Ladies and gentlemen, thank you for standing by, and welcome to the BHP 2020 financial results investor and analyst Q&A session. I advise you that this conference is being recorded today. At this time, all participants are in a listen-only mode. There'll be a brief introduction followed by a question- and- answer session. At which time, if you wish to ask a question, you'll need to press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note that due to time constraints, each caller will be allowed two questions. If you wish to ask further questions, please re-register by selecting star one again. 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 opening it 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 billion in EBITDA, an 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 at 17%. The balance sheet remains strong, with net debt closing the year at the bottom of the target range. We've declared, as you would've seen, a $0.55 final dividend. That brings the full year to $0.20.
That's our third year running, where we've declared more than $6 billion in ordinary dividends to shareholders. Most importantly, we achieved this safely with no fatalities and our leading and lagging safety indicators improving. That, of course, remains our highest priority. In FY 2020, we were safer, more reliable, and lower cost in spite of the challenges. We've managed to do that with the support of our people, communities, business partners, traditional owners, and governments. We've also sought to support them, because it's in our shared interest that the business keeps safely going. What lies ahead? Our priority remains to grow value and returns by focusing on, firstly, excellence in operations, and then financial discipline, as well as through creating and securing more growth options in future-facing commodities. 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. 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 and demand for the commodities we produce. 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. We've made progress in the past year in securing and advancing future-facing copper and nickel. 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 Cerrejón. 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. 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. In that regard, today, we've announced that we intend to divest our non-operated interest in Bass Strait. We're focused on creating value in the near term through being great operators and stewards of capital. In the long term, through actively managing the portfolio for long-term upside and growth opportunities. Finally, today we've announced a couple of new roles and appointments. Two of those appointments are part of a natural transition of the lead team. The two 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. 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. 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.
Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star one on your telephone, and wait for your name to be announced. Our first question comes from Alain Gabriel from Morgan Stanley. Please go ahead.
Good morning, gents. Two questions from my side. Firstly, on Jansen, 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 Jansen over the last six months at least. That's the first question.
Thanks, Alain. The delay, as you said, is something that we had flagged earlier. In terms of what we've learned about the commodity, one, we continue to like the long-term fundamentals for potash, 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. So far, no red flags. There's a few other things that I'm working my way through, and I expect to be done in the next few months. We do have the luxury of some time before we take a final investment decision, which we've now said will be mid-2021.
Thank you, Mike. Second question, is a change to 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 under almost any realistic commodity price scenario?
Alain, you're right, the portfolio is very resilient. Our current capital allocation framework caters for that. 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 that we've paid at this point in time. 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.
Thank you.
Our next question comes from Jason Fairclough from Bank of America. Please go ahead.
Good morning, Mike. Good morning, Peter. Just a couple of quick ones from me. First on met coal. We've got the announcement today on BMA. I'm just wondering if we're thinking to the medium term, do we think about a more complete exit of all met coal at some point? With that, I suppose all hydrocarbons.
Hi, Jason. Just to be clear, what we've announced today is BMC.
Sorry, BMC. My bad.
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. You know all of the effort that we invest in running different scenarios, thinking about how the world could play out. In a decarbonizing world, we see there being upside for those assets. 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. I guess maybe taking it to another level, before Peter and I talked about potential asset redundancy risks on up to 70% of your portfolio if we look out 20 years. 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? Bottom line, we all like these future-facing commodities, but the markets are just not that big.
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 per the prior discussion. No, I wouldn't say that this foreshadows a shrinking BHP. 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. I remain confident that through this focus on exploration 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. 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. 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 20-30-year horizon.
Okay. Thanks very much, Mike. T hanks, Peter. Bye.
Thanks, Jason.
Our next question comes from Liam Fitzpatrick from DB. Please go ahead.
Thank you. 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? Second question on petroleum. The new guidance is effectively flat volumes over the next three to five years. Is this effectively a move away from the growth plans that you outlined late last year?
Are you still committed to those growth options just with a delay, given the market backdrop at the moment? Thank you.
Thanks, Liam. I'll comment on met coal. I'll say a few comments on petroleum, I might ask Peter to comment on that as well. 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 gained even greater confidence around is the long-term upside associated with the higher-quality hard coking coals in a decarbonizing world.
As we see steel mills becoming firmer in their commitments to reduce their emissions footprint and knowing that 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. 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, more of the value in those assets will be realized through capital investment. Given the BHP portfolio, given what we want to achieve over long term and the options that we have available to us, those assets aren't going to compete well for capital within BHP. Best that we move them into a different ownership structure that allows us to realize value.
In the case of petroleum, I've tried to be clear today that we do see there being value growth opportunities in petroleum that we'll continue to invest in. 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. 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. We've also been clear that we'll look for other opportunities to secure producing assets or near-producing assets. Peter, perhaps you want to add a few thoughts on this as well.
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. Scarborough is a big part of that. It slips the other side of the five-year because of the delay. I think it's an absolutely justified delay. Trion probably also a little bit in there. Those are two big movers, really, to drive the really big outperformance in terms of growth. Just to come back to why do we like these projects? Well, because they are great break-evens. They're going to make money in almost any circumstances. Certainly, the infills are $30 and maybe in the low $40s and so on, 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's 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. Obviously, we're big believers in decarbonization, electrification, and so on. On the other hand, let's not forget that in the last two months, 1/3 or so of all the CapEx has just come tumbling out of this industry. It's going to 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.
Lots to play for in this, as Mike was saying earlier. Lots to play for in the commodity itself and lots to play for in our portfolio. I think we're still feeling very good about this.
Thank you, both.
Our next question comes from Tyler Broda from RBC. Please go ahead.
Good morning, Mike, Peter. Thanks for the call. I guess just on oil and gas, you mentioned about the Bass Strait for investment, potential acquisitions if they come along. How do you sort of see the ideal petroleum portfolio in five years? Do you think we need to add more growth to the portfolio? I guess my second question, just on iron ore, with that being 60% of the EBITDA, does the Simandou development change your thinking in terms of what the longer-term shape of BHP needs to look like? Thank you.
I'll address those in reverse order, Tyler. Does Simandou change our view as to the portfolio and the things that we focus on? Absolutely not. Whilst we don't think that the Simandou tons are needed in the market, basis our outlook for iron ore, our strategy remains exactly the same as it was the likelihood of Simandou tons or before Simandou 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 South Flank development, which is going to help lift Fe and the proportion of lump in the portfolio. 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 Simandou in the market or without Simandou in the market. 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. 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 declining iron ore market to be exacerbated by Simandou.
If I turn to oil and gas and what we want the portfolio to look like in five 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. Then we have projects like Scarborough and Trion that we'll continue to bring through, and Trinidad and Tobago, that we'll continue to bring through the development curve. W ould we like to have more options to be able to grow value in petroleum? Yes, for the right options.
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. 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.
Cool. Thanks very much. Morning, gents. Thanks for the call. First question, just a point of clarification on the medium-term met coal guidance. Does that include the assumption that the BMC assets are sold or not? If it doesn't, what is reducing in terms of the BMA production? The second question is just on Olympic Dam, - 1% return on capital employed. Again, it continues to underperform. How long are you going to give this asset, 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.
Thanks, Richard. Medium-term guidance for met coal, and this is standard practice for us, it does not include the assumption around the divestment. As to the round number figures when we're successful in divesting, it's around 10 metric tons on a consolidated basis for BMC. 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 BMC 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.
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 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 it 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. 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 maintenance campaign on the smelter.
After that, we're expecting to be up at the ±200,000 ton per annum production level . 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 in the mid to high single- digits. Longer term, we'll continue to look at options around expanding Olympic Dam. It's a great resource. 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. In terms of long-term opportunity for Olympic Dam, nothing changed. First focus, secure reliable operations. Through that, lift returns to a more acceptable level and work the expansion options in parallel.
Richard, it's Tristan. Were you asking on the [ coal production] and what the drivers were for our reduced guidance? Is that actually where your question was coming from?
Thanks, Tristan. Yeah, it was.
Oh, sorry.
It was just what gives in BMA that reduces the medium-term production. Thanks, Mike. Thanks, Tristan.
Great. Okay. Sorry, I misunderstood the question, Richard. It's simply markets. Clearly, coal markets are under pressure currently. We think that some of that pressure will extend on for a period of time. 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 think it's going to take about three years to get back onto the trajectory that the world would have gone on otherwise. As we step back and look at that, we want to be market responsive in our plans for production. On that basis, we've elected to pull back in some of those plans, particularly around some of the BMC coal and the Blackwater coal, where we see there being less upside, unlike the higher quality hard coking coals.
The result of that is the production growth will be a little bit less than we were previously planning, one. Two, because those were our lower cost but lower margin mines, we will also see an upwards revision in the medium-term guidance on unit costs.
Cool. 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 Juukan Gorge issue we had earlier, do we expect actually any mine plan adjustments post 2020? Is that part of your guidance already? The second question is, we've learned now that you might actually dispose BMC, Bass Strait, 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, Carsten. Thank you. I'll make a point on the asset disposals. I think it'd be worthwhile, Peter, as well, just talking to how we think about capital allocation more broadly, Carsten, which sits behind the question that you've asked. In the case of iron ore, whilst I know that the Juukan 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 Juukan Gorge. Part of that process sees us in constant engagement with traditional owners. As new information comes to light, that helps to inform the decisions that we take at any given point around the mine plan.
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. I don't foresee any change to iron ore guidance as a result of that ongoing focus. In the case of the divestment question that 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 two is better value for shareholders. One of those options, the divestment for value, obviously gives rise to cash. The other one wouldn't, or less so. In the case of Bass Strait, that's more likely, or the focus there is on a trade sale.
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. 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. That could be in petroleum in the first instance or in these other future-facing commodities. Peter, I know you'll have a few things to say from a capital allocation perspective as well.
I think that Mike, whatever happens at the time with those proceeds come in, we'll take a look at them as we do every six months with all of our cash flows versus the outgoings, where we see that balance sheet, and we'll make a decision if there's excess capital there. We'll always make a decision as to whether that excess capital can be returned in the form of a buyback or in the form of additional cash returns, if it's material, that is. We'll make that value decision. We're not a company that sort of goes, okay, well, buybacks just inherently make sense. 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.
We will make this decision every single time we turn up with that. Maybe, Mike, just going back onto the question about what changes might occur. Just one other different thought, I suppose, is that in the event that you've got to maneuver around some of these heritage sites and so on and change your mine plan, in the event that you had to do that, I'm talking hypothetically, if you've got a very large, long life asset on your hands and you're just moving, you're really adjusting the last years of that asset. The impact of that is relatively smaller versus if you had a series of shorter life mines where in fact, you're having to bring forward the capital spend of the next replacement mine. Happily, we've got the former, not the latter, in terms of our quality of our mine asset base.
That's just a hypothetical as opposed to the answers that Mike gave, which is entirely controlled.
Well, it's a great call-out, Peter, and it really points to part of our resilience on a whole range of fronts comes from the nature of the portfolio and the assets that we have.
Perfect. Thank you very much. I appreciate the color.
Thanks, Carsten.
As a reminder, if you wish to ask a question, please press star one on your telephone. Our next question comes from Sylvain Brunet from Exane. Please go ahead.
Hi, Mike, Peter. My first question is on the unit costs at Western Australia Iron Ore, where you're going to need about 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? My second question is on the petroleum footprint. Should we read into your commentary that you would have a more balanced approach, that 100 million barrel of oil equivalent should be kind of a cap on your production and you replenish assets which are depleting, or is it not how you think about it? Thanks.
Sylvain, great, thank you. In reverse order, no, please don't see that we're signaling 100 million barrel of oil equivalent cap on production. Peter's referred to some of the projects, Scarborough and Trion, that may fall just outside the five-year window. We've also been clear today that we're open to looking at acquisitions, of course, acquisitions that meet the test of the capital allocation framework, but for near or already producing fields. It's certainly not a cap at 100 million barrel of oil equivalent, but whatever investments we make have to generate great returns. That has to happen within a timeframe in which we still see the commodity as attractive. On WAIO cost pressures, I mean, what a good news story.
If I can just 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 eke out this incremental improvement. Now, do we see some cost pressures in the year ahead? Yes, you've called out one, which is Forex. Ongoing maintenance as well. The team's 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 Port Hedland. Yandi is in decline as South Flank ramps up. I think from memory, there's a bit of an increase in strip ratio as well.
A few pressures, but I'd just like 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, it's interesting just to zoom back out just for a second. I always think a little bit about our own story at BHP is always a little complex. We've got field decline going on. We've got strip ratio going up, 25% more tons split from the inland over the last five, Queensland coal, over the last five years. Of course, we went from 1.38%, I think, five or six years ago, its [ inaudible] . Against the backdrop of that, we've managed to increase production and reduce costs and so on. It's hard to contextualize how difficult it is to get over those resource headwinds in order to continue to deliver these sort of results.
The place which possibly is the cleanest to see is probably Western Australia those big headwinds and tailwinds from resource. You see this steady drumbeat of, okay, there's whoosh down from $30 to $50, and then the steady drumbeat down to, what, $10.86 in the last six months. It does give you maybe 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 it just gives you a little bit of a sense of this. The other thing I'd just also mention, just if you bear with me, please. Those resource headwinds do have an end date, happily, finally, and that is the field decline will reverse in FY 2022. Grades will start to go back up in 2023 in Escondida as we get into the spot delivery in [inaudible].
Of course, the strip ratio maxes out this year in [inaudible] . If you give all those things, if you give that sense of that trend and the productivity push, and you put it against a series of serious tailwind. I say turn of the tailwind. Boy, Mike, you are going to have to wear that one when it comes to the turn. You get the same, when we put medium-term guidance up for increased production out of the ten year, lower costs out of the second year and so on. We have a degree of confidence as to why that would happen, despite all of what has been achieved over the last few years. It is not easy, and it is not going to be perfect. We are not for one moment saying that everything is great and hunky-dory and so on.
I just want to give it a little bit of a bit of context, possibly.
Okay. Thank you.
Our next question comes from Amos Fletcher from Barclays. Please go ahead.
Morning, gentlemen. Just a couple of questions. First one on FY 2022 CapEx guidance of $ 8.5 billion. Can you talk through what's allocated within that to Jansen, Scarborough and any other major unallocated projects as yet? Secondly, on Jansen, you mentioned that we've lost two to three 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've only delayed the FID by about four months. Can you explain the timing mismatch there? Thanks.
Okay. I might ask Peter just to talk to the CapEx question that Amos had on FY 2022. I'll comment on Jansen.
Sorry, Amos, just repeat your question again. Sorry, my mind blanked out.
Sure. It was just regarding the FY 2022 guidance of $8.5 billion. I just wanted to find out what's allocated within that to Jansen, Scarborough and any other major projects that you haven't FID'd yet.
We'll finish off a little bit of [Esso] and South Flank comes up. The projects that will continue to be in there will be the big projects are Atlantis, Mad Dog, and we start to see, in fact, a bit of Scarborough coming in there and a bit of Trion coming in here because at that point, we're starting to really ramp up the study phase in BPS at that point in time. Jansen has started to also get going. Again, it's got to get FID and so on. It starts to appear in there. That really is what makes up the differential.
There's another thing which you won't have seen, which is the [inaudible] . We've got to spend a bunch of money on the tailings, it's just part of the regular list in there. That next part of the process will start to appear in 2022. That really characterizes, I think, what is changing. Maybe if I can just take it back out again, what's the difference between FY 2021 and 2022? The $7 billion-$8 billion. There's probably $500 million in additional growth, which is putting essentially, as I say, these I suppose the biggest portion of those would be the petroleum projects, plus a bit of Jansen and so on. The second piece is another $500 million, which is additional money getting spent on improvement projects. These are smaller improvement projects, less than $250 million.
Again, a lot of these deferred infill projects and so on out of petroleum reappear. We've got a bunch of other things which we can continue to de-bottle across the rest of our minerals assets. Not big projects, but very good returns, and they just keep the show on the road. Finally, the third bucket, another $500 million. We are going to spend a bit more on essentially maintenance capital in that FY 2022. SCM 21 is in that, so that's the statutory [inaudible] building, small physical building in Olympic Dam. There is also an additional amount of money which is scheduled to be spent on fleet and some tailings and things like that. All of that money, I think, across the board, we're very happy to spend that money. It's essential to keep the place safe and operating stably.
As I say, the improvement capital, whether it's small or large, has excellent returns, so we're very happy with that. Hopefully that helps a little bit about FY, what's happening in 2022.
Amos, if I just turn to Jansen. You're right, we have talked about in the near term, there being, well, kind of a year to get back to pre-COVID levels of 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 Jansen. It's about five years from the point of starting of construction through to first production, another two years in which to fully ramp up. 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. We think the underlying thesis to potash remains strong. Decarbonization, land use, population growth, all bode well for potash demand.
The reason for 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 one shaft rather than two for a period of time. 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. The combination of those two things has seen us just pushed out by a few months.
Okay, thanks very much.
Our next question comes from Richard Hatch from Berenberg. Please go ahead.
Thanks a lot. Just couple of questions. First one's on Escondida, in your medium-term production guidance of 1.2 million tons, can you just remind us what the steps are to get to that? Then the second one is just on decarbonization and the cost of that. Some of your peers have talked, investment of some capital just as they invest in various technologies to reduce the carbon footprint. 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? Thank you.
Sure. Peter, why don't you take the Escondida one and I'll speak to decarbonization.
S ure. The steps to get back to the 1.2 million tons are actually the same steps as what we've had. It's just that we've had a little delay because of the COVID. We've had to choose between stripping, well, we've had one third less people on the site, something has to give, and that give is in the mine. Two-thirds of that is a lot of stripping, one-third is less material stacked to sulfide leach. Of course, we always prioritize the concentrated oxide leach. We'll see how we go in terms of what that [inaudible] looks like through the course of this financial year and whenever COVID ends. The rest of the mine plan essentially is unchanged except for the timing.
Those, as you recall, the grades will get a little better because we'll get into those piles that we're stripping at this point in time. That was the underpin of Laguna Seca Line 2, that project , so I think we may delay a little bit to get back to where we wanted to be. Over the five years, essentially, it's the same tons in the mine plan as it was, production tons as it was before. It's just timings have changed a little bit. Otherwise, nothing much changes.
Thanks.
On your question, Richard, around decarbonization. We get the headline numbers around the climate investment program, which was $400 million. That's all about how we go about working with others and coming up with innovative technologies to reduce carbon footprint and so on. That's a small drop in what is a much larger bucket of effort around decarbonization. You look at what Danny 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. 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. 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. 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-pit crushing and conveying or trolley assistance and so on. 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.
Cool. Thanks guys, appreciate it.
Our next question comes from Myles Allsop from UBS. Please go ahead.
Great. Thank you. Sorry to have asked these questions being asked. I joined the call a bit late for the technical issues. First of all, just on the sort of climate change targets, can you give us a bit of a taster for the 10th of September? 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 the wrong side of the ESG line and will you perhaps be thinking about taking further actions in due course if that is the way the market is and your shareholders are thinking. 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 a spin-out really the most likely option for those? Thank you.
Okay. On climate change, Myles, we will come forward on September 10th with renewed Scope 1 and Scope 2 target, tangible actions on Scope 3, a renewed scenario around a well below 2 degree world, and strengthen linkage between executive remuneration and climate change action. As I see it through the investors' eyes, that work around scenarios I think is really important. If you stand back and believe that the world will accelerate even further on actions to address climate change, beyond the current actions that are in place, then it is important that you understand how our portfolio plays out in that world. All of the scenario work that we've done today demonstrates that our portfolio is resilient to different climate change scenarios. The coal asset announcement that we've made today isn't being driven by ESG reasons.
Not directly by ESG reasons, it's being driven by where we see upside and how best to unlock value. 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. That core of assets that we'll continue to own and operate, we think 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 [inaudible] , potential expansions in that business. Given where we're at with our portfolio and the other opportunities that we see ahead of us, they're not going to compete well for capital within BHP, so best to move them out.
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 two 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 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 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 geological structure. We expect to be able to bring costs down over time. Over a two-year timeframe, 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. I don't want anybody to take away a view that says that the likely option or the default option here is demerger. That's not the case.
We're genuinely exploring all different options. At high level, we've got a potential for trade sale and potential for a 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. Peter, was there anything you'd like to add on this?
Myles, I don't think it's any secret to think that it is kind of hard to sell some of these assets at this point in the market for value. You know we're very disciplined about this both on the acquisition as well as on the disposal side. We're not under any time pressure here, so we should take our time and figure out what's the best way to do that. I have to admit to you that we're opening ourselves up a little bit here, a little on BHP, like we've dotted all the Is and crossed all the Ts and so on. I just must say, look, these things don't fit in our strategy and they're not fit in our portfolio longer term. They're better held by somebody else. How do you get value for these things? It's complicated.
Let's open this thing up. Let's have a dialogue with potential buyers. In fact, when you think about it, there's a bunch of these sort of assets wandering around. 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? You say, well, 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 do the consolidation at all, then you have to put a lot of money, time, and energy into something which does not really, from a commodity perspective, is not really our strategy. You obviously 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.
As I say, it's not all perfectly in a box wrapped up with a bow and say, here it is, folks. I don't think that's the way the world has to be every single time.
Okay, thanks.
Our next question comes from Edward Sterck from BMO. Please go ahead.
Good afternoon, gentlemen. Two questions from 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, could you expand a little on how that fits within the capital allocation framework? The number just looks a little bit low, really.
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. That's why I quickly followed up with, we will continue to explore opportunities to expand production at Olympic Dam. None of that happens unless we've got a foundation of reliable operations at Olympic Dam. 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, 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.
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 there.
Thank you. Okay, great. Thank you. 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. To look for acquisitions, was that just in copper and nickel, or was it also including potash?
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, we've seen success on that front certainly in copper. We've also secured some further nickel resource. We're now the world's second-largest holder of sulfide resources. 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. That's going to be front and center for us as well.
Wonderful. Thank you.
Our final question comes from Sylvain Brunet from Exane. Please go ahead.
Just a follow-up for me, please, actually related to your slide 22, when you were talking nickel, which features on the growth map again. Given the difficulties for greenfield projects 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 resource? Could you give us some hints at what the technical innovation you have in mind, and if you have this knowledge internally? Thank you.
Sure, Sylvain. Thank you. Yes, nickel, it's both . One of the things that makes nickel hard, but also one of the things 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 in proving up more reserves in proximity to existing operations. In fact, increased reserves by circa 90% some odd in recent times. Our first focus is really around how do we go about liberating more of the resource we already have, doing some other exploration in Western Australia. We'll also consider potential opportunities elsewhere around the world, but it's not the first focus. First focus is in Western Australia. When we talk about technical innovation, that is perhaps , well, it's most relevant to our nickel story.
If we can find means of liberating more of the nickel from existing sulfide resources, we've got lots of resource. The sorts of things that we're looking at, one of them is high pressure oxidized leaching. What's called HPOx for nickel, which would help us to liberate more of the oxide resources that we have a lot of in Nickel West. Again, like some of the earlier 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 well.
Great. Okay, thanks, Sylvain.
Great. Thank you. Thank you.
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, $0.55 dividend, third year running of greater than $6 billion. That's the foundation. We think that there's a lot more value to be unlocked through tending to the current portfolio, also through this focus on continuing to drive operational excellence and securing more options in future-facing commodities. We've announced today not just a couple of actions related to tending to the portfolio, also a team and structure that will carry this business forward. 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.