently been pursuing that here in Australia as well.
Gab, we're gonna ensure that we've got the right portfolio that benefits through decarbonization, where we see ourselves as playing a role in meeting the world's needs for all the commodities that are gonna be needed for decarbonization. At the same time, we're ensuring that we're able to decarbonize our own operations as well.
You put this to shareholders recently, Mike?
We did. We took the Climate Transition Action Plan forward to shareholders late last calendar year, and this plan received very strong support. Of course, you know, we want to continue to build upon that, but strong support from shareholders for the Climate Transition Action Plan and all of the elements that I just spoke to.
Thank you. I might change topics now, and this may be a question for you, David. This is from Matthew. He asks: Higher Iron ore prices have made a significant contribution to the results again this half. How sustainable do you think this is?
Great question, Matthew. Let me also put this in a broader context. What we did see is in metallurgical and thermal coal, prices were triple what they were in the prior corresponding period. For nickel and for copper, we saw that they were 30% up on prior corresponding period. In iron ore, referencing your question, it was up 9% versus the prior year. It's important, though, with those pricing dynamics, that we manage what we can control, and we maximize the return to shareholders of those increases in prices. That's really about focusing on our operations, being more resilient in how we operate, and continue to have a very strong cost focus. By doing those things, we're able to actually ensure that we deliver the most to shareholders, regardless of where the prices are moving to in comparison to our peers.
Specifically, in the Pilbara and our Western Australian iron ore operation, we are the lowest cost producer. Our focus is continuing to actually be there as the lowest cost producer and maximizing the return that we can get out of the iron ore. Now, we're not in the business of forecasting prices. We'll leave those to others. We're in a process of ensuring that we're maximizing the return to shareholders given the market conditions.
Just on that, we've had some questions around COVID and the impacts of COVID on the business. James and Patrick have asked questions around this. Mike, do you expect the pandemic to further disrupt operations and costs at any BHP site? In particular, in WA, what's been the impact of the border closures there on operations?
Sure. Look, I might actually ask David to speak to some of the impacts that we've seen on operations, and I'll talk to the WA border specific question. David, maybe just a bit on operations.
Yeah. Thanks, Mike. In relation to impact on operations, there's two main areas that we're seeing. One is around labor and labor shortages, and the other one's around the supply chain, aspect. Certainly when you look at the labor side, pretty heavy early on in the COVID impact in Chile as an example. More recently, it's been more on the East Coast of Australia, where we've seen large impacts to availability of labor. Equally in Western Australia, there has been some skill shortages that we've seen in train drivers as an example. What I would say is it's a great credit to our operations that we've been able to continue to operate and deliver the results given those restrictions.
From that side of things, we've taken a lot of learnings from around the globe and applied them as things have unfolded here more recently in Australia. The other thing is the supply chain. Clearly what that has meant is that we've needed to think about inventory levels that we've had. We've needed to, through our procurement team, work with our suppliers proactively in trying to address issues as they arise. We're continuing to focus on that. Now, that's an area that we would say we are still gonna see most of that pressure still come through this calendar year and potentially into next financial year as well. They're not something that we see that is resolvable in the short term, but we continue to be very diligent in what we can manage as part of that process.
Mike, on the border?
Gab, I will talk about the border, but just before I get to that, if I just build upon what David said around operations. We also have to keep in mind that COVID has created disruption and hardship for many of the others who depend on or have business with BHP, or the communities depend on BHP as well. We have tried to lean in over the past couple of years to support them, you know, with shortened payment terms for our small local suppliers and indigenous suppliers. We've worked with local communities to support some of the programs that they have as well. Now, David did reference skill shortages, and he, I think, David mentioned specifically train drivers in Western Australia. They're one example.
We've also seen the same in some other skills there, and that's being driven by a strong economy, but also by the immobility of labor across Australia. With the border closure, of course, it's been hard to bring skills in from elsewhere in Australia or from overseas. Now I would say that whilst, you know, a lot of the operational performance that we've seen has been led and driven through our teams and the learnings they've taken from elsewhere, we have had the support of governments. I think in the case of Western Australia, the government there has done a good job earlier on in COVID of protecting the community and ensuring that businesses like BHP's iron ore business have been able to continue to operate relatively free of COVID.
Of course, that was at a time of low vaccination. Since then, you've seen vaccination rates increase. Skill shortages have been growing at the same time. There comes a time when the sensible thing to do is for borders to come down in a stepped fashion and for the ability to bring labor in to be freed up. We think that can be done in quite a well-managed fashion now, given the learnings we've taken away from elsewhere and the higher vaccination rates in WA. We're quite pleased to see the recent announcements around the opening up of the borders, because we think that's going to help ensure that we can continue to deliver some of these, you know, the same so great results that we've seen in the past half.
Thanks, Mike. That's really interesting, and I think a lot of people are looking forward to some return to normality in travel. I actually have a question now from David, and he asks, "How much, if any, attention do you pay to political instability in some of the regions where you're looking to invest or potential future conflict?" And the second part to this is, he adds, "At what point do you feel rewards outweigh the potential risks?
Gab, I take it that David's referring to investments in new jurisdictions. Because we've sought to secure and create more growth options for BHP in future-facing commodities, we have started in our exploration efforts and early-stage entry efforts to look at some jurisdictions that BHP hasn't been operating in, at least in recent years. Now, I think it's quite a valid or relevant question, which is how do we go about assessing risk in those jurisdictions, and at what point do we see that the risk outweighs the value? Very hard to provide a single answer to, of course, because it does depend on the local context. Probably the best way to talk to it is that we're very cognizant of these risks.
We put a lot of effort into assessing country risk prior to any decision to step in there. The opportunity always has to be worth the extra management effort that's required to move into a new jurisdiction and to manage the opportunity effectively. We have to be confident that the activities we have planned for the region can be managed in a way that's aligned with BHP's values and business practices. That is a an absolute requirement. Now, having entered a new jurisdiction, well, in entering a new jurisdiction, we always look at how we go about doing it. Sometimes it'll be in partnership with others who understand the area already.
It can be in a stepped fashion where we enter initially with a bit of exploration spend, and we increase our exposure as we go. We constantly monitor at quite senior levels how things are playing out there. What are we seeing in the environment? Do we remain comfortable with the opportunity and activity? We always have a clear understanding of under what circumstances we would need to pull back. You know, in the event that we did see things traveling in a direction that we didn't find acceptable, we'd be quite willing to draw things to a close then and step away from the opportunity.
Thanks, Mike. That's actually really great context for shareholders in some of the announcements that you've been making. Mike, what about the tensions between China and Australia? Is that impacting BHP's trade with China?
Well, you know, clearly over the course of the past year or so, there have been restrictions on Australian coal exports to China or imports to China. Having said that, in terms of our direct business-to-business relationships in with Chinese customers and suppliers, keeping in mind that Chinese companies are suppliers to BHP as well, and in our business relationship with other stakeholders in China, they've never been better. We regularly survey customers globally to get an understanding of how they perceive BHP as a supplier or as a customer.
We've seen all-time highs in terms of our what's known as a Net Promoter Score outcomes among our customers and suppliers globally, and Chinese customers and suppliers been at the forefront of that. Really strong relationships. You see that shining through in some of the partnerships that we've put in place around decarbonization, which goes well beyond our, you know, commodity sales or procuring from Chinese suppliers. These are broader, more in-depth strategic partnerships in the space of decarbonization, and they've continued, and if anything, have strengthened in recent times. Now, that's not to discount the, you know, complications that exist currently in the relationship between Australia and China.
We're not forecasting that there's going to be any turnaround in the constraints on coal exports to China in the near term. One has to believe that the complementarity of the two economies is such that in the fullness of time, you know, the nations will find a path through this, and that we'll have a you know, a constructive trade relationship between the two nations. You know, we continue to focus on our engagement with Chinese customers and suppliers. I'm confident that over time the two nations will continue to build upon that into the future.
Thanks, Mike. I wanted to now turn to a question from Marco, which is somewhat similar. He asks about BHP's growth options. He says, "Where BHP plans to grow given the separation of our petroleum assets?" And he wants to know if you could give him a feel for in what areas you want to grow the business.
Okay. Great question. Growth has to be about value. We always start from the perspective of what we're seeking to do for shareholders is to grow long-term value. Now, the first thing we always have to focus on is how, and David alluded to it earlier when he spoke about returns in the business and our focus on operational performance. We have to get better day in and day out about running the base business. Because if we can ensure that we're low cost, ensure that we're in the right commodities, and that we're constantly driving you know more productivity or better underlying business performance, that's going to create more value for shareholders.
We have to look at how we can go about creating more options in these great resources that we already have. We have some of the best, if not the best resources in the commodities that we're in. You look at copper, for example, we have tens of billions of tons of copper at 0.5%-0.6% grade. This is the resource that others would love to have, but we already have it in our portfolio. In nickel, we've got the world's second-largest resource of nickel sulfide. What we have to focus on is how do we go about bringing productivity, technology, innovation to bear to create more options, to liberate more of this resource more quickly at high returns for shareholders. We don't wanna stop there.
We've increased our efforts around exploration and around early-stage entry. This is where we get on the ground floor with new resources that have been discovered but not yet developed to create longer-dated options for shareholders as well. Now, we're specifically focused in copper, nickel, and potash, given that they have the strongest leverage to a decarbonizing world and to continuing global economic growth. We also see opportunity to continue to drive productivity in both the iron ore business and the coking coal business now that we've consolidated the coal portfolio down to the highest quality of coals for steel making, which stand to benefit from decarbonization as well. The final lever, of course, and we spoke about it earlier, is mergers and acquisitions.
In that case, any M&A opportunity has to compete with all of the other opportunities I just mentioned under the Capital Allocation Framework, and would only be done for the right value, so at the right price, for the right assets at the right time. You know, I hope shareholders really do understand that this sharp focus on operational performance, coupled with the unique perspective we bring to creating social value, and our focus on reshaping the portfolio and growing in future-facing commodities provides a great platform from which to grow value and returns for shareholders over time.
Thanks, Mike. Actually, that's just probably all we've got time for today. Is there anything that you would like to tell shareholders before we sign off?
Well, I would just say thanks for joining David and I to talk about the results. It was a great half, and we've managed to achieve safe outcomes. As I said, third year fatality-free, and that's our proudest achievement for the half. In addition to that, of course, this great underlying operational performance coupled with strong markets has allowed us to deliver this the record returns and dividend. You couple that then with everything that we're doing strategically with the company in terms of portfolio and growth, I think that's a pretty compelling picture for shareholders and what this company is able to deliver over the long term. Thank you.
Thank you, Mike. Thank you very much, David.
Thank you.
Thank you to shareholders for your ongoing interest. We really do appreciate the time that you take to learn more about us and our company. One final question that I'll answer from Bevan, who actually asked will he be able to watch this webcast at another time, and it will be on our website later today. Thank you.