Thank you for joining me and Peter today as we deliver BHP's December 2019 half-year results. It's an incredible privilege to be here as CEO today, and of course, I am pleased to be able to present a strong set of results grounded in solid operational performance. Recognizing this is my first time with you in my new capacity, I will also take the opportunity to provide some comments on how I see the world, the company, and the future. Before I go further, though, please note the disclaimer and its importance. I want to start with the people at BHP. Following the announcement of my appointment as CEO in November last year, I spent five weeks on the road visiting all of our businesses, most of our major offices, and many of our operations. I met many thousands of employees and BHP contractors around the world.
These engagements reinforced for me that we have some incredibly talented people who are eager to perform. I kind of knew that, of course, but it was good to have that brought home to me through this tour, and just as I landed in the role. We have an incredible portfolio of assets, but we unlock their potential through our people. I was struck by what they told me. The three things I heard most consistently from all corners of BHP that they're passionate about were our new purpose, our focus on improvement, and our commitment to social value. They also provided me with plenty of feedback on what we can do to build on our momentum and take what is good performance and make it exceptional.
Finally, they accepted the challenge to personally step up, push the limits of what's possible, and make the fast decisions that will allow us to improve at pace and unlock more of what's possible in BHP. They know that through doing that, we can achieve exceptional financial and operational performance and grow value for both shareholders and society. I intend for BHP to be unquestionably the industry's best operator, safer, lower cost, more reliable, and more productive. This will drive value and returns. We will be more open to new ideas, more connected to those around us, and more commercial in thought and action. Today, we already have a positively differentiated strategy in terms of where to play, with fewer commodities and great assets in stable jurisdictions.
Also how to play with our operating model, our approach to technical excellence, and our focus on social value that will support long-term outperformance. Our operating environment and our competition are dynamic. We cannot stand still. With our strong portfolio and performance momentum, we are set up much better than most. However, to unlock more of our potential, to further address the challenges coming at us, and to capitalize on the opportunities that the environment will reveal over time, there are some things we must strengthen. We must be lean and high-performing in all parts of BHP. In the face of market uncertainty and slowing rates of growth in commodity demand, a greater proportion of value growth will come from an unrelenting focus on being great at what we do. We must become even safer, with a focus on eliminating fatalities and high-potential injuries.
We must create more options in future-facing commodities to help us continue to grow value. These options will come from both within our existing footprint, as well as through securing more resources through exploration and early-stage entry. Through being safe, lean, high-performing, and future-fit, we will reliably grow value and returns for decades to come. We've made huge inroads in strengthening our foundations over recent years. Of course, achievement of these goals will require the effort of people across all parts and all levels of BHP, and we'll focus on five specific levers to unlock our performance potential. First, culture. We will build upon our distinctive, inclusive culture with strengthened self-accountability, performance edge, hunger to learn and improve, and a greater commercial mindset. Second, capability. We will invest in people and the capability required to support consistently high performance and to unlock options. This includes achieving a gender-balanced workforce.
Third, we will instill an asset-centric focus throughout BHP. Everyone across the company will understand and fulfill their role in making our assets safer, lower cost, and more reliable. Fourth, technology. We will restructure, reorient, and build capability to apply technology at scale quickly, at lower cost, and for value. Finally, capital allocation. I am totally committed to continuing the discipline that we've created through our capital allocation framework. It is driving better decision-making, and it's making us more productive through the way in which it stimulates focus and competition. What does all this look like in action? Let me touch on just a few examples to help bring them to life. In technology, in addition to aligning our structure to our assets and streamlining our processes, we will greatly leverage external providers of infrastructure, systems, and services.
We will sharpen our portfolio of projects and shift our weighting towards opportunities that generate higher returns earlier. We've spoken previously about our multi-year effort to make our functions more efficient and more effective. We're accelerating delivery of this, bringing forward some efforts that were otherwise to be delivered two years later. This and our changes in technology are expected to reduce overheads by well over $500 million by 2021 relative to last financial year. As importantly, it will better enable and free up those working on the frontline of the business. We're also supporting frontline leadership through further streamlining administrative processes, enabling them to spend more high-quality time in field, and through reducing average spans of control, particularly for our supervisors. On the capability front, we will have a workforce that is committed to BHP and who we can invest in.
We're moving from 30% to 40% of our people being permanent BHP employees, to double that. I will also create a senior role on my team that will be accountable for leading excellence in our technical disciplines, and who will help stimulate performance across the company. These are just a few of the changes we are rapidly making in our effort to create a safe, lean, high-performing, and future-facing business. With that, let me outline our half-year results. Over the past six months, we delivered a strong set of financial results. Underlying EBITDA was up 15% to $12 billion. Our margins expanded to 56%, and return on capital employed increased to 19%. Continued solid operating cash flow, combined with disciplined investment in our high-quality projects, generated free cash flow of $3.7 billion.
With our balance sheet strong, the board today announced an interim dividend of $0.65 per share, our second highest ever. Operationally, our performance was solid. We maintained production and reduced unit costs despite field decline, grade decline, and significant planned maintenance in the half. We progressed our major projects over the period and expect two of these, the Spence Growth Option and Atlantis Phase 3, to deliver first production within the next 12 months. The most important part of our work, however, is keeping our people safe. It is, without question, our highest priority. Our safety record reflects the quality of leadership, the culture of the organization, and how disciplined we are when it comes to planning and performance. Over the period, we reduced our total recordable injury frequency by 2%.
However, the rate of high-potential injuries rose by 5% due to an uptick in our Minerals Americas business. The reality is that we are not yet consistently where we need to be. At Samarco, resettlement remains a priority of the Renova Foundation, it's progressing well. Across all our operations, we continue to invest in the integrity of our dams. We're also taking action on climate change. A couple of highlights are that we're on track to meet our 2022 targets for greenhouse gas emissions, and we have signed contracts to move towards 100% renewable power at Escondida and Spence. With that, I'll now hand over to Peter to take you through our results in detail.
Thanks, Mike. This was a strong first half result with solid operating performance and lower unit costs. Underlying EBITDA increased by 15% to just over $12 billion at a margin of 56%, one of our highest in recent times. With a lower effective tax rate of 33%, underlying attributable profit was $5.2 billion, up 29%. On a total operations basis, our underlying earnings per share increased by 46%. Exceptional items primarily relate to the cancellation of power contracts at Escondida and Spence, with a shift towards 100% renewable energy. Not only is this the right thing to do, it's highly value accretive for our shareholders as the new power purchase agreements are lower cost. The EBITDA waterfall shows the benefit of higher prices driven by iron ore. With IFRS 16, operating leases are now charged to the income statement as depreciation and finance costs, positively impacting EBITDA.
Our strong and stable operating performance delivered a substantial increase in copper production, despite grade decline and growth in iron ore. This was offset by expected Petroleum field decline and substantial planned maintenance. We also had a solid cost performance across the business with lower unit costs at Western Australia Iron Ore, Petroleum, and Escondida. Western Australia Iron Ore generated EBITDA of $7 billion with a margin of 69%. The increase in average realized prices contributed significantly to the result, our team's drive to unlock volumes despite the major maintenance campaign and further reduce costs fully captured the benefit of these higher prices. Over the half, we lowered our C1 unit costs to just $12.75, an outstanding result. In copper, EBITDA increased by 22% to $2.4 billion. This was largely driven by a 7% increase in production.
Record throughput at Escondida from improvements in maintenance and operational performance more than offset the impact of grade decline and social unrest in Chile. Unit costs were better than full-year guidance, driven by good cost control and higher by-product credits. Our met coal business contributed EBITDA of around $1 billion at a margin of 37%. A strong underlying performance was more than offset by a 22% reduction in price and the impact of major planned wash plant maintenance. A stronger second half performance is expected with lower strip ratios, optimized maintenance strategies, and continued efficiency improvements. Production and cost guidance remains unchanged. Finally, our Petroleum business achieved an EBITDA of $1.6 billion at a margin of 65%. While down on the previous period, this was driven by lower realized prices and natural field decline of around 5%.
Despite lower volumes, we reduced unit costs by 14% to $9.56 per barrel, with lower overall maintenance activity over the period. Excluding 2016, when we saw a dramatic fall in commodity prices, we've generated net operating cash flow of at least $15 billion every year over the last decade. Solid operating performance and high prices meant we continued this strong operating cash delivery with $7.4 billion this half, despite significant adverse working capital movements of $600 million. These included a $400 million inventory build for two reasons: to help underpin better operational stability and due to planned maintenance during the half. Price-related impacts on accounts receivables and royalties and payment of the Western Australia Iron Ore royalty settlement agreed in June last year. These were partly offset by the raising of the provision related to the cancellation of the Chilean power contract.
In the next period, we would expect to draw down a portion of the inventory build and no repeat of the royalty settlement. With a stable low-cost operating base and CapEx in line with guidance, we're in a good position to continue to generate strong cash flows going forward. As you know, our capital allocation framework informs every financial decision we make. It transparently directs cash to its value-maximizing use. This slide shows how we've done that. The $3.8 billion investment in maintenance, growth projects, and exploration was in line with our plans. CapEx guidance remains unchanged at below $8 billion for the full year. Our balance sheet is strong, with net debt at $12.8 billion at the bottom end of our target range.
Compared to net debt of $9.2 billion at the end of June 2019, the inclusion of derivatives and the application of IFRS 16 has increased net debt by $2.3 billion. New leases in the second half, largely related to the diesel plant at Spence, are expected to increase net debt by a further $1.1 billion. While the underlying fundamentals of our commodities remain sound, the coronavirus outbreak, debate on the Chilean constitution, trade policy, and geopolitics remain key uncertainties. We always consider downside risks in all our cash allocation decisions and retain our preference for net debt to be at the bottom of our $12 billion-$17 billion target range. Off the back of our strong result, today we announced an interim dividend of $0.65 per share, or $3.3 billion. It's our second highest ever.
This equates to a payout ratio of 63%, 13% over the minimum under our payout ratio policy. Including the dividend announced today, over the past four years, we've returned around $33 billion to shareholders, around a quarter of our current market capitalization, and this excludes the demerger of South32. Over the half, our return on capital employed increased to 19%. It's a healthy number that includes over $8 billion in assets under construction and a further $2 billion due to the capitalization of leases. While prices have clearly helped, the increase is also driven by our ongoing operational improvements and disciplined capital allocation. At constant 2017 prices, we've lifted our return on capital by 70% since 2016. Western Australia Iron Ore again led the way with an outstanding return on capital of 49%. Escondida improved its return to 15%, while existing Pampa Norte operations, excluding SGO, delivered 12%.
Despite lower prices, our Petroleum business continues to provide high returns to shareholders, just below 20%, excluding projects and execution. Even with lower prices, Queensland Coal returns were 13%. In summary, these results continue the strong performance we've achieved over the past few years. Our focus on operational and financial performance across the organization has set us up to deliver a strong second half and achieve our 2020 financial year guidance. While we remain confident in the positive underlying fundamentals of our commodities, there are a number of near-term uncertainties, including, obviously, the coronavirus, which we're monitoring closely. As always, our first priority is our people in locations that could be impacted. While it's early days, it's clear there will be demand loss in oil and demand deferral in steel and copper.
Somewhat offsetting this are current supply disruptions in iron ore, met coal, and oil. Overall, the impact is likely to be dependent on the pace of recovery and end-use activities in China and the risk of spread to other countries. We're used to dealing with price volatility. With our low-cost assets, diversified portfolio, and strong operating performance and balance sheet, we're ready for whatever happens. Thank you.
Thank you, Peter. As I've mentioned, we have a strong foundation upon which to deliver exceptional operating and financial performance. Our portfolio is simple and solid. It's comprised of commodities with attractive supply side fundamentals and durable near-term demand growth. Our assets are some of the world's best. They're located in favorable jurisdictions. We have a pipeline of high return opportunities to grow value through productivity and brownfield and greenfield projects. We are performing well operationally and financially with good momentum. Our iron ore operations are advantaged in terms of size, quality, and proximity to market. Over the past five years, we've halved our unit costs and increased production by 20%. Once South Flank is completed, we can sustain production at a higher grade for many years.
Our Escondida copper mine in Chile has kept costs and production flat over the past five years, despite 35% grade decline and increased use of desalinated water. We remain the largest seaborne supplier of coal for steel making with a high-quality product. Over the past five years, despite a 14% increase in strip ratios, we've increased production and reduced unit cost by over 15%. Our Petroleum business has leading exploration and operational capability and numerous options that can add valuable growth. Let me now give you an update on how we'll further lift performance through our culture capabilities and the use of technology, focusing on our major assets. Our bulks businesses are incredible cash generators for the group and have further potential to grow value.
At Western Australia Iron Ore, we remain focused on unlocking the full potential of this business through becoming even more reliable, through reducing costs, and through optimizing our supply chain. Our program to improve port reliability is progressing well. This will provide a stable base for our tightly coupled supply chain as we further lift rail capacity and mine production. We intend to bring costs down further as we creep towards 290 million tons per year. The South Flank Project was designed leanly and moved into execution with a commercial mindset. This is paying off. The project is progressing well, on time and on budget, and when completed in 2021, it will lift the average product grade and the proportion of our production that is high-value lump. At Queensland Coal, we are breaking records in stripping the bottleneck amid a period of higher strip ratios.
As we move the bottleneck to the wash plants and the benefits of technology and the BHP Operating System flow through, we will also reduce costs and unlock volumes should the market require. Our strip ratios will moderate over time, also supporting lower costs. As good as the underlying assets are, we will only realize their true potential when we have the right people, properly led and enabled, and when we are great at applying technology to make us safer and more productive. The rollout of Operations Services in Australia and autonomous haulage are two examples. BHP's Operations Services is an innovative model founded on people connectedness and high performance. It now operates in 13 locations across Australia and has created more than 1,500 permanent jobs in production and maintenance. I expect this to be closer to 3,000 people by the end of the financial year.
Through hiring great people, giving them the right leadership through tighter supervisor spans of control, creating a high-performance culture, and providing more training, Operations Services is achieving some strong results. This includes reduced outage time and maintenance and up to 30% improvement in productivity. We see potential to grow this part of our business to improve safety and productivity and create more permanent jobs and opportunities for our local communities. Likewise, our implementation of autonomous haulage at Jimblebar produced outstanding results. Incidents with fatal potential are down more than 80% and haulage costs by 20%. We expect to see similar improvements at Goonyella Riverside, with first trucks arriving later this year. We'll continue to assess the value case for deployment of this technology to other sites, always through the lens of our capital allocation framework.
Our copper assets are all improving performance and collectively has some near-term growth and longer-term potential. Escondida continues to set records in concentrator throughput, supported by improvements in maintenance and operational performance. We expect this strong performance to continue and to support average production of 1.2 million tons per annum in the medium term. At Spence, our optimization technology has lifted recoveries by 14%, and we're now replicating this at Cerro Colorado. When I was at Spence in December, I visited with the growth project, and it's also progressing well. Initial copper production is expected in the second half of this calendar year. Together with the current operations, the total annual copper output at Spence will reach 300,000 tons per year over the first four years.
Across both Escondida and Spence, we are not only improving performance and returns, but we're also making our assets more sustainable. Escondida's desalination plant expansion was completed in December, lifting capacity to 3,800 L/s . As a result, we've ceased drawing water from the local aquifers a full 10 years ahead of schedule. While use of desalinated water is more expensive, we have managed to keep costs at Escondida flat through some great cost management. The desalination plant at Spence is near completion and will allow its expanded operations to use desalinated water as its main source of supply. We've also signed agreements in the past half to move towards 100% renewable energy sources by the mid-2020s. This will reduce 3 million tons, or approximately 60%, of CO2 emissions per year across our Chilean operations at significantly reduced electricity prices.
This is an important example of how we can meet the objective of green, low-cost, stable supply of electricity. At Olympic Dam, our multi-year effort to remediate asset integrity is progressing to plan and will help us secure more reliable operations. At the same time, we've improved grade. Combined, these will help us to lift returns and provide the foundation for significant production growth, which we continue to evaluate. Clearly, returns at Olympic Dam are not where they need to be. I'm absolutely committed to addressing this. In Petroleum, our suite of competitive projects has the potential to substantially increase production over the next decade. Geraldine and her team spent time with many of you in November to talk about the potential of this part of the portfolio. We have a rich suite of high-return brownfield and greenfield value creation opportunities.
Atlantis Phase 3 is on track to deliver first oil this year, with Ruby and Mad Dog Phase 2 to follow over the next couple of years. These major projects will add a combined 25 million barrels of oil equivalent in 2023. Beyond these, several unsanctioned projects will be considered for approval over the next 12-18 months. In the Gulf of Mexico, growth opportunities at Shenzi and Wildling Phase 1 could add production from late 2022. In Australia, the Scarborough LNG development offers material growth, with potential first production from 2024. Our successful appraisal program at Trion in Mexico has reduced resource uncertainty, and the development is advancing towards potential FID within the next two to three years. Following our material gas discovery in Trinidad and Tobago, we are progressing appraisal and development options. Our successful petroleum exploration program continues to replenish our portfolio.
To recap, we have a compelling investment proposition. We remain focused on maximizing cash flow and continuing our track record of disciplined application of our capital allocation framework. Our foundations are rock solid, our strong first-half performance is indicative of our momentum. We see enormous potential to reliably deliver sector-leading operational performance, financial returns, and social value in the years ahead. Our foundations are strong and performance momentum is with us. We will deliver a BHP that is safe, lean, high-performing, and fit for the future. Thank you.
Ladies and gentlemen, thank you for standing by, and welcome to the BHP half year 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 that 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 of BHP Group.
Well, good morning, everyone. I have Peter Beaven here with me as well. I'm really happy to be here. We have a strong set of results. Of course, I'm very pleased with the opportunity to lead BHP. Let me touch briefly first on results. We've reported a great set of numbers with strong underlying operating performance. We kept everyone safe, so everyone made it home to family and friends at the end of the shift. We had no significant operational disruptions. In fact, we've been pretty steady for 12 months now, and certainly during the half. Cost control has been strong, meaning that all of the benefit of higher prices, $1.5 billion , has flowed directly through to higher EBITDA. This has supported a 46% increase in underlying earnings per share. Net debt starts with a 12, good thing. That's a strong balance sheet.
We've declared our second-highest ordinary dividend ever. If I turn then to how we're seeing the near-term outlook, our operational performance means we're on track to meet cost and production guidance for the full year. Coronavirus, of course, presents near-term uncertainty, but if the epidemic is contained by the end of this quarter, then we do expect the economic impact to be muted with some catch-up on lost demand for most of our commodities by the financial year-end. Of course, the impact in terms of people has been tragic. Let me now turn to how I'm seeing the company and the future. I've been fortunate to take up the reins from Andrew with the company's foundations strong. We have a differentiated portfolio that's diversified, exposed to different markets and points in the economic development cycle.
We have some of the world's best assets, and this supports margins and it gives us high-return organic growth options. We have a strong balance sheet that supports resilience and our ability to invest counter-cyclically, and of course, this is backed up by the discipline and competition accumulated through the capital allocation framework. We've delivered some outstanding outcomes on social value, including full decarbonization and green energy in Chile this year, and we have a strong brand in our production bases. Just to be absolutely clear, I am wholly committed to our approach on social value. We will achieve the commitments we've set out. Our foundations are strong, but there's further to go. Further to go on safety and sustainability, and further to go on performance. In a changing world, we need to be fast-paced and commercial in our approach. We cannot stand still.
I see immense potential in this company. To unlock more of it, there are some things that we have to strengthen. We must become even safer, with a focus on eliminating fatalities and high-potential injuries. In the face of market uncertainty and slowing rates of growth in commodity demand, a greater proportion of value growth is going to come from unrelenting focus on being great at what we do. We need to be lean and high-performing in all parts of BHP, and we've called out five specific things we'll focus on. In respect to portfolio, an obvious question is about the future fit of the portfolio. In my view, our view, is that we have a demonstrably strong and resilient portfolio for today and for the foreseeable future.
This comes back to things like the time it will take for the transition towards a decarbonized economy, the decline curves for some of our commodities, the lack of substitutability, and the advantaged position that we have on the cost curve. We have been very thoughtful and deliberate about the construct of our portfolio over many years. Clearly the world trend is towards decarbonization, and we've been active advocates for this, and we've been taking tangible action on the things that we control. We already produce some of the products that will be essential as the world transitions to a lower carbon economy, and which will continue to prosper in a decarbonized world. We will also need to create more options in future-facing commodities so that we can be even more resilient and so that we can grow value over the long term.
These options will come from both within our existing footprint, as well as through securing more resources through exploration and early-stage entry, all supported by our disciplined capital allocation framework. In short, I intend for BHP to be unquestionably the industry's best operator: safer, lower cost, more reliable, and more productive. I intend for our portfolio and capability to be fit for the future. Through these outcomes, we will reliably grow value and return for decades to come. With that, I'd like to open it up for questions.
Our first question comes from Sam Webb from Credit Suisse. Please ask your question.
Thanks, Mike, and thanks for the opportunity. Just your comments there about being fit for the future, can you put a bit of meat on the bones and talk to plans and timing that you're targeting to the thermal coal assets and as you think about the debate today around carbon more generally, and even more so on a five, 10-year view? How are you thinking about other parts of your business like petroleum and met coal ?
Okay. Let me start first with thermal coal. It's pretty straightforward. We've spoken about this previously. Small part of the portfolio. In terms of the outlook for that commodity, on balance, we see the downside scenarios as being greater than the upside. If somebody presented an offer for us that they think was of value, we'd consider that. To the other parts of the portfolio, we're in quite a fortunate position today, through past effort, in that we have commodities that fit. Actually, let me take a step back and talk about how we think about commodities in the first place.
The commodities that we want to be in are those that have strong industry fundamentals, where it has steep cost curves, there's opportunity to generate rent, and where we believe that we can secure good assets and we've got the capabilities to operate them very well. Commodities like petroleum and met coal fit those criteria. In the case of oil, even in a decarbonizing world, given steep decline rates in current production and current reservoirs, there's going to be more investment required, and so that's going to support pricing. To the extent that we can secure good assets, we have some where we've got high returning growth options and where we've got the capability. We like it. We like that commodity. We'll continue to test that over time. The same thing applies to met coal. Difficult to substitute.
We have the best assets in the industry, and we've got the capability to operate them well.
Our next question comes from Paul McTaggart from Citigroup. Please ask your question.
Hi, Mike. I watched your video beforehand. I just wanted to follow up around how you're transforming further productivity gains, and in particular, the Operations Services business. I wanted to ask, you talked about tight supervisor operator control. How is that business model evolving, and how do you see that day-to-day operations might change? I'm just trying to understand the cultural shifts in terms of operations.
Okay. Thanks, Paul. I start with a deep belief that there's a lot more potential to be unlocking in BHP. Then I stand back and look at how we're trying to do that currently. For us to unlock potential, we have to have great people trained up in the right way, led in the right way, and with everybody being clear on what the objectives are. We start today with a workforce that is only 30%-40% permanent BHP employees. With leadership in place, oftentimes, I'm talking about frontline leadership here, so for example, our supervisors, who are quite stretched in terms of span of control and are needing to spend a lot of time out of field because of the processes that they get loaded up with. Ops Services was meant to help address this.
It's in line with us, with me, wanting to achieve a much higher proportion of the BHP workforce that are permanent employees that we can invest in. That investment will also be in capability building. We have a program called Mastery, which is all about frontline technical skills. We'll give them leadership that have appropriate spans of control. Rather than supervisors having spans of control of 25- 40, they'll have spans of control of 8- 15. We'll remove a lot of the administrative processes that are holding them back from spending time in field. They'll be more capable. They'll spend more time in field. They'll have people that are there permanently and will be investing in skills building.
That's the winning formula for unlocking the true potential at the front line of this business to become more reliable, lower cost, and more productive and safer.
Our next question comes from Hayden Bairstow from Macquarie. Please ask your question.
Hi, Mike. Thanks for that. Just a couple on copper, if I may. Just in Chile, when you talk about moving to 100% renewables by the middle of the decade, is there anything you can provide on a cost side of things in terms of how much that might be? $300-odd billion to get out of the coal contracts if you're interested in capital from this point. Just on Escondida itself, there's obviously a grade profile decline over time. How far away are we from a major decision on another phase of CapEx to increase throughput to offset that decline? Thanks.
Okay. I'd like to have Peter comment on this as well. If I can give a high-level view, Hayden. On the renewables front, what a good news story in that not only were we able to move to full renewables, reduce our operational footprint by 60% in Chile, it's actually cost beneficial to us because of the price of renewable power. There's no capital associated with it. The other thing I would highlight is it's come through some very deliberate effort over a long period of time. First moving from coal to gas and then from gas to renewables. With Escondida, we've just recapitalized that business. For the foreseeable future, we don't have the big chunks of new capital coming. Peter, you might want to comment on both those things.
Just on the power costs, I think we will see lower power costs coming through over the period of the PPA to come in. They will, of course, be somewhat offset by increased diesel, and of course, that's always the game, unfortunately, with Escondida. When you put it all back together again, the increased throughput, the greater efficiencies that have been driving. You see the numbers today, even today, I mean, really good cost control there. That's why we think we're going to continue to be able to produce this 1.2 at less than $1.15 certainly for the I think probably until about 2027 onwards. What will happen with the grade profile, it'll probably go along at what it is at the moment. What is it? 0.83 at the moment, which drops another 5%.
Again, I just want to point these things out because getting those costs down to where they are today is in spite of diesel, in spite of grade, and so on. Again, just great performance. We'll get a little bit more grades probably in the middle of next decade as we get into the deeps, those pushbacks. Then probably 2028 onwards, it starts to drift off towards the reserve grade. Reserve grade is probably 0.6, 0.65 or something. We got a bit of time to figure out what's the next set of debottlenecking projects and so on to do better than what would otherwise be the case if we just ran the place as it is at reserve grade.
Our next question comes from James Redfern from Bank of America. Please go ahead.
Yeah. Hi, Mike. Good morning. Two questions, please. First one is just on Scarborough with the targeted FID for the middle of this year. Just wondering what portion of BHP's equity volumes plan to be contracted prior to FID. I have another question after that. Thank you.
James, look, that's one of the very live things that we're looking at currently. If we look at Scarborough, one of the things that we want to do is to be able to cap the downside or reduce downside risk in the project, given the range of potential market outcomes. Part of that is our commercial and contracting strategy. I wouldn't want to give a specific number other than to say it's something we're quite focused on.
Okay. Thank you. Second question is in relation to Queensland Coal. Just how we should be thinking about the strip ratio decline going forward. Are we going to see material step down in strip ratio in FY 2021 or is it more gradual over the medium term? Just in terms of how many autonomous trucks will be deployed at Goonyella Riverside in 2020. Thank you.
In terms of the Queensland Coal strip ratio, certainly on a product basis, it will be a gradual decline over time. We have seen this hump come through. It will come down over time. I also want to be clear that the cost improvements that we're targeting for Queensland Coal don't just come through the strip ratio decline. I believe there's a lot further to go in terms of our productivity in that business, and that's going to be supported by things like Operations Services. Trucks at Goonyella, between 80 and 90 autonomous trucks being deployed over the course of this year.
Our next question comes from Lyndon Fagan from JP Morgan. Please ask your question.
Hi, Mike. First question is, would you consider a Petroleum division demerger as new CEO? Is that something that would be an option on the table? Second question is, would you consider canceling the Jansen project, or are we a bit too far along the path there? Thanks.
Okay. On those two. On petroleum, we like petroleum, or the parts of conventional oil in the jurisdictions that we're in, and we like gas that is close to infrastructure. I said earlier, I think, that we have a certain way of thinking about commodities. Do we like the commodity because it's got relative steepness in the cost curve? Is it a big industry? Can we get our hands on good assets, and do we have the capability to operate those assets well? We meet all of those criteria for our Petroleum business. On Jansen will only proceed if it meets two criteria. One is it has to compete well under the capital allocation framework. There's no free passes here. Secondly, I do want to personally get across and comfortable with the assumptions that underpin the investment case.
Subject to those two things, then we would look to take it forward to the Board by next February. If it doesn't meet either of those criteria, then yes, I wouldn't take it forward for attention.
Once again, if you'd like to ask a question, please press star one on your telephone. Our next question comes from Glyn Lawcock from UBS. Please ask your question.
Good morning, Mike. Two questions. Firstly, you talked about portfolio additions through future-facing commodities, and then you said exploration and early-stage entry. One of the things the company's always talked about is it needs to move the needle. If you look at some of these future-facing commodities, the market size isn't big enough. Can you talk and share your thoughts about how you think about future additions to the portfolio? Are you still in the camp that it must move the needle, or are we prepared to just focus on high-returning assets and projects rather than just moving the needle? Secondly, I guess, the other elephant in the room, the DLC. I know you've been on the expo, but just maybe share your thoughts like you did on Jansen on the DLC future. Thanks.
Sure. Thanks, Glyn. On the question on future-facing commodities, I'm definitely of the frame of mind that it must move the needle. I've seen the power that comes with having these really big assets with upside, that allow us to create more future options and where we can apply the capabilities that we've built to generate value at scale. No change. What does that then imply in terms of the sorts of commodities and assets that we pursue? There's a couple of straightforward ones. Copper and nickel, these are going to both be essential to the transition, and they will continue to benefit in a decarbonized world. Potentially potash. We've spoken already on this call about the decision ahead of us on potash. I then go to the other end of the spectrum, because there's the obvious questions that arise around, well, what about cobalt?
What about lithium? Cobalt, by-product, too small as an industry, and that wouldn't be at the scale that we would be looking to from a BHP perspective. Lithium, we've also concluded the same thing, but it's a commodity in transition. That's something that we continually review. At this point, we look at it and say relatively flat cost curve, so we don't see the opportunity to extract rent. Can never say never. We review that and other commodities on a regular basis. At this point, focus on copper, nickel, possibly potash. On the DLC, I've been in and around BHP since the time of the DLC, actually. Joined shortly thereafter. It was established for a specific purpose at the time, and that was to facilitate the merger.
We wouldn't do it if we were starting afresh just with the BHP portfolio that we have of today. On balance, simpler, better, but we also know that the business case has to stack up. We've been clear that there's impediments, at least in the near term, to our ability to do that, right? As of today, the business case doesn't stack up.
Our next question comes from Christian Georges from Société Générale. Please ask your question.
Yes, thank you. Good morning. A question on iron ore, what's your current take on the Chinese level of demand? We were seeing [audio distortion] inventory in China seemingly rise at a faster pace than we've seen in the past four years. We also have reports of lower production of iron ore in China. Is your take at present that demand should fall, but should supply fall in China? Do you think we should expect some headwinds in the next couple of quarters? Thank you.
Thanks, Christian. I think it depends in part on how coronavirus plays out. What have we seen in the near term? We've seen of the steel curtailments in China, the weighting has been towards EAF, whereas blast furnaces and certainly the state-owned enterprises have held up a bit better. Port inventories have increased, but they're still at reasonable levels and we're seeing that growth less marked than some people might otherwise have anticipated. Of course, you've had domestic restrictions on iron ore supply as well. What has that led to? Coupled with other supply disruptions in the seaborne market, demand for our products has been healthy and prices have held up reasonably well. As long as coronavirus is contained or better contained within this quarter, on balance, we think that for the remainder of the half, the overall market demand and the economy will hold up.
If it extends beyond that, of course, then we'd be back in looking at what the implications are.
Our next question comes from Paul Young from Goldman Sachs. Please ask your question.
Yeah, morning, Mike and Peter. Mike, a good first set of results to present. I've got a few questions on the copper assets, in particular, first of all, Escondida. What is driving unit costs back up $0.10 a pound in the second half to match with guidance, say, at the lower end of the range? On Olympic Dam, maybe one for you, Mike. Costs are back up annualizing about $1.1 billion per annum. That's the highest run rate in four years, despite that weaker Aussie dollar. Can you comment on any cost-out initiatives there? Do you have an update on the studies and timing of the BFX project? Thanks.
Look on Escondida, Paul, if I just think forward to what occurs in the second half, there's nothing, certainly no major slugs of cost coming through. Peter, was there anything further on that?
Yeah, look, I think, Paul, a couple of things that have happened this half really is, as always, there's some ups and downs on deferred stripping. It actually went against us on this one. Really, I think cost control was good. Byproducts is also quite a big one. We had slightly better production than we thought in terms of production, but slower the byproducts. That comes with whatever presents. Prices have been pretty good. Now, to the extent that the gold price, in particular, would continue to hold up in the second half, obviously that would continue to be a tailwind. Of course, depending on which FX rate you use, as we know, we lost tons through the Chile unrest, the countervailing to that, of course, was we had some periods of really extremely weak CLP.
Again, we'll see what happens in the second half.
Just on Olympic Dam, Paul, we've had a program of work underway there. If you recall, the effort at Olympic Dam is to remediate asset integrity, to secure more reliable operations. Through those more reliable operations, increase grade, have a disproportionate uplift in production then. All of that continues per plan. We're about halfway to our asset, or more than halfway to our asset integrity program. We're into the SMA. That's helping to lift grade. Then longer term, of course, we're looking at BFX. In terms of further updates on the BFX project, nothing further to talk to at this point in time. On your question around cost, part of the effort on asset integrity comes through capital, but a good part of it also comes through OpEx. Part of what you're seeing come through OpEx is related to ongoing asset integrity work.
Over the next couple of years, we do expect to secure more reliable operations, more reliable production, and through that, to bring costs down. Specific cost reduction initiatives, very much the same as we're doing elsewhere, which is improving some of our discipline around maintenance. We're getting more of our equipment, optimizing our maintenance costs, and certainly improving labor productivity. I think that there is a big opportunity across the business to improve labor productivity.
Our next question comes from Brenton Saunders from Pendal Group. Please go ahead.
Good morning, gentlemen. Just a couple of things. Firstly, I was just interested in a couple of anecdotes around how corona might actually be impacting the business, i.e. deliveries, transportation, freight, payments, anything like that, and how we should think about that. Then maybe just back to Paul's question on why Escondida's costs were higher, not lower. I think Peter gave a whole lot of reasons why they were lower, not higher.
Let me deal with coronavirus first, Brenton. It's been interesting. As of today, we aren't seeing any impact on demand, pricing, or payment terms. There's been some obvious, and I think reported, challenges, but not that's seen us not shipping product in copper concentrate because the smelters are becoming backed up with [audio distortion] and so on. Overall, demand continues to be healthy. A lot of interest in our products, in part because of the supply side disruptions elsewhere, both in coking coal and in iron ore, prices have held up, and no issues with payment terms. Nothing that we're seeing at this point in time suggests that things are going to turn bad quickly. The only caveat on that is if coronavirus continues longer, then we'd have to go back in and revisit it. At this point in time, it's fine.
On the cost front, Peter, you wanted to deal with that.
I'm just looking at the half one, FY 2019 was $1.17, and this at realized exchange rates, we were $1.10. I think that is definitely lower. If you put the CLP that we had originally guided a $1.14. I think, overall it was a pretty decent, as I say, good throughput, 5% decline in grade, good throughput. We were hitting, I think, on average, almost 370,000 ton a day, which is good. Yeah, with a couple of things that went for us, a few things that went against us. Against us, the first thing for us was, I guess, gold price. Yeah, that's, I think, a decent outcome.
Maybe, Brenton, because I was in Escondida in December, I can give you a sense for what I saw there in terms of the focus. Clear focus on driving improvement. I think you see that coming through in the record concentrator throughput, and we've had some periods throughout the half that we're at 400,000 tons per day. A lot of focus on driving productivity improvement. I think one of the things, Peter and I, don't know about the half, but certainly in terms of the trend, increase in desalinated water.
It's putting some upwards pressure.
They've been focused on offsetting the cost, but that's the only sort of structural thing there. There's some potential that given the unrest in Chile and some of the response to that we will see that 6% staged over multiple years increase to effectively labor costs coming through because of the increased pension contribution. Structurally, the only thing that's driving costs upwards there is the increase in desalinated water. That's being offset by the focus on the continued improvements in productivity.
Yeah. Grades has been a really I mean, we lost 35% grades, plus another 5% in the last half. Yes. Since what, 2015, something like that?
2016, I think.
Yeah. Brenton, I mean, the team's done a reasonable job there, I think.
Our next question comes from Hayden Bairstow from Macquarie. Please ask your question.
Thanks, guys. Firstly, just on Hunter Valley and then EBITDA loss for the half. I can't actually find one since the formation of BHP [audio distortion]. That must be the first one. Just your thoughts on what's driving that other than price and what you can do about it. Secondly, on the opening statement, Mike, around lower cost and those sort of targets. This Operations Services division, 1,500 jobs. I mean, is that a short-term cost increase that's going to drive the medium-term outcomes, or is it just replacing contractor roles? I mean, can you sort of talk through that a bit more?
Sure. Okay. Look, on Hunter Valley , Hayden, you're right. Not a great set of numbers there. What's driving it is a combination of lower prices, so prices have been markedly lower. The increase in strip ratio that we're seeing as we move through the monocline, and that being particularly the market in the near term, as we seek to open up some further pits to allow us to manage strip ratio in the medium term, ultimately impacting on costs. There's a bit of disruption due to the fires and so on. And fair to say that that hasn't been our area of highest truck shovel productivity. So there's a lot more opportunity to lift there. The last couple of months have seen an uptick in truck shovel productivity, which is going to help address the cost challenges there.
Operations Services, there is no increase in costs associated with Operations Services. It's bringing costs down, and I want to be very clear about that. That was one of the writing instructions the team had in developing Operations Services. One of the reasons that it's helping to bring costs down is because we're getting much higher productivity out of the Operations Services crews in both maintenance and in truck shovel operations in the order of 20%-30% in terms of overall outcome. It's a fairly significant net cost benefit or significant cost benefit to the group. The 1,500 people are replacing, as you say, labor hire and service contractors. We're going to go further with that. I'm expecting upwards of approaching 3,000 by the end of this financial year and further in the years ahead.
Always with a focus on performance and performance productivity and cost out.
Mike, if I can just add also, just a reminder, once we're through the monocline, we get back to the sort of the medium-term guidance is $46-$50 a ton.
New South Wales energy coal. That is at a stronger margin product base. It's smaller production base, sort of 16s rather than 20s. Certainly those costs will go down, and I guess you know exactly what's happened to the thermal coal price. There was a particularly weak half, and I think normal service will be resumed in due course.
Our next question comes from James Redfern from Bank of America. Please ask your question.
Yeah. Hi, Mike. Just two focus questions, please. The first one is just in terms of WA Iron Ore reaching that 290 million tons. From memory, the key bottleneck has been the car dumpers at the port. I'm just wondering if you could please provide an update on how that is going in terms of upgrading the car dumpers. The second question is, has BHP received any unsolicited offers for Mount Arthur in the recent months? Thank you.
Okay, James. I don't want to comment on Mount Arthur. In terms of WA Iron Ore, the port reliability program has been going very well, and we had a significant refurbishment of one of the car dumpers earlier in the half. We've got more to come, but overall car dumper performance has been strong. The two other constraints in the system are rail, and then the overall network of conveyors and so on in the port. Rail reliability has continued kind of the strong trend of recent years. There is a program that we have underway to move to a different signaling system in rail, which will then permanently deconstrain rail as a constraint. The port reliability work that we have underway will also give us greater throughput through the port. Basically, everything going according to plan, and we are definitely seeing an uptick in reliability and capacity.
Okay, thank you.
Once again, if you'd like to ask a question, please press star one on your telephone. There are no further questions. Sorry, we've had a question come through from the line of Paul McTaggart from Citigroup. Please ask your question.
Hi, Mike. I just had a quick follow-up on Trinidad and Tobago. I know when you talked earlier about Petroleum, we've still got quite a constructive view about long on gas. Gas prices continue to be weak. Mike, do you no change in the view in terms of the long on gas? Trinidad and Tobago is an important part of lifting production long on in that oil business. Are you still positive about LNG long on?
Well, I think we always have to combine the view of the markets with the view of the resource, Paul. We do see gas resources that are close to infrastructure or LNG infrastructure as remaining attractive, and that's the case in Trinidad and Tobago, and no change in that. We're not looking at the current spot prices in LNG and seeing them as being representative of long-term markets. Clearly, there's an overhang on supply at this point. We believe that will get worked out of the market in due course. Gas assets or gas resources that are close to existing infrastructure, where we then don't need to invest in the infrastructure, we just invest in the upstream. Scarborough is another example of that. Yeah, we still see opportunity there.
As I highlighted on an earlier question around Scarborough, we do then seek through our contracting strategy and commercials to make sure that we mitigate the downside market risk as well.
Well, thanks, Mike.
There are no further que.
Okay.
Sorry, Mike, go ahead.
I'm sorry. I was just going to say, it sounds like that was the final question. I just want to thank everybody for joining the call, and of course, we'll see many of you in the coming weeks. Just to close out, as I said earlier on, I really want BHP to be, and I intend for BHP to be unquestionably the industry's best operator. What does that mean? It means safer, lower cost, more reliable, and more productive. On the portfolio front, I think we've got a great portfolio today. I want to ensure that we have a portfolio and capabilities that are fit for the longer-term future. Through bringing those things together, we will reliably grow value and returns for many decades. Thank you.
Thank you. Ladies and gentlemen, thank you for your interest today. You may now disconnect.