And gentlemen, thank you for standing by, and welcome to the BHP 2020 Financial Results Investor and Analyst Q and A Session. I advise you that this conference is being recorded today. At this time, all participants are in a listen only mode. There will be a brief introduction followed by a question and answer session. Each caller will be allowed 2 questions.
I'd now like to hand the conference over to Mike Henry, Chief Executive Officer, BHP Group.
Hello, everyone. Thank you for joining Peter and I to discuss our results for the 2020 financial year. I'm going to say a few comments before we wind up for questions. Firstly, we are proud to have safely delivered a very strong set of operational and financial results for the year in spite of everything the world needed to contend with over the course of the year. We've delivered $22,000,000,000 in EBITDA and operating margin of 53%.
We've managed to lower average unit costs by 9% across our major assets, underlying earnings per share up on last year, return on capital employed of 17% and the balance sheet remains strong, with net debt closing the year at the bottom of the target range. We've declared, as you would have seen, a US0.55 dollars final dividend that brings the full year to US0.20 dollars That's our 3rd year running where we've declared more than US6 $1,000,000,000 in ordinary dividends to shareholders. And most importantly, we achieved this safely with no fatalities and our leading and lagging safety indicators improving. And that, of course, remains our highest priority. So in FY 2020, we were safer, more reliable and lower cost in spite of the challenges.
And we've managed to do that with the support of our people, communities, business partners, traditional owners and governments. And we've also sought to support them because it's in our shared interest the business keeps safely going. Now what lies ahead? Our priority remains to grow value and returns by focusing on, firstly, excellence and operations and then financial discipline, as well as through creating and securing more growth options in future facing commodities. Now in the very near term, the outlook is, of course, uncertain.
We expect there's going to be significant global economic contraction this year. It's probably going to take about a year to get back to pre COVID levels of economic activity. But as we've shown in the past half, our portfolio and people give us resilience in the face of this uncertainty and we're positioned to capitalize on any opportunities that arise. Notwithstanding the near term uncertainty, our medium to long term outlook remains unchanged. We have a confident outlook for continued growth in demand for the commodities we produce.
Now we do manage value and returns over multiple time horizons. We're seeking to grow value and returns in the near term through operational excellence and investing in the options we already have. At the same time, we're seeking to underpin our ability to continue to grow value and returns in the longer term through ensuring that we have a portfolio with increased upside exposure and with more options in future facing commodities. Now we've made progress in the past year in securing and advancing future copper and nickel. And today, we've also been clear about our intent to focus our coal portfolio on higher quality hard coking coals and to instead divest, BMC, New South Wales Energy Coal and Sarah Vaughan.
These are some great assets. They've got embedded growth options, but they're unlikely to compete for capital within BHP. Their value is more likely to be realized through a different ownership structure and we're looking at a range of options, demerger, trade sales and we'll pursue whichever one best allows us to maximize shareholder value. In petroleum, we've been clear that we intend to continue to invest in this business and what we see as an attractive opportunity to grow value and returns for the foreseeable future. However, we're going to be balanced in our approach and we'll look to divest assets that are less long life and which have less upside in BHP.
And in that regard, today we've announced that we intend to divest our non operated interest in Bass Strait. So we're focused on creating value in the near term through being great operators and stewards of capital and in the long term actively managing the portfolio for long term upside and growth opportunities. Finally, today we've announced a couple of new roles and appointments. 2 of those appointments are part of a natural transition of the lead team. The 2 new roles are aligned with the intent that I've outlined, a Chief Technical Officer, which will ensure operational excellence is front and center for the company and a Chief Development Officer reflecting our priority on managing the portfolio and creating and securing options in future facing commodities.
So just to close out, as I said, FY 2020, we were safer, more reliable and lower cost. We've got great performance momentum and we're taking further steps to further enhance performance and to build options in the portfolio for the future. And we're building on such strong foundations and I'm really quite excited by what the future holds. With that, I'll open it up to questions for Peter and I.
Our first question comes from Elaine Gabriel from Morgan Stanley. Please go ahead.
Good morning, gents. Two questions from my side. So firstly on Janssen, the delay in the final decision was somewhat expected given your earlier comments. However, have you learned anything new about the project parameters that will help you with the decisions? Trying to get some color on how your thinking has evolved around Janssen over the last 6 months at least?
That's the first question.
Okay. Thanks, Helane. So the delay, as you said, is something that we had flagged earlier. In terms of what we've learned about the commodity, 1, we continue to like the long term fundamentals for potash, so no change. I had flagged previously that I was going to be getting into the detail on the project to get myself personally satisfied with the assumptions that we've made.
I continue to do so and spent quite a bit of time looking at the project in recent months. And so far, no red flags. There's a few other things that I'm working my way through, and I expect to do them in the next few months. But we do have the luxury of some time before we take a final investment decision, which we've now said will be mid-twenty 21.
Thank you. Very clear. And then second question is, is it changed your capital allocation framework on the cards and specifically to your dividend payout level given that you are close to the bottom end of the net debt target range and given that your portfolio appears to be cash generative almost under almost any realistic commodity price scenario?
Yes, Helane. So the you're right, the portfolio is very resilient. But our current capital allocation framework caters for that. And where we have had strong results like we've had in the past year gives us the ability to top things up as we've done with the incremental amount of $0.17 we've paid at this point in time. So I'm not feeling like there's any change needed to the capital allocation framework in spite of this very strong performance that we continue to demonstrate.
Thank you. Our
next question comes from Jason Fairclough from Bank of America. Please go ahead.
Yes. Good morning, Mike. Good morning, Peter. Just a couple of quick ones for me. First on met coal.
So we've got the announcement today on BMA. I'm just wondering if we're thinking for the medium term, we think about a more complete exit of all met coal at some point? And with that, I suppose, all hydrocarbons?
Hi, Jason. So just to be clear, what we've announced today is BMC, so the less high quality
Sorry, BMC. My bad. No,
I tried to be very clear today that we see this as being the core that we'll now focus on. We see those as being attractive assets, including in a decarbonizing world. And you know all of the effort that we invest in, in running different scenarios, thinking about how the world could play out. And in a decarbonizing world, we see there being upside for those assets. So certainly, a full step out isn't on the cards for us and on the basis of value.
We see there being great value to continue to be generated in those remaining assets.
Just a second one, if I could follow-up on Mike. And I guess maybe taking it to another level. Before, Peter and I talked about potential asset redundancy risk on up to 70% of your portfolio if you look at 20 years. And I guess the question is, does this speak to a shrinking BHP or do you actually see markets where you can recycle and redeploy this capital? And bottom line, we all like these future facing commodities, but the markets are just not that big.
Well, so we definitely see further potential in copper, nickel. We've been clear on that. We're making some progress on it, Jason. Potash decision yet to come for the prior discussion. But no, I wouldn't say that this foreshadows a shrinking BHP.
But at the end of the day, it's all about value. In all circumstances, we'll continue to grow value through this focus on being really good operators through maintaining financial discipline, through bringing innovation to bear to unlock more from the resources that we have. And I remain confident that through this focus on exploration, early stage entry and early stage entry that we'll be able to secure more options that allow us to deploy capital in quite a disciplined way to continue to grow value. And let's face it, the commodities, oil, the remainder of the high quality part of the met coal portfolio, these are decades of opportunity ahead. In the case of petroleum, we've said that we see this commodity as attractive for at least the next decade, likely beyond.
And certainly in the near term, we have some great options to be able to invest in that will allow us to grow value and returns even as we work our way through securing more of these options that will underpin the portfolio on the 20 to 30 year horizon.
Okay. Thanks very much, Mike. Thanks, Peter.
Thanks, Jason.
Our next question comes from Liam Fitzpatrick from DB.
Two questions from me. The first one on coking coal, somewhat following on from Jason's question.
In terms of the decision
to sell the BMC assets, has there been a shift in your long term outlook for coking coal that has led to this decision to exit? And then second question on petroleum. The new guidance is effectively flat volumes over the next 3 to 5 years. Is this effectively a move away from the growth plans that you outlined late last year? Or are you still committed to those growth options just with the delay given the market backdrop at the moment?
Thank you. Okay. Thanks, Liam. Look, I'll comment on met coal. I'll say a few comments on petroleum, but I might ask Peter to comment on that as well.
So the way you should see met coal is this is consistent with our prior strategy. In fact, all of what we've spoken about on the portfolio today is consistent. And this is us simply continuing to tend to the portfolio and to ensure that we're focused on those assets that are highest quality with longest lives. Now what we've continued we've gained even greater confidence around is the long term upside associated with the higher quality hard coking coals in the decarbonizing world. So as we see steel mills becoming firmer in their commitments to reduce their emissions footprint and knowing that some of the or one of the key levers that they have to pull on that front is improved blast furnace productivity, that bodes well for higher quality hard coking coal.
Also as we continue to look at the remainder of the coal portfolio then and we think about what's required to unlock the inherent value of those assets, the assets that we're electing to divest today are more of the value of those assets will be realized through capital investment. And given the BHP portfolio, given what we want to achieve over the long term and the options that we have available to us, those assets aren't going to compete well for capital within BHP. So best that we move them into a different ownership structure that allows us to realize value. Now in the case of petroleum, I've tried to be clear today that we do see there being valuable opportunities in petroleum that we'll continue to invest it. We have deferred some of that for value reasons because with prices having fallen and curves being in contango, that was the smart thing to do.
But we do intend to continue to invest in petroleum, both in projects that will come online and replace some of the decline that will otherwise happen. And we've also been clear that we'll look for other opportunities to secure producing assets or new producing assets. But Peter, perhaps you want to add a few thoughts on this as well.
Yes. I think to the question, do we still like our projects? Yes, very much so. Are they still in the portfolio and on the runway? Absolutely.
There is Discover is a big part of that and it flips the other side of the 5 year because of the delay. And I think it's just absolutely justified delay. Cheyenne probably also a little bit and those are 2 big moves really to drive the really big outperformance in terms of growth. But just to come back to why do we like these projects well because they are great breakevens, they're going to make money in almost any circumstances. Certainly, the infills are $30 and even maybe in the low 40s and so on and even and LNGs are in the 6s.
These are good projects by anybody's standards and they're big and they can really drive some significant free cash flows and returns in the latter part of the decade. I think everybody is going to have a view on price, but I think it's safe to say the price is going to be higher in the future than it is today. And you can think obviously, we're big believers in decarbonization, electrification and so on. On the other hand, let's not forget that in the last 2 months, onethree or so of all the CapEx has just come tumbling out of this industry, kind of take a bunch of time to get it back in again, not just the usual suspects in oil and gas, but even Saudi Aramco, which has its own dividend policy now and that creates a sense of discipline. So lots to play for, and as Mike was saying earlier, lots to play for in the commodity itself and lots to play for in our portfolio.
So I think we're still feeling very good about this.
Our next question comes from Tyler Broader from RBC. Please go ahead.
Good morning. Hi, Peter. Thanks for
the call. I guess just on oil and gas, you mentioned about the Bass Strait investment, potential acquisitions if they come along. How do you sort of see the ideal petroleum portfolio in 5 years? Is it do you think we need to add more growth to the portfolio? And I guess my second question is just on iron ore with that being 60% of the EBITDA.
Does the Cementi do development change your thinking on in terms of what the longer term shape of BHP needs to look like? Thank you.
So I'll address those in reverse order, Tyler. Does Cimendu change our view as to the portfolio and the things we focus on? Absolutely not. Whilst we don't think that the Simandu tonnes are needed in the market, this is our outlook for iron ore, our strategy remains exactly the same as it was pre the likelihood of Simundu tonnes or before Simundu became more likely. And that is the strategy of continuing to focus on reducing costs, becoming more reliable in iron ore and lifting quality initially through the Southbank development, which is going to help lift FE and the proportion of wealth in the portfolio.
So that's kind of a strategy for all seasons. Given where we're positioned on the cost curve, given the high quality nature of our product, we're going to compete well with Semendu in the market or without Semendu in the market. But we've also been clear, again, earlier in the year and in fact, as part of our ongoing strategy that we do because we think in multiple decade terms that we do see us as desiring more options for growth in other commodities than the iron ores or the coking coals. And those are in copper, nickel, possibly potash. We have a decision to take on that next year.
So that strategy remains unchanged. And I think in some way is perhaps maybe further validated by the potential for what was otherwise going to be a plateauing and then the declining iron ore market to be exacerbated by Cimhan du. If I turn then to oil and gas and what we want the portfolio to look like in 5 years' time, I'll start with the fact that we already have, and Peter referenced some of them earlier, some great growth options or options to invest for good value and returns in the petroleum portfolio today. There's projects that are coming on, Atlantis Phase 3, Mad Dog Phase 2, there's further infill drilling opportunities And then we have projects like Scarborough and Treon that will continue to bring through and Trinidad and Tobago, but we'll continue to bring through the development curve. But yes, would we like to have more options to be able to grow value in petroleum?
Yes, for the right options. And we've made reference today to near or already producing or near producing assets when it comes to acquisitions if we can secure them at the right value. So whatever further options that we pursue in petroleum, they have to be giving us returns in the period that we're most confident in, which means closer to us than some of the things that we could look at in copper and nickel, where we believe we've got greater confidence around the long, long run attractiveness of those markets.
That's great. Thanks very much, Mike.
Thanks, Tyler.
Our next question comes from Richard Hatch from Berenberg. Please go ahead.
Thanks very much. Yes, good morning, Jeff. Thanks for the call. First question, just point of clarification on the medium term met coal guidance. Does that include the assumption that the BMC assets are sold or not?
And if it doesn't, what is reducing in terms of the BMA production? And then the second question is just on Olympic Dam. Negative 1% return on capital employed, again, it continues to underperform. I mean, how long are you going to give this asset the leash that it well, what are the plans for this asset to try and improve the return on capital employed for it to make it a BHP asset? Thanks.
Okay. Thanks, Richard. So medium term guidance for MetFold, that does not and this is standard practice for us. It does not include the assumption around the divestment. As to the round number figures to if we're when we're successful in divesting, it's around 10 on a consolidated basis for BMC.
But please don't read that, Richard, as being just take that number and that's the new guidance. We provided guidance on the basis that the MST continues in the portfolio. If and when we're successful in divesting it, then I'm sure we'd provide updated guidance at that point in time. If I turn to Olympic Dam, yes, it's not where we want it to be and it's not generating the returns that we need for a BHP asset at this point in time. But we've been clear about the plans at Olympic Dam and those plans have been a multiyear program of asset integrity, some of which has been catch up and developing into the southern mine area given that the northern mining area was in permanent kind of decline.
We've been successful in getting into the southern mine area. So you've seen grade lift and it's the highest grade that we've had since BHP has owned it. We're seeing production become more reliable. So it was up a bit last year, albeit I acknowledge it wasn't up by as much as we had intended it to be up by, but we're continuing to progress this plan. And that really comes to we get through the bulk of that plan in FY 2021.
We then have a further major campaign maintenance campaign on the smelter. And after that, we're expecting to be up at the kind of that 200,000 tonne per annum production level, plusminus. And that combined with a stronger price environment for copper and reduced CapEx as we get through some of the development work into the SMA and the asset integrity catch up, that's going to help us generate healthier returns kind of in the mid to high single digits. Longer term, we do we'll continue to look at options around expanding Olympic Dam. It's a great resource.
But of course, one of those options that we're continuing to work through is BFX. The refreshed understanding of the resource clearly provides some challenges for BFX. But in terms of long term opportunity for Olympic dynamics have changed. 1st focus, secure reliable operations through that, lift returns to a more acceptable level and work the expansion options in parallel. Richard, it's Rachel.
Were you asking on the Q Cole question, what the drivers were for our reduced guidance?
Is that actually where your question was coming from?
Yes. Thanks, Tristan. Yes, it would be just if what gives him BMA that reduces the medium term production? Thanks, Mike. Thanks, Tristan.
Great. Okay. Sorry, I misunderstood the question, Richard. So it's simply markets. So as we've clearly, coal markets are under pressure currently.
We think that some of that pressure will extend on for a period of time. So what I mentioned earlier that we expect it's going to take about a year for the global economy to recover to pre COVID levels. We it's going to take about 3 years to get back on to the trajectory that the world would have gone on otherwise. So as we step back and look at that, we want to be market responsive in our plans for production. And so on that basis, we've elected to pull back in some of those plans, particularly around some of the BMC coals and the Blackwater coal where we see there being less upside unlike higher quality hard coking coals.
And the result of that is that we the production growth will be a little bit less than we were previously planning, 1. And 2, because those were our lower cost but lower margin mines, we'll also see an upwards revision in the medium term guidance on unit costs.
Appreciate the color. Thank you.
Our next question comes from Carsten Riek from Credit Suisse. Please go ahead.
Thank you
very much. Two questions from my side. The first one is on the iron ore business. In the Pilbara, given the Yukon issue we had earlier, do we expect actually any mine plan adjustments post-twenty 20? And is that part of your guidance already?
And the second question is, we've learned now that you might actually dispose B and C best rate and some other assets. What happens to the proceeds? Could we expect some special dividends? Or do you need to have the balance sheet prepared to grow into future materials such as copper or nickel, as you mentioned before? Thank you very much.
Okay, Karsten. Thank you. So I'll talk about whale. I'll make a point on the asset disposals. So I think it'd be worthwhile, Peter, as well as just talking to how we think about capital allocation more broadly, Carsten, which obviously which sits behind the question that you've asked.
In the case of iron ore, we have a process of so whilst I know that the Jupen Gorge incident has caused all of this to come into the public eye in recent times, our focus on indigenous heritage is deep and ongoing. It didn't start with the Jucatan Gorge. And part of that process sees us in constant engagement with traditional owners. And as new information comes to light, that helps to inform the decisions that we take at any given point around the mine plan. So we're confident that we'll be able to continue to manage the business in the way that we've been managing it previously because we give so much attention to protecting indigenous heritage and engaging with traditional owners.
And so I don't foresee any change to iron ore guidance as a result of that ongoing focus. In the case of the divestment question you've asked, we've said today and this applies to the coal assets, we've said that we're exploring different options. One of those options is trade sales of these assets for value. Another one is demerger. Depending on which one of those 2 is better value for shareholders, now one of those options, the divestment value obviously gives rise to cash, the other one wouldn't or less so.
In the case of that straight, that's more likely or almost the focus there is on a trade sale. But we've also been clear today that conceptually, because keep in mind that sometimes the proceeds from divestments and the investment opportunities don't quite marry up, but we do conceptually look at this as a bit of recycling out of assets that have become more mature, have less long life to then be able to invest in assets with a longer future and more value upside. And that could be in petroleum in the first instance or in these other future facing commodities. But Peter, I know you'll have a few things to say from a capital allocation perspective as well.
No, I think that's my right, Mark. I mean, whatever happens at the time when those proceeds come in, we'll take them as we do every 6 months with all of our cash flows versus the hard going where we see that balance sheet and we'll make a decision. If there's excess capital, then we'll always make a decision where the excess capital can be returned in the form of buyback or in the form of additional cash returns, if it's material, that is, and we'll make that value decision. We're not a company that's still doing okay with bottlenecks, are just inherently like saying. We think that buybacks are a value decision based on what you see the value of the company versus what the price of the stock is at that moment in time.
And so that's so we have we'll make this great decision every single time we turn up with that. Sites and so on and change of hindsight, in the event that you have to do that, I'm talking hypothetically. If you've got a very large, long life asset in your hand, then you can just move it to really adjust the last year on that asset. And so the impact of that is relatively smaller versus if you have shorter life, series of shorter life mines where in fact you're having to bring forth the capital spend of the next replacement mines. So as happily, we've got former, not the latter in terms of our quarterly of our annual asset base.
But that's just as opposed to the answer that might get, which is it's under control.
It's a great call out, Peter, and it really points to the resilient part of our resilience on a whole range of fronts comes from the nature of the portfolio and the assets that we have.
Christa. Our next
Hi, Mike, Peter. My first question is on the unit costs at Western Australia, Iron Ore, where you're going to need up 6% going into next year, if I take the midpoint. Besides ForEx, could you guide us through some of the items where you are experiencing some cost pressures there, please? And my second question is on the petroleum footprint. Should we read into your commentary that you'd have a more balanced approach that EUR 100,000,000 BOE should be a kind of a cap on your production and you replenish assets which are depleting?
Or is it not how you think about it? Thanks.
So, Sylvain, great. Thank you. So in reverse order, no, you please don't see that we're signaling 100,000,000 boe cap on production. Peter has referred to some of the projects Scarborough and Trian that they fall just outside the 5 year window. We've also been clear today that we're open to looking at acquisitions, of course, acquisitions that meet the best of the capital allocation framework, but for near or already producing fields.
So we will it's certainly not a cap at 100,000,000 boeys, but whatever investments we make have to generate great returns. And that has to happen within a time frame in which we still see the commodity as attractive. On whale, cost pressures, I mean, what a good news story. If I get to start with that, Sylvain, because this is a business where we certainly weren't at the front of the pack a number of years ago, but the way that the team there has been able to just focus on the day in, day out, focus on kind of reliability, asset integrity, engineering, and they've just been able to eat out this incremental improvement. Now, did we see some cost pressures in the year, Ed?
Yes, you called out one, which is 4x. Ongoing maintenance as well. So the teams called out the fact that we have a big campaign maintenance on one of the car dumpers, which is all about increasing reliability, but at the Weibo port and Yandi is in decline as South Flank ramps up. So I think there's from memory, there's a bit of an increase in strip ratio as well. So a few pressures, but I just want to ask that everybody look to the underlying results and the performance of this team to give you confidence that whatever the circumstances, this team is going to be delivering absolutely the best result possible for shareholders.
I think Mike, again, it's interesting just to zoom back out in just for a second. I always think a little bit about our story, operations are a little complex. We have field decline going on in Charlie and it's going to we've got strip ratio, 25% more tonnes per day in the last with Queensland coal over the last 5 years. And of course, we've got the BMO group ranked from 1.38%, I think 5, 6 years ago. It's a grade and then it's completed to 1.83 now.
Dollars Against the backdrop of that, we've managed to increase production, reduce costs and so on. So I think that's yes, and it's hard to conjecture about it, how difficult it is to get over those resource headwind in order to consume to deliver these sort of results. But the place that possibly is the cleanest to see is probably Western Australia Australia, there are big headwinds and tailwinds from resource. You can see this steady drumbeat, okay, that whooshed down from $30 to $0.50 and then the steady drumbeat down to what $10.86 in the last 6 months. And it doesn't give you make just a window in what is going on in the entire organization.
Not all at the same pace, not all perfect. We totally get that. But maybe just give you a little bit of a sense of this. And the other thing I'd just also just if you're better than me put those results get when we do have an end in a couple days finally, and that is the field we try and reverse in FY 'twenty two. Greg will start to go back up in 'twenty three and as can be as we get into the spot delever and pushback.
And of course the strip direction of markets out this year in CECL. So if you give all those things, if you give that sense of trends and the productivity portion and you put it against a series of serious resource headwinds that I said turn of the tailwinds, Mike, you're going to have to wear that one when the turns eventually get the same. We put point medium term guidance out for production out of the 10 year, a lot of plus out of the 7 year and so on. There is a degree of confidence as to why that would happen despite all of what has been achieved over the last few years. It's not easy, and it isn't going to be perfect.
And we're not, for one thing, one moment saying that everything is growing and I just want to give a little bit of a bit of context possibly.
Okay. Thank you.
Our next question comes from Amos Fletcher from Barclays. Please go ahead.
Yes, good morning gentlemen. Just a couple of questions. First one on FY 2022 CapEx guidance of €8,500,000,000 Can you talk through what's allocated within that to Janssen, Scarborough and any other major unallocated projects as yet? And then secondly, on Janssen, you mentioned that we've lost 2 to 3 years' worth of commodity demand. And it seems in the outlook statement, your conviction on timing of supply deficits for potash is a little bit lower, but you only delayed the FIT by about 4 months.
Can you explain the timing mismatch there?
Okay. So I'd like to ask Peter just to talk to the CapEx question that Amos had on FY 'twenty two and then I'll comment on Janssen.
So, Amos, just repeat your question again. Sorry, I'm just my own project.
Sure. It was just regarding the FY 2022 guidance of $8,500,000,000 I just wanted to find out what's allocated within that to Janssen, Scarborough and any other major projects that you haven't FID yet?
Yes, sure. Look, I think in FY 'twenty two, we will start to see the start look, we'll finish off SGL a little bit of SGL and we'll finish and Southland comes out. The projects that will continue to be in there will be the big projects are Atlantis, Mandeville, and we start to see in fact a bit of Scarborough coming in there and a bit of Treon coming in here because at that point we're starting to really run up the study factor in EPS at that point in time. Janssen has started to also started to get going. And that's again, it's not difficult to get FID and so on.
So it starts to appear in there. And that really is what makes up the differential. There's another thing, which I guess is which you won't have seen, which is the Gunaseca has got another we've got to spend much of money on the selling fabs, just regular it's just part of the regular list in there. And so that will start that next part of the process will start to appear in 2022. So that really characterizes, I think, what is changing.
Maybe if I could just take back out again, what's the difference between FY 2021 and 2022? The $7,000,000,000 to the $8,000,000,000 There's probably $500,000,000 in additional growth, which is putting essentially, as I say, these new I suppose the biggest additional growth would be the petroleum projects, profitability and so on. The second phase is another $500,000,000 which is additional money getting spent on improvement projects. These are smaller improvement projects less than $250,000,000 but then again, a lot of these deferred in full projects and so on out of petroleum reappear. And we've got a bunch of other things which we can continue to debottleneck rest of our minerals assets.
Not big projects, but really good returns and they did keep the show on the road. And then as part of the 3rd bucket, another $500,000,000 We are going to spend bit more on essentially maintenance capital in that FY 'twenty two. SEM 'twenty one is in that, so that's the statutory formatory building, small business building in Littleton. But there is also an additional amount of money, which is scheduled to be spent on feet and some tailings and things like that, which all of that money, I think, we're obviously across the board, we're very happy to spend that money. It's essential to keep the place safe and operating steadily, plus the improvement capital, whether it's small or large, has excellent returns.
So we're very happy with that. So hopefully that helps a little bit about FY, what's happening in 'twenty two.
And Amos, if I just turn to Janssen. So you're right. We have talked about in the near term there being kind of a year to get back to pre COVID levels economic activity and therefore commodity demand, another couple of years before the world's back on the trajectory that it otherwise would have been on. We have to keep in mind here the time frames for Janssen. So it's about 5 years from the point of starting of construction through the 1st production, another 2 years in which to fully ramp up.
So that time frame is well outside of the COVID period and the COVID recovery period where we expect the world to be back on track again. And we think the underlying thesis potash remains strong. Decarbonization, land use, population growth all bode well for potash potash demand. Now the reason for the delay, so the delay that we've made hasn't been about markets or trying to time the market perfectly. The delay has just been a function of COVID in the first instance.
We needed to move down to 1 shaft rather than 2 for a period of time. And then the second thing is, as we discussed earlier in the calendar year, there were some challenges on some of the shaft lining work since rectified. But the combination of those two things has seen us just push
it out by a few months.
Okay. Thanks very much.
Our next question comes from Richard Hatch from Berenberg. Please go ahead.
Thanks a lot. Sorry, I'm going again. Just a couple of questions. First one is on Escondido. In your medium term production guidance of 1,300,000 tonnes, can you just remind us what the steps are to get to that?
And then the second one is just on decarbonization and the cost of that. Some of your peers have talked to investment of some capital just as they invest in various technologies to reduce the carbon footprint. And can you just remind us where you're at on that and how much you're planning to spend, if you can give any kind of guidance on that?
Sure. So Peter, why don't you take the Escondido one, and I'll speak to decarbonization.
Yes, sure. So the steps to get back to the 1.2 was actually the same steps as what we've had is just that we've had a little delay because of the curve. And so we've had to choose between stripping. Well, we have to 1 third of the best people on the site. So we have to something has to give and that give is in the mine.
And so 2 thirds of that is lower stripping, 1 third is less material stacked to sulfide leach. Of course, we always prioritize the concentrated oxide leach. And so we'll sit down and go in terms of what that absence season looks like through the course of this year this natural year and whenever COVID ends. But the rest of the mine time essentially is unchanged except for the timing. Those as you recall, the grades will come will get a little better because we'll get into those deals that we're serving at this point in time.
That's sort of the underpin of aluminum 2nd Line 2, that project. And yes, so I think we may delay a little bit to get back to where we wanted to be. But over the 5 years, essentially, it's the same time in the mine plan as it was production time as it was before. It's just starting to change a little bit. Otherwise, nothing much changes.
Thanks. And on your question, Richard, around decarbation, look, it's we get the headline numbers around the Climate Investment Program, which was $400,000,000 But that's all about how we go about working with others and coming up with innovative technologies to reduce carbon footprint and so on. But that's a small drop in what is a much larger bucket of effort around decarbonization. So you look at what Benny and the team have done in Chile with the move to fully renewable power. Those power contracts have been entered into on a value accretive basis.
They actually end up being lower cost. What's been brought to bear there is some good commercial and strategic thinking. You look at what we're doing right now around the world's first tender for LNG fuel bulk carriers. Again, the premise that we're bringing to bear on that is how can we get that done for similar rates to what we would otherwise be looking at And we'll pursue renewable power contracts here in Australia as well. So long way of saying that there's specific things that we can track, which do cost more where we're investing more money towards decarbonization.
But as much of our ability to decarbonize comes through ingenuity, commercial focus and so on. Now as time goes on, some of these things will become harder. So for example, replacing all diesel in our fleet of equipment, that is less straightforward, much more challenging, will likely require a move to other technologies like in bid crushing and conveying or quality assist and so on. But those are still things that we're looking at. In the near term, there's a ton of opportunity to be unlocked through the sorts of things that I spoke about earlier.
Thanks, guys. Appreciate it.
Our next question comes from Myles Alsop from UBS. Please go ahead.
Great. Thank you. Sorry I have asked these questions been asked. I joined the call a bit late for technical issues. But first of all, just on the sort of climate change targets, you give us a bit of a taster for the 10th September.
And are you concerned that you are kind of in a losing battle here? Until you exit all your coal assets and petroleum, you're going to be on the wrong side of the ESG line. And when you could be thinking about taking further action in due course, if that is the way the market is and your shareholders are thinking? And then secondly, just around the coal assets that you're looking to exit. Can you give us a sense of the book value of the assets?
Would you be prepared to sell below book value? Is it spin out really the most likely option for those?
Okay. So on climate change, Miles, we will come forward on September 10 with renewed Scope 1 and Scope 2 target, tangible actions on Scope 3, a renewed scenario around a well below 2 degree world and strengthened linkage between executive room and climate change action. Now as I see it through the investors' eyes, that work around scenarios, I think, is really important because if you stand back and believe that the world will accelerate even further on actions to address climate change, so beyond the current actions that are in place that it is important that you understand how our portfolio plays out in that world. But all of the scenario work that we've done today demonstrates that our portfolio is resilient to different climate change scenarios. Now the coal asset announcement that we've made today isn't for it's not being driven by ESG reasons, It's being not directly by ESG reasons.
It's being driven by where we see upside and how best to unlock value. And in this case, the broad trend towards global decarbonization, we think is going to mean greater premiums for higher quality hard coking coals as steel makers seek to reduce their carbon footprint. So that core of assets that we will continue to own and operate, we think are have upside exposure in a decarbonizing world. For the other assets, they have upside, but more of that upside is going to come through capital investment, including in growing new options, maybe like Ward's Well, potential expansions in that business. And given where we're at with our portfolio and the other opportunities that we see ahead of us, we're not going to compete well for capital within BHP, so best to move them out.
Now as to how we move them out, coming back to your point on that front, the short answer is we don't know yet which option that we'll land on. We've said 2 years in part because that gives us time to get out there and explore the different options, engage with various parties, including shareholders to then land on the option that is the preferred option that's going to generate greatest value for shareholders.
Haven't you been exploring the sale of the thermal coal assets for quite a long time already and you've not had much interest?
Well, we've been exploring it for some time, Myles, but we have to all of our commodities, as we know, are cyclical. We're at a point in time right now where coal markets are at a low or what we believe to be certainly at the low end of the cycle. In the case of New South Wales Energy Coal, we've had the further complication of currently having rising costs as we move through a kind of a geological structure, but we expect to be able to bring costs down over time. And so over a 2 year time frame, in volatile markets, we could see a better price environment for coal, full stop. And we'll also be clear on the efforts that we have underway to reduce costs.
So I don't want anybody to take away a view that says that the likely option or the default option here is the merger. That's not the case. We're genuinely exploring all different options. At high level, we've got potential for trade sale and potential for demerger, both and we're wholly agnostic as to which of those we end up with. The only consideration is which is going to give rise to greater value for shareholders.
But Peter, was there anything you'd like to add on this?
Yes. I think Miles, I mean, I don't think it's any secret to think that it is quite hard to sell some of these assets at this point in the market for value. And so we're very disciplined about this, both on the acquisition as well as on the disposal side. There's not
a really time pressure either.
So we should take our time and figure out what's the best way to do that. I have to admit to you that there is we're opening ourselves up a little bit here, a little on BHP, like things don't get enough in our strategy and they're not filled in our portfolio longer term. They're better held by somebody else. How do you get value from these things? It's complicated, right?
And so let's open this thing up. Let's have a dialogue with potential buyers. In fact, you think about it, there's a bunch of these sort of assets wandering around, right? And is the market giving them full value? Possibly not.
Isn't there an opportunity for a consolidation play here? Somebody should stand up and potentially get on with this thing. Why wouldn't it be like that? If you think that's a good idea, Peter, why don't you do it? Okay.
That's where the capital allocation thing comes in. Because if you're going to consolidate all, then you have to put a lot of knowledge, time and energy into something which is not really from a commodity perspective is not really on strategy. And you also have to put some capital in some form in that thing. I reckon here's an opportunity in the next couple of years. We're going to come up with a bunch of other people.
We'll come up with some good ideas here and let's see how we go. But as I said, it's not all perfectly in a box, wrapped up with a bow and said, here it is, box. I don't think that's the way the world has to be every single time. Okay. Thanks.
Our next question comes from Edward Sterk from BMO.
So two questions for me. Firstly, just a point of clarity on Olympic Dam. The plan that's in place there, I think, Mike, you said is expected to deliver mid- to high single digit returns. If I heard that correctly, I just want could you expand a little on how that fits within the capital allocation framework? The number just looks a little bit low, really.
Well, yes. So certainly, we wouldn't want to stop there, Edward. Yes, you heard it correctly, obviously, with all the caveats around what happens with copper price and so on. But that's why I quickly followed up with, we will continue to explore opportunities to expand production at Olympic Dam, But none of that happens unless we've got a kind of a reliable foundation of or foundation of reliable operations at Olympic Dans. So that's been the biggest focus and it's been the plan that we've been pursuing for a few years now.
Having secured that then, we'll then look to opportunities to further expand production. And given the nature of that operation, expansions will result in or will lead to higher returns and double digit returns over time. But what we have in line of sight right now is this near term asset integrity remediation program and the improved ore that we get out of the southern mine area. We're not going to stop that.
Okay, great. And then just one follow-up, just on the growth options and areas in terms of commodities. You highlighted copper, nickel and potash and the potential for if I understood correctly, the potential for acquisitions. Was that to look for acquisitions, was that just in copper and nickel? Or is it also including potash?
So I want to be very clear here. We're not pursuing a strategy that is predominantly focused on acquisitions. In fact, if I think about the likelihood of the sorts of assets that we like coming up at the right time at the right price, It would be silly for us to bank on that as our core focus. Core focus is on exploration and early stage entry and we've seen success on that front certainly in copper, we've also secured some further nickel resource. We're now the world's 2nd largest holder of sulfide resources.
But we will be open to opportunities in copper and nickel. If the right assets came up at the right price, of course, we'd explore those. In the case of potash, we've got lots of resource. So we're not going to be looking at acquisitions to secure more resource, whereas in the case of nickel and copper, we'd like more resource. Although one of the other things that Peter often talks passionately about is the potential for us to unlock more options within the resource that we already have as well through a focus on innovation.
So that's going to be front and center for
us as well.
Wonderful. Thank you.
Our final question comes from Sylvain Brunette from Exane. Please go ahead.
Just a follow-up for me, please, actually related to your Slide 22 when you're talking nickel, which features on the growth map again. How given the difficult history for greenfield project in this commodity, which clearly will be needed in the future. How do you think about managing those risks if you start to accumulate more and more resource? And could you give us some hints of what the technical innovation you have in mind? And if you have this knowledge internally?
Sure, Sylvain. So thank you. And yes, nickel, it's both one of the things that makes nickel hard, but also one of the things that makes it that means it's got a lot of potential and that is that the new high quality nickel sulfides are hard to find. We do have some further exploration work underway in Western Australia. We've had success improving up more reserves in proximity to existing operations.
In fact, increased reserves by circa 90 some odd percent in recent times. So our first focus is really around how do we go about liberating more of the rigs we already have, doing some other exploration in Western Australia, but we'll also consider potential opportunities elsewhere around the world, but it's not the first one. Its first focus is in Western Australia. Now when we talk about technically innovation, that is perhaps even well, it's most relevant to our nickel story because if we can find means of liberating more of the nickel from existing sulfide resources that we've got lots of resource. And so the sorts of things that we're looking at, one of them is high pressure oxidized leaching.
So what's called HPOX for nickel, which would help us to liberate more of the oxide resources that we have a lot of in Nicola West. But again, kind of like some of the early responses, we won't stop there. We've got a team that's demonstrated a lot of ingenuity in the past, really smart people and they'll continue to focus on other means of unlocking resource there. Peter, was there anything you wanted to add?
No, Mike. I think it was covered as well. Great.
Okay. Thanks so much.
Great. Thank you.
That's all the time we have for questions today. I'll pass back to Mike for final comments.
Thank you everybody for joining. I hope that you can see the strength and resilience showing through in the results that we've managed to achieve last year with this very strong underlying cash flow, continued strong return on capital employed, earnings up and of course, the dividend, dollars 0.55 dividend, 3rd year running of greater than $6,000,000,000 that's the foundation. We think that there's a lot more value to be unlocked through tending to the current portfolio, but also to just focus on continuing to drive operational excellence and securing more options in future facing commodities. And we've announced today not just attending a couple of actions related to tending to the portfolio, but also a team and structure that will carry this business forward. And that team has the operational experience, technical depth, financial acumen and commercial perspective that's going to help us realize on these ambitions.
Thank you.
Thank you.