Hello, everybody. I'm in London with Danny Malchuck, who's President of Minerals Americas and Peter's in Melbourne with Arnold Valhousen, our Chief Commercial Officer. But thank you all for taking the time to call in. Before I begin, I do want to reflect on the tragic incident at Vale's Brumadinho Anor operation in Brazil last month. The collapse of the dam is a tragedy, and we offer our heartfelt sympathy to all those affected.
At BHP, we are very much committed to learn from this as we should as an industry and redouble our efforts to make sure that events like this simply cannot happen. We'll be meeting with a number of global bodies this month to expedite this response and this work. But at BHP, we welcome and would welcome a common international and independent body to oversee the integrity of the construction and the operation of all dams. And we certainly endorse the call for increased transparency in tailings dam disclosure. So we'll work with the industry in the coming weeks months to make sure the disclosure is consistently applied and will inform better tailings dam stewardship and risk assessment.
So we'll just announce our interim results. A brief summary. It's been a strong half for our shareholders. We returned record amounts of cash. We generated underlying EBITDA of $10,500,000,000 which is a margin of 52%.
And after disciplined investment, this was converted into a free cash flow of 3.6 $1,000,000,000 That, of course, excludes the proceeds from the recently completed sale of our onshore U. S. Assets of $10,800,000,000 We further reduced net debt, and we returned over $13,000,000,000 to shareholders. That included a special dividend of $5,200,000,000 paid last month in January. And on top of this, our Board today declared an interim dividend of $0.55 a share.
That's a payout ratio of 75% for the half and that dividend will be paid next month in March. While we did experience some unplanned outages in the 1st 6 months, I'm confident that our asset by asset plans will improve safety, unit costs and production in the second half. And that's why at current spot prices, we expect a full year free cash flow of more than US9 $1,000,000,000 and a return on capital of 20%. We have over some time now been shaping our portfolio around the highest quality of assets in stable, lowest jurisdictions. These are assets that can supply premium commodities with attractive fundamentals.
And of course, we hold a range of exciting development options and exploration licenses in the world's premier basins for our commodities, and they include the potential to increase their exposure to copper, to oil and to potash. Our portfolio is unique in the sector and does confer a degree of advantage on us. But that competitive advantage has to go beyond the quality of our world class assets and the attractiveness of our commodities. It's through our culture and capability, how we work, how everybody in BHP works will truly set us apart. And that's why late last year, we established a transformation office reporting to me that should set up and will set up is setting up the next wave of value creation.
This is the program that we will use to leverage a number of the things we have under work right now. Obviously, we continue to enhance our basic methods of continuous improvement and they're well proven. We are pushing different ways of working, standardizing our work at the frontline, more automation, and we have very strong centers of excellence that now contribute considerably in areas of maintenance, project execution and geoscience. So to conclude, our focus is simple. Our focus is revolute: maximize cash flow, maintain capital discipline and increase value and returns.
And our track record shows us that this is the right formula for our shareholders. Just since 2016, we strengthened our balance sheet through a $16,000,000,000 reduction in net debt. We've reinvested $20,000,000,000 in high returning projects, and we've returned more than $25,000,000,000 to shareholders. But there's still more much more that we believe we can and we will do with a constructive outlook for all our commodities, a culture of continuous improvement, as I described, a strong balance sheet protected by our capital allocation framework and our rich suite of development options, BHP, we are set up for a great future. And so with that, I welcome your questions for myself and the team.
Today's first question comes from Paul Young from Goldman Sachs. Paul, please go ahead.
Hi Andrew and Bing. Andrew, first question is on the met coal division. Just looking at your production performance over the last 3 years, we've been looking at flat December half production for 3 years now. That's despite a really strong push on productivity over that period. I know Cable Ridge is coming online or has come online I should say, but what is your medium term target for that business now in volumes?
Also second question on Metco. Just can you explain that strip ratio increase in the half? And then moving on to Olympic Dam. Obviously, one of the big levers you have to pull you can pull, I should say, is that grade increase in the Southern Mining area. But the other lever you can pull Andrew is on the cost front.
Your absolute costs are running at $1,000,000,000 a year. In my view, they're running still too high. Are you taking a hard look at the absolute cost of Olympic Dam? Thanks.
Okay. I mean, let me just start with Olympic Dam. Obviously, Peter and I will to these questions because it's quite wide ranging. We are taking a very hard look at costs at Olympic Dam. And under Laura Tyler's leadership, I think there is more to come out in an absolute sense, and she's working on that.
And it's very and she's very much part of the transformation program that we described. But of course, the most effective way to reduce unit costs at Olympic Dam because it has a high fixed cost base that we have to erode is to just produce more. And that's obviously behind our agenda for growth, which you're well aware from the brownfield expansion and possibly later on the construction of a couple of shafts in the southern mine area to close to double in aggregate what we're currently producing from Olympic Dam. This is a slow and steady progress. There's no doubt.
And it will be greatly assisted if we have more stable operations and we can avoid some of the problems that we had with the asset plant in the half. I can report that after the recent shutdown, we came back very strongly with a record breaking performance in the smelter. Obviously, that was interrupted by the outage, but we're now back producing at these levels within the smelter as we hoped we would achieve through the shutdown. In addition to that, we have definitely turned the corner in the construction of new stokes within the southern mine area that is a very important part of feeding higher grade into the Olympic dam system and therefore lifting production over time. But of course, we're also learning while that's going on about where would be the best place, for example, to push the shafts in the longer term and how to develop it.
We made the decision to construct a 3rd decline because we were unsure about some of the development options that we had there about constructing a fairly significant conveying system back to the existing Clark shaft and also whether or alternatively going to the wean and shaft, which could be reconditioned. We've since learned that actually reconditioning the wean and shaft is tough. And therefore, we've taken that off the slate. And we've also decided to continue to use the decline and therefore to truck ore from the southern mine area to the surface that way. That in the medium term will probably reduce some of the capital costs, but it will increase the operating costs.
And you'll have to look at things in totality. 2nd question going backwards, I think, was on stripping. We have substantially increased stripping, And that has proved to be a little bit more expensive as you'll see from the results there, particularly in the pre strip, so that we can actually get a lot more coal available to be mined. And that over time should add incrementally to the production of total system. I don't quite have the medium term guidance at my fingertips, so Peter maybe can answer that question.
But I think we're going to hold roughly, I've just remembered, around about 48 1,000,000 tons per annum. And we have, of course, a medium term cost target that we're some way from in our guidance for this year of $57 a ton. Peter, you might want to add anything to my answers. And but I think and also met coal performance, we'll maybe come back to it.
Yes. I think Paul, underlying that's $57 per tonne in the medium term is, obviously, more productivity, less cost, but also more tonnes. And I think we've probably got another 6 or so of our share out of really out of Blackwater, out of Broughton Meadows and out of Goonyella and that is off the back of more stripping and higher utilization of gear. We're not at the right at the bottleneck, which is the wash plant at the moment. So obviously, as we get there, that's where
the bottleneck should be.
So that's really the under that's what should underpin the next few years.
Okay. And Metco is an exciting business and it has the benefit in many ways of having a much more diversified customer base that we have in iron ore. Okay. Next question.
Our next question comes from Sylvain Brunet of Exane BNP Paribas. Sylvain, please go ahead.
Good morning, gentlemen. First question for me
was on petroleum and on both CapEx and cost, given the industry has reported some pressure. So just wondering if you're experiencing some of those what are the main items behind that and the drivers not just that, of course, unit cost level and just the and the field decline? My second question is on Janssen. Just to get maybe an update of whether you've had new contacts with customers, what is the time line we should keep have in mind for any decision there? Is it still further down the line?
And my last question, in an environment we find investors tend to be a lot more focused on ESG criteria compared to previous years. Does that change anything in the way you'd like the portfolio to be positioned going forward in particular with the exposure to coal? Thank you.
Okay. So let me deal with them pretty much in the order you've asked them. And again, I'll probably turn over to Peter. And possibly, Danny, if you feel my answer to Janssen, you'd like to add something because Janssen reports to Danny. But on petroleum, relatively simple.
We're not seeing huge cost pressures in petroleum. I mean, clearly, we're facing the problems of decline, but we've actually declined less than we expected through tremendous performance in the half by our team. And as I would look across all our businesses and it's all relative, I would say that deepwater petroleum is the area where we are experiencing the least cost pressure compared to the rest of our businesses. But even there, apart from very localized areas, we're not too concerned right now about cost pressures directly. There are some issues about availability of labor that's affecting aspects of our reliability, and that does translate through to costs.
But petroleum would probably and deepwater petroleum would be the area where we're least concerned. So maybe I would start with the ESG because it's not a bad way to think about some aspects of Janssen, which I'll come to. Yes, of course, we see more focused on ESG. And there's no question that the incident in Brazil that I referred to my opening marker are increasing that. I believe we, as a company, have front run this.
We've been exceptional, I think, in our commitment to transparency, both as it relates to tax and the way in which we report on a wide range of sustainability issues. And we've led the industry through the introduction of a water report. And I am totally committed to be highly transparent about tailings dam in the future. And you've seen in our results a fairly detailed breakdown of our tailings dam portfolio. We expect more to follow, and we certainly expect it to feature much more broadly within our sustainability reports and our ESG briefings in the coming year.
Now on to Janssen. I mean, I think one of the well, I should say you asked, does it in any way affect the portfolio? I mean, we've talked about our portfolio and the portfolio effects of things like climate change a few years back. We updated that post Paris. And I think we've been fairly clear that we think the core portfolio provided it measures on high quality products, so high quality iron ore, high quality coking coal, high copper concentrate.
That is playing into a number of ESG issues, which are product specific. I mean, obviously, there's a bunch of other things about our relationship with communities and so on going forward. You mentioned that with respect to coal, I mean, obviously, the message for met coal is quite different than it is for energy coal. We are comfortable with our position in energy coal at the moment, but this is not something that we will seek to grow going forward. And we will continue to examine whether or not this is something to be competitive to remain in the portfolio.
But for now, we'll keep it. Met coal, as I've answered to Paul, is a very attractive commodity. We happen to have an opportunity to do well out of just the kind of met coal that will improve the environmental performance of plant quantities. And as I said, it's quite useful and that it has a more diversified customer base, only 30% of it goes to China. But coming to potash, clearly one of the reasons we like this option.
It's potentially a 100 year business that could in time come to rival what we have today in iron ore, maybe it can take 100 years for that, but decades anyway, what we have today in our other four pillars. And it also actually as well as offering diversification away from fossil fuels and it also offers diversification again away from overdependence on China. So we still have work to do there. The shafts are constructive, but we are now going through the permanent lining, which will allow us then to decide whether or not we construct a mine at the bottom or we hold off a bit. This is a long term commitment that we're seeking to make.
And so we have to time our entry into the market appropriately. While we wait, we continue to continue with our reduction in risk. Part of that is having the shafts built and lined. But part of that is really just understanding more and more about the market. You've seen more recently that we signed long term memorandum of understanding with potentially major customers, which is another way of risk reduction.
There's a number of other angles we're looking at. We continue to look as to whether we might actually bring in a partner, which would therefore share the risk with somebody else rather than the BHP shareholder and possibly bring in other expertise that would allow us for further reduction. We reviewed that with you at the capital allocation sort of workshop at the end of last year. It fits firmly in the box of relatively low risk now, but arguably also low return. And we have to keep working on that because ultimately, it has to pass all the capital allocation tests.
We have no fixed time line, if you're asking for that. We are having more and more strategic discussions within the context of the capital allocation framework and our portfolio strategy. At our board meetings, it's an ongoing discussion as we monitor the market and we look towards risk reduction. And if there's any change, then of course, in time, we'll let you know. And so with that, maybe first of all, anything, Peter, you want to add generically to the 3 questions?
And then maybe, Danny, if there's anything you want to say about Trapsin.
I just want to remind everybody on the energy call, we have less than 3% of our capital employed in the 2 thermal coal assets. So that's just a reminder.
Anything from you, Dan? No, I think all of these. Okay. Next question?
Our next question is from Lindon Fagan of JPMorgan. Lindon, please go ahead.
Thanks very much. Andrew, just revisiting iron ore capacity, obviously, the prices skyrocketed after the tragic accident. I see you've sort of reiterated the June 2019 run rate of $2.90 But
what can we just look
at what the bottlenecks are in the system at the moment in the Pilbara? How quickly these can be released? Is there any potential to accelerate volumes? Will you revisit the iron ore strategy as a result of what's happening? I guess there's a few in that, but that's the first one.
The next one is just on tailings dams. I really appreciate the new disclosure. Can you talk a bit about the upstream dams? And are there any legacy assets in Brazil? How should we think about potential decommissioning and rehab costs and any other changes related to the outlook there?
Thanks.
Okay. Excellent. So I know it's mainly noes in the answer to your question. I mean the reality is that we have been concentrating for some time, as you know, as maximizing the capacity of our existing investment, and we continue to do that. And we really have no plans that we would change as a consequence of what's happening in the current high price because we've not been holding investments back or holding capacity back.
We continue to try and push harder. Of course, we do only have permission to do 290 from the Western Australian government. But if we were capable of consistently doing more, of course, we could ask for that. We do work on the bottlenecks, and we have now through strong performance on rail and within our mines and the ramp up of Jimbo Bath and now the ramping up of Southbank meant that the bottlenecks fits very much at the port and with the car dumpers. And that's something that we work hard on the asset integrity there to maintain the reliability and look at modest investments as to how we might make that bottleneck more stable in time, which could give us small increments.
But beyond that, the reality is as we look forward on the price, we assume over time that some of the current issues in Brazil will be worked through. And in some form, that iron ore will come back to market. It may be a year or 2 of volatility while that's worked through. And when we look at those long term prices and we look at that within the context of our capital allocation framework, we don't see the case for any major new investment in iron ore, just simply creeping the capacity we've got through everything I talked about in terms of transformation and an ever increasing focus on asset integrity. Look, on the tailings dams, quite a few questions in there.
We could probably take up more of the call than I think we should. But just to refresh you on the numbers, we have 115 tailings dams, the majority of which are inactive. But we have 20 active dams, of which 13 are upstream. And they are, I think, almost exclusively in Australia. But I would want to make a point that these dams are very different from the upstream dams in Brazil.
They're on flat plains, they're not in valleys, they're in regions of relatively low rainfall. And they've certainly been subjected to extreme care and attention, particularly both the incidence of Mount Polley and obviously more profoundly for us at Samarco. We as I said in my broader remarks, we put in place a very rigorous process post Samarco to really refresh our understanding of all those dams. We've got no serious deficiencies using what was within and is now the gold standard with Canadian Dams Association. We have nearly 400 actions to further improve things that are about 93% done.
And those that are not done are things that are were scheduled for later and more administrative in nature. We've done drills where we have people still at harm's way and we are moving people out of harm's way. They've all passed the test of getting people out well within the time that will be required in the event of the most extreme form of break. We've improved monitoring, put a lot of new systems in place that were being put in place using lasers and so on and the sorts of things that can give you the warning systems. We have alarm systems.
So we take it we have been taking it very seriously, particularly post Samarco, and we continue to do so. The tailings dam work reports directly into me. I'm taking a lot of personal concern in this area. I think there is more we can and should do there. We need to upgrade the science, and we need to open ourselves to even more transparency in the way I described in answering Solvayen.
In terms of legacy in Brazil, we do still have the Germano dam, which is the dam that's sat behind the Pundao dam in Samarco that we are in the process of decommissioning and that's and regrading and making it safe. So some of the announcements more recently, the upstream method may not be allowed anywhere in Brazil is something we're well ahead of. And we will continue to expedite that work. And we certainly will have can provide all the plans to the authorities well within the deadline that has been set, I think, just as we thought was it last week. Okay.
Next question?
Our next question comes from Jason Fairclough of Bank of America Merrill Lynch. Jason, please go ahead.
Thanks very much, gents. Just Andrew, come back to the Janssen question. And I just maybe you could help us understand a bit more about how you're thinking about the timeline to approval from here. What are the nodes on that decision tree? And ultimately, is this a decision for this version of BHP's executive?
Or is sanctioning Janssen a decision for the next CEO? The second question for me would just be on the DLC. There has been a bit of commentary lately that some of the obstacles to a potential collapse of that structure are being removed particularly around tax. And I'm just wondering if you have an active watching brief on the DLC. Again, is this a decision for you or for the next CEO?
I'm not even going to answer any of the questions about which CEO makes what decision, because there's a lot of speculation in there that I do not want in any way to be part of. We make decisions at the right time. We're not in a hurry to do anything stupid, but we wouldn't delay things for similar reasons. So I mean, I think in terms of the nodes of the decision making, I mean, it's pretty simple. I mean, it was laid out, I think, very clearly by Peter and the team at the Capital Allocation Day, where we talked about how we look at these things, how we evaluate certain projects.
And I mean, clearly, there are certain physical issues to do with Janssen that we have to think about in a way. But we're under no pressure to do something that would actually violate the capital allocation framework one way or the other. We have long term security of tenure. As I described earlier, we do think this is a very useful option to have in the portfolio. There's many ways that we can seek to create value from it that we've gone in the past.
And this is a long term game for us. And our appropriate entry into this market, if we decide to go ahead with Jamston, is something that needs to be chosen to be done at the right time. Right as I come to the moment the DLC, we keep it under active review as a Board. We still have work to do for the next year or 2 to fully complete our work on the shafts that we have committed to complete. But beyond that, it's simply about all the work we can do to reduce the risk through better engineering and through better work with our potential customers and also just a better understanding of the market and what is the most cost effective way, if we chose to do it to enter into it, fully in line with the capital allocation framework.
And that is, if you like, the key decision node, if you would like to call us that. So let's look on the DLC. We keep it under review. Yes, we have seen the settlement of the AATO dispute, which removes one cost that would occur on unification. But there are other huddles that still have to be debated.
And first, we still enjoy, as a result of the deal, the dualistic structure, which we lose if we were to unify in favor of the limited. There's some tax benefits, particularly that pertain to our energy coal business in New South Wales. And they still measure several 100,000,000 that will obviously get used over time. The PLC shares have a strong South African ownership. And if we unify in favor of the limited, then they would face a fairly significant capital gains tax.
And that would certainly affect their attitude, if you like, in terms of any shareholder vote that we have to be mindful of. You're well aware in this market of the Hanar. And then finally, there's a lot of speculation as to exactly where the unified share would trace based on a wide range of things, which are more based than real. And we have to get our continue to get our arms around that as well because that will affect obviously the experience of shareholders both on the limited side and the PLC side if we elect for unification. So one barrier has been removed.
There is definitely a timing element around the remaining tax benefits that we enjoy that means that we can we should and should be patient as we go forward. And we keep it under review.
Thanks, Andrew. Just a super quick follow-up on potash, if I Mike, and maybe it's for Peter. But could you just remind us what the current carrying value is of Janssen?
Yes. Peter can handle that.
Yes. It's in the ROCE chart. And we've got about 4.5 sitting on the books at the moment. Sorry, 3.7.
3.7. Okay. Thanks very much.
Our next question comes from Mene Sanders of Morgan Stanley. Mene, please go ahead.
Yes, good morning. Two brief ones. Andrew, you talked a
little about the oil. You talked a bit about the operations center and the new technology center. And the word technology is coming back a couple of times in the statement as well. Historically, as I was understood, BHP to be, let's say, a fast adopter rather than a first mover. Is your approach changing a little bit
to that? And could you give us
a bit of a sense of the scale of the opportunities that the company is looking at?
And then secondly, on Olympic Dam,
I appreciate all the comments you made and you're clearly back at those record processing volumes in the smelter. But you have been encountering quite a lot of unexpected outages, as you pointed out. What have you changed in the management of the above ground facilities in the last 6 months to after you have to deal with these asset found out?
Okay. Look, yes, you're right. We are definitely shifting our approach to technology. We do believe that with the current wave of technology change, you can kind of somewhat exaggerate things like what do you call it, the Internet of Things, the availability of much more effective sensors and systems and AI that there are a number of opportunities to sort of lift the performance of basic industries, and we want to be at the leading edge of what's possible in mining. There is a fairly detailed slide as back up in the past, which I think should now be available online.
But it breaks things out between kind of mine planning to mining, which of course is autonomous processing, which is improved throughput and advanced process control transport, how we schedule trains and boats and have kind of less unplanned events to a number of issues that we can do in marketing. I mean, I don't I've got the slide in front of me now, but
you can there's a lot
of things in there that you can go through. And if you've got questions arising from that, then we have even more back half behind that if you want to talk to the people in Investor Relations. I think on Olympic Dam, what have we changed? We've obviously more recently, we've changed the leadership there. And as well as that, we're putting particularly on the surface stuff, you're right.
One of the challenges that we have in the Olympic Dam is that if we were to build the system today, we would probably avoid what I call the factory in the desert or the factory in the outback. I mean, it is very capital hungry, and it has more than its fair share of asset integrity issues. We are trying to get through them. The asset plan was very unfortunate, but it may have dated back even to WMC days or if we were being a little bit more accountable, we might say we missed it with nothing proper inspection back in 2016. And it was sort of waiting to happen.
We do need to put in a lot more in terms of some of its technology of better reads of how the equipment is performing, so that we get more early warning and we could intervene in a way that prevents major outages. We already started planning another shutdown for 2021, which is going to try and take it to the next level. But there is no doubt that the stable operation, the stable operation to be there obviously be debottlenecked under the Brentwood expansion is absolutely critical. And I think we are front running that. But yes, it's hard work.
It's ever since we gave up the open pit, which is exactly the right decision, we're now having to get an underground mine, already the biggest underground mine in Australia to perform, if you like, with the reliability and precision that we should for and some of the other things I've been making about in an open pit operation. We're using our best people to do that and as we should because it is a fabulous ore body in a very stable and favorable jurisdiction, which is South Australia.
Thanks. And a quick follow-up on technology. Are we talking
in terms of scope of the efficiencies? Is it still billions that you can see? Obviously, I appreciate you have good CapEx in to probably get to it, but how big is this opportunity?
Yes. But I mean, I wouldn't want to see it in isolation. I mean, our transformation program, as I kind of roughly described, it starts with something we call world class functions, which is benchmarking all our functions against what we think is best in class all around the world, almost sub function by sub function and simplifying a lot of our internal processes, but as well and therefore by taking work away, reducing costs as a consequence of that and also increasing our if you like our reducing cycle times, increasing our speed to market of a number of issues. It includes something we call our new operating system, which is about it's about our culture. It's about how we organize our work.
It's about really teaching people at the frontline how to sort of look almost move by move as to how they can actually do their jobs more effectively. It's about within all of that in sourcing of more of our contractor workforce so that they can be more they can be trained up more constant and therefore more stable. It's about some of the technology things that I said to you that includes some of the automation that I've spoken about. And it's a whole bigger push, if you like, on the culture and capability of our workforce through training. When you put all that together, we haven't released firm numbers yet, but it is the benefits in value terms are measured in many billions.
There is some investment, but less than you might think because a lot of it is cultural. And of course, that investment is equally applied through our capital allocation framework. But if I were to say things in, the way we grow this company going forward, most of it no, not most of our conversations tend to be on the traditional things I've spoken about. We've already talked about signing in the big dam, potash and so on and so forth. But a substantial ability for us to grow free cash flow, all other things being equal, which I think is equivalent in scale to the growth we can do through more traditional investment is in this transformation bucket.
And we believe in having created this highly simplified portfolio, much more connected workforce with a real can do attitude. We've primed the pump to make a lot to get a lot of benefit from it. And in no way are we going to be fast followers. We want to be leaders in this area. And I think we are.
Our next question comes from Myles Alsop from UBS. Myles, please go ahead.
Yes, great. Three questions. First of all, just looking back over the last six months and arguably over the last couple of years, you've had more than your fair share of operational issues, whether it's fires, whether it's derailments or plant types of leaks and so on. So what can you I mean, why do you think that is? And is it just you have been unlucky?
And why should we kind of assume that you're not going to have issues going forward? Secondly, in terms of cash flow, your guidance points to free cash flow doubling in the second half. Now when we look at your capital allocation framework, net debt is at the low end, CapEx guidance obviously very clear. Should we assume the vast majority of cash flow now gets returned to shareholders? Or do you think M and A opportunities are picking up?
And then thirdly, just on franking credits, could you just I mean with the elections in May, Labour government, it sounds like, sort of likely to come into power. And what are the proposed changes to franking credits? And how will that impact BHP? Thank you.
Okay.
So I'm Peter can answer questions 23. I'll handle question 1 in a moment. But briefly on franking credit and then Peter can go into some details. I mean we have just done a $5,200,000,000 special dividend fully franked. We also then did a major buyback fully franked.
So we've been working pretty hard to monetize our franking credits. And so and right now, no forecast. I mean, we'd be there, for example. But we don't have plans for doing anything special, but that can change. But Peter can say a bit more about that.
Just about the operating issues. I think they're a little unfair to say we've had more than our fair share. I think we're very transparent about these things. We tend to put everything out there and we try and hit targets of very high levels of stability. I think if you looked at most of our competitors, and I could go through a long litany of things that happen, It's par for the course in this industry.
And you talk about train. I mean, 3 or 4 years ago, we had 4 derailments a year. This was a one derailment, and it was a completely different one. It was nothing to do with a maintenance issue. It was to do with the fact that there have been inefficient process applied and followed that left the train on a slope without proper braking facilities in place.
I accept, but this level of incident is unacceptable. The main push, I would say, for our transformation agenda is to eliminate these incidents through a much higher level of stability. It's as much down to culture as it is to do investment in asset integrity, and we're attacking it from all angles. The fact that we can maintain guidance shows that in terms of our unit costs and our production, we sadly, we have to build in some contingency for some of these things.
Some of
that, of course, is uncontrollable, although we need to get better at it when it's things like weather events. And our commitment is to do better in this area. And I think underlying, when you look at what we've achieved, we are getting better. We delivered $12,000,000,000 of productivity up to about 2 years ago in the preceding 3 to 4 years. We've given none of that back.
And that momentum. I mean, what we're doing in transformation, the intent is to regain that momentum. And an important part of that is by making our operations stable and eliminating events like that through judicious investment and asset integrity and then a wide range of things, which our transformation agenda is designed to do, which of course includes things like what we do in maintenance and things like culture. But Peter, you might want to add to that. But if not, let's just talk about net debt and cash returns and anything you want to add on franking credits and special dividends and so on.
I should stay on the dividend side. I've also just done 75% payout on this one as well, so I might just give a high line. Over to you, Peter.
Miles, very quickly, free cash flow will be what it is at the end of the 6 months. The capital allocation framework will take care of how we allocate that. As you said, maintenance CapEx is spoken for. I don't think we've got anything new to say on that at this moment in time, happily. And net debt is at the just under slightly at the bottom of our target range.
We don't as we said before, don't expect us to slide through that. It's a good range. We do want to be at the bottom. We said that for a little while, so that's fine. Good news.
So therefore, there's only one other home for that cash, and that's a very happy home. M and A is something which, of course, we keep an eye on, but it's not something we have to do. And it's tough to make value in there. We did take a position in Solvos, but that's we'll wait and see how all those that and those types of things play out. So it's always something, as we say, we pay attention to.
So that's straightforward, I think. And I don't think you would expect me to and I haven't said anything I haven't said before. On Frankfurt, we've managed to actually just in the last 6 months get 4,500,000,000 another way to look at it, we've put 4,500,000,000 dollars of franking credits back through to shareholders, which is good. But we still have a lot of franking credits. We won't we don't think about our dividends that we pay in terms of that frank credit other than and how it plays out in terms of the buyback versus the additional cash dividend.
And in the event that we have got additional cash then and we decide that buybacks are a good idea, then of course, it's a decision between PLC and Limited and the event that that frankincredit plays out in the 14% what generally looks like a 10% to 15% premium of limited other PLC. So that's how it plays out. Nothing new there. Hope that answers your question,
Lars. Thanks.
Next question.
The next question comes from Hayden Berstow from Macquarie. Hayden, please go ahead.
Hi, Hayden.
Yes. Hi, guys. Just a couple of
quick ones for me. On costs, I mean, the currency is sort of going your way. I mean, was there an opportunity here given volumes in bulks particularly is supposed to be higher second half against the guidance range is that we could have actually cut the cost guidance a little bit given where the currencies are? Or are you actually seeing some industry pressures that sort of lead in not to do that at this stage? And just quickly on Scarborough, I mean, was there any sort of hold up on making that decision given Woodside are pretty keen to push ahead with it?
Thanks. Okay. Why don't you handle the cost question, Peter, and then I'll well, you can say something on Scarborough. And if you want, I can add to it. Sure.
So look, on the cost guidance, we've held our guidance. I think that we're going to have to have a better second half. We expected a better second half, and we're going to have to deliver that out a little bit. But I think we've got the plan in hand. And obviously, the FX, the expense that it continues to help are good news, but I don't think there's any need to change the guidance at this moment in time.
On Scarborough, we like all of our investments, we want to make sure that we push it through the capital allocation framework. It needs to make sense. And there is an economic side of that. It also needs to be ready from a project perspective because we all know very well that we need to be well considered and well prepared before we launch into these very large projects. So that's really where we are on Scarborough.
I think it's a very interesting option for us. And obviously, we're in good robust conversations with Woodside on what this thing looks like and our views on it.
Yes.
And I can assure you that the ghost of our capital allocation framework is at the negotiating table. Okay. Next question.
Our next question is from Khan Peekar from CLSA. Khan, please go ahead.
Hello. Thanks for taking
the time.
Just a quick one for me. A couple of them have already been taken. But just circling back on Olympic Dam, as you mentioned that wind and shaft refurbishment project sort of being shelved. Just wondering from our last site visit, it did look like you needed that refurbishment to sort of get to that 13,000,000 tonnes and push the bottleneck to the smelter. Does there well, the question is, does there need to be a replacement for that capacity?
And secondly, what exactly did change? Thanks.
We can do it with the new decline, which we decided to build almost as a sort of contingency. We could always have used both if we thought that was going to work. And that was something we managed to reconstruct it within budget and schedule and is now fully operational. So all the change was the cost of refurbishment became unattractive in terms of our own capital productivity tests. And therefore, we will live with using the decline for PFX3.
And obviously, at some point, we need to build some shafts in the Southern mine area. And we learn more about that through the development we're doing at the moment, which would be the best location. But clearly, as I'm sure you're aware, that comes after BFX3, which will take the high grade ore from the Southern mine area and a little bit more volume to increment the current production a bit through a little bit of debottlenecking of the smelter in the refinery. But then with the Olympic Dam expansion project, we need a lot more processing capacity, and we hope to provide the bulk of that through heap leach, obviously, but feed it with a new set of shaft dedicated to the Southern mine area.
Just also quickly on just a follow-up. So I mean in terms of CapEx that may have been saved from this refurbishment that's being shelved. I mean is there a number that we should sort of look at into FY 2019 2020?
No. I think we have to value things in the round. And we obviously are not changing our guidance for 2019 2020 that we'll live within €8,000,000,000 for the total company.
Yes. Thank you.
Our next question comes from James Redfern, Bank of America Merrill Lynch. James, please go ahead.
Hi, Andrew. Good morning. The first question is on ferrocol. Good day. You mentioned that thermal coal is 3% of capital employed for BHP.
Just wondering just going back to whether you view thermal coal assets in Australia and Colombia as core to BHP. And more generally is the portfolio certification process finished or is it an ongoing project? And I've got one more after that please.
The portfolio?
Sorry?
Okay. Did you
want to
say something else?
I guess the question simply is thermal coal, is it core to BHP given the same situation of capital employed?
Well, I mean it is a reasonably high returning project as you'll see on some of the plots in the slides sorry, business. And so for now, we're happy to have it within the portfolio. But we keep our portfolio under review all the time. And clearly, we look at smaller businesses and smaller assets as things that maybe fit less well than some of the big guns like Bourne Basin met Coal and Western Australian Iron Ore and Escondida. But I have nothing more to say at this stage.
And we continue to run these businesses well. We like them even though we might not like energy coal as much as we like energy coal. In this instance, we have 2 assets that sit at the bottom of the cost curve. And so we're not embarrassed to continue holding them for now.
Thank you. And just my second question relates to non managed JVs and how you're thinking about your stake in Entomira post Marco. It's a great asset, but again it's quite small in the context of BHP. So just wondering if you've changed your involvement in JV, does it fit? And can you please remind me who manages Antamina?
Thank you.
Well, Daniel is after all our non operated joint ventures. So I mean, I'm going to ask him to maybe say something about this. But we like Antamina, and we have no real concerns about that asset, and we certainly want to do more with it and work with our partners to expand it if we can. But Tani, maybe you could add a bit more about
I think Antamina is unquestionably one of the best copper resources in the world. We're very happy to have Antamina in our portfolio. It gives us fantastic returns for the capital invested. And we have really good plans to continue to get more value out of that asset. Also I remind you that following the Samarco tragedy, we enhanced our visibility of all our non operating joint ventures.
We have a fully a team dedicated. There's been very good outcomes out of that both actually at Antamina and at Cerrocon, by the way.
Thanks, Danny.
Thank you. Can you just confirm who manages the asset,
please? There is a non operated joint venture group, which reports to Danny. It's run by Brian Quinn. You may some of you may have met him in the past. He was previously Head of our Technology Group.
And before that, he ran the manganese business that has now gone to South 32. And he has a team of people based in Santiago that not only look after Samarco, they look after Antamina, they look after Cerrohon and they look after our interests in Resolution 1 or 2 other small joint ventures that we're trying to get out of around the world. We are much more active in how we handle these things. We've always been pretty engaged in Antamina. Our proximity relative to our other partners has always helped us from being in the same time zone and having predominantly Spanish speaking staff.
We're now applying that same love to Ceraheon, and it's having a good effect. And clearly, we need that resource more than ever at Samarco with the results as to what's happened in Brazil. But they, for example, are overseeing some of the work I told you earlier about decommissioning the Germano dam at Samarco. And then we contribute lots of wisdom to the pace and development of resolution. So and of course, Danny reports to me.
Okay. Thank you. Thanks Andrew. Thanks Danny.
Our next question comes from Craig Campbell of North Cape Capital.
Good result. Just with regard to balance sheet again, the net debt range, you've seen a number of other mining companies driving to net cash. And when I look around the world and everyone can say the potential for Black Swan events probably more so than ever. And if you were to drive the net cash and a really good opportunity came up for M and A, it would mean you'd raise less equity if you needed the equity. Is this something you guys would consider, please?
Well, Peter can handle the details there, but I think he sort of answered the question earlier on. We don't really want to go much below our $10,000,000,000 to $15,000,000,000 range at this point of the cycle, and particularly given some of the benefits we're getting on pricing on the bulks, we think it's appropriate to stay at the bottom of the range. But at that level of the range, we would feel if the cycle were to turn, we do have the capacity to do the sorts of things that you're suggesting without the need to go to net cash. I don't know if you want to add to that, Peter.
Yes. The thing is, though, we have a lot of things.
Craig, I
mean Craig, I mean something you don't see coming.
Yes. Well, we do factor that in into some of our plans, but Peter can say more.
So Craig, how do we think about this range in the bottom end is we stress test it. So what we try to do is be defensive. Your point about the Black Swan, we've got to buffer the organization. So we think about a price deck that essentially looks like an extended multiyear period of prices, which were probably more or less, let's say, January of 2016, something of that minus a bit, and we just hold that. And then in addition to that, the way we model this is we are offensive at the same time because hopefully some folks will come under pressure and some good assets will be cuffed up.
And so we put those both into the model and then we decide and we see if in fact we can hold sort of an AA minus on the rating through that period so that we again, back to your buffer question. And if we can put all those things back together again, then it works. And that's sort of where we are. So I think absolutely agreeing with you on the basic premise. Can we be defensive and offensive in the event that we get into a difficult period?
And I think the answer is yes.
Okay.
Thanks for one more question.
Our next question comes from James Gowrie of Deutsche Bank. James, please go ahead.
Thanks for taking my question. Reading through the prepared remarks there is a good sense that not only reflecting on the
last 6 months, but also in the last few years.
But I'm just wondering about the future. It doesn't look like you want to approve Janssen anytime soon. But can you just touch on the Ruby oil and gas project? I think that's up for consideration. Secondly, on net debt, can you just confirm that you're at the top end of the guidance range if we adjust for the special dividend that was paid out in January?
And is there any
James, you'll need to repeat your question and speak a lot louder. We've got everything on max volume here and we can barely hear you.
Okay. Well, I hope you got that first question. Just on the second question in relation to net debt, you'd be at the top end of the range I think if we adjust the special dividend. And can you just let us know if there's any nonoperational
cash flows that we should be aware of
given that you've guided ore, can you confirm or not that you're operating at spot prices here to iron ore, can you confirm or not that you're operating at 100% in iron ore and whether you might hit the lower or the upper end
of the guidance. So I think
I got the sense that it was a tough ask to meet guidance after what happened with the derailment.
Look, Peter will answer the question on net debt. I'll come back to your question on Ruby. But just very quickly on the iron ore one, we always push to maximize our volumes through existing capacity, and that hasn't changed. And I'm not sure that completely answered your question, but we don't have lots of production of our fleet, if that's what you mean. And we are able and steadily to recover from the derailment.
I mean, it was only out for a week, and we do have some spring capacity on the rail to do that. The more critical issue is the bottleneck of the port and the performance of the car dumpers. Peter, do you want to answer the net debt question? And I'll maybe take it. Sure.
Sorry, you really have to shout, James. We can barely hear you. What were you trying to say there?
Just a sense whether you're at the bottom or the top end of that iron ore guidance range?
Well, I mean, we said that we still expect to meet guidance. And we've got several months of production ahead of us, and I'm sure we'll update you as we go through the various operations reports.
Yes. On the net debt question, James, really, here's the so we have, let's say, 9.9%. We have a couple of things which are moving in relation to shale between since 31st September to where we are right now. We had $5,200,000,000 go out end of January for the special dividend, And we still got $3,400,000,000 to come in under deferred consideration. So if you tied all that up, so we're at less than 12, I think and of course, we're making reasonably strong cash flows every month at the moment.
And so I think we're comfortable where we will land up, shall we say.
So on Ruby, I mean, I think maybe not everybody is aware of that, but because one of the partners has opted not to participate in this commercial discovery interest in Tobago, it means our interest is now 68%. And I'm not sure if we've communicated capital, but it will certainly be in the sort of above $250,000,000 which is into board territory. I mean, we're looking at something in the $300,000,000 right now. And we do expect to make an investment decision this year. It will produce roughly around about 16,000 barrels of oil a day and about 80,000,000 cubic feet of associated gas.
And there is a detailed slide which I'm looking at now, partly reading from as well as some of my other notes in the appendix of the slides that we put on our website this morning or this afternoon in Australia.
So that's a decision this financial year?
Yes, it's 3 30. 3 30. Okay. 3 30. Yes, yes, Geraint.
Okay. Yes. Thank you.
Okay. I think that's it. So thank you for your interest. Danny and I, we maybe I'll be seeing some of you in London later today. And I think tomorrow or maybe it's later this week, Peter and Arnold will see those of you who rang in from Australia.
Looking forward to it. Thank you very much.