Hello, and welcome to this Q&A session to discuss BHP's results for the first half of the financial year. My name is Gab Notley, and I'm joined today by BHP's Chief Financial Officer, Vandita Pant, who's actually only been in the role for a couple of weeks, but of course, has been part of BHP's executive team for the past eight years. Also joining us are two who need no introduction to shareholders who join this forum, David Lamont and our CEO, Mike Henry. Welcome, and thanks for agreeing to take the hot seats today and answering questions. Shareholders have actually submitted on a wide range of issues, from what's behind the fall in the headline profit numbers, what's happening in commodity markets, and our plans for growth.
But before we move to those, I thought it would be good to get a view from the top on our recent results. Mike, how did you see BHP's performance over the last half, including what it means for shareholders in terms of the dividend payout?
Thanks, Gab. Look, underlying operational and financial performance for the last half remained strong. I do need to acknowledge, though, the loss of a colleague from one of our contracting partners, and this was just post the half in early in the new year, at the Saraji mine up in Queensland. You know, I often say that we can have the best financial and operational performance in the world, but if people are not making it home safely at the end of shift, then it's all a bit for naught.
So this is something that I and the leadership team take super seriously, and we're taking very deliberate action to reinforce our own safety leadership and the way that we go about applying our safety systems across the company to ensure that we're able to uphold the absolute value that we place on BHP operating safely, and everybody making it home to family, friends, and colleagues at the end of shift. If I come back to operational and financial performance, as I said, it was strong. Copper production up by 7% period on period. Cost control remained tight across the business in spite of a highly inflationary environment. If we look at that...
You can see that evident in our iron ore business in Western Australia, where you know, for the probably fourth year running, we've remained the lowest cost major iron ore supplier in the world, and that business continues to hum. Elsewhere as well, we saw strong operational performance, in some cases, some underlying records. Now, financially, that's all translated into an ability for us to declare a $0.72 per share dividend. That's about AUD 1.10 per share. Should hit everybody's bank accounts on March 28th. And that can be seen as a sign of confidence in how the underlying business is running and what we expect for performance in the second half.
Fantastic. Thank you. I just wanted to start off on a question on one of the growth projects that you've mentioned in the past few weeks, Jansen in Canada. And Vandita, I might throw this first question to you. The question is from Brooks, who asks, "How will potash be marketed, and when will the project actually start operating?
Yeah, sure. We are very excited to have potash in our portfolio. Potash has some very attractive commodity demand drivers. As population continues to grow, as standards of living, rise, and as calorie value of, our food continues to increase, farming will need more and more potash. From our projects perspective, Jansen One project, will come online end of 2026, and Jansen Two project, which we approved in the last half, will come online from 2029. With fully ramped up, it will be the world's largest potash mine.
From a marketing perspective, we have a deeply experienced marketing team, which is now already based across different customer countries across the world. And this team has done a fantastic job of already getting memorandum of understandings, which are bases of offtake of a product, for both Jansen One and Jansen Two capacity.
We are fully covered with these MOUs from a marketing perspective for a product which will start to come through in 2026 and will be a great value addition for BHP for decades to come.
Thanks, Vandita. Well, from potash to nickel, which has been in the news a lot lately, shareholders have sent in a number of questions. I'll read a few and then maybe ask Mike and David if you could respond. First from Brian, he asks: Why does another low and predictable cycle in the nickel price now sound the death knell for Nickel West? And then another from Michael, who says: What cost of production would Nickel West need to achieve to remain sustainable over the current market outlook to 2030? And one from Benjun, who says: Was it a bad decision for BHP to take over Western Mining in 2005? And at what price will Nickel West break even? Mike, perhaps you could start.
Okay, Gab. Look, there's a lot in those, the questions that you've just asked. And nickel, what's happening in the broader nickel markets was one of the key challenges for us in the half. Now I would start with that question around, was the WMC acquisition back in 2005 a good acquisition or not? And we have to keep in mind that it, like, from memory, it would've been back in maybe 2007. The Nickel West business actually generated some pretty significant profit for the company, and it might not be quite the right numbers, but by and large, it would've paid for the WMC acquisition on its own.
Of course, the acquisition was primarily about the acquisition of Olympic Dam at the time and the copper assets, and we now see the potential that that presents to us in a key commodity that the world's going to need a lot more of going forward, even more so post the acquisition of OZ Minerals in the past year. So long way of saying we remain very happy with the WMC acquisition, and it's given us not only good profits at times over the past decade and a half, but is also, you know, a key part of our growth story going forward. Now, Nickel West is facing some challenging times, and we've been public about that.
Short, you know, story is we've got costs sitting at about $20,000 per ton. So every ton of nickel that we're producing, about $20,000. Market price has dropped to $16,000-$17,000 per ton. So just from an operating cost or operating margin basis, we're in the red, and that means that the business is losing cash. And at the same time, there's a need for ongoing investment in the business just to keep it safe and running effectively. On top of that, we've got the need for a major smelter rebuild coming towards us, which is many hundreds of millions of dollars in capital expenditure. So looking at all of that, we've said, "Okay, well, clearly, this isn't sustainable.
It's not the best, you know, the best use of funds for shareholders, and so we have to figure out how we make this business more sustainable." Part of that's bringing costs down, part of it's choices we make around CapEx. And we've also said that one of the scenarios that we're considering is moving Nickel West into a care and maintenance mode until we see better prospects for nickel markets and nickel pricing in the next decade. But that's a pretty weighty decision. It's technically... You know, there's some clear technical challenges we would need to work through to get to that being the right decision for us, and it's primarily around the smelter and the refinery.
But in addition to that, we, you know, we're very cognizant that this has real-life impacts for circa 3,000 employees, and then all of the other people around the operation who rely upon or support BHP's Nickel West business. And so it's not a decision that we take lightly. We do recognize that the current situation provides a degree of significant uncertainty for people, and so we're very committed to working through all of these considerations and coming to a landing on the decision as soon as, as quickly or as, as soon as practically possible. David, you might want to talk about the impairment that we've taken in Nickel West and the path forward from here.
Yeah. So thanks, Mike. What we did do at the half year was take a $2.5 billion post-tax impairment. Now, effectively, what that meant is the plant, property, and equipment that we had in our Western Australian nickel business, certainly on the Nickel West side of things, has come back basically to zero. But we also took a little bit of a change in relation to the West Musgrave project as well. So moving forward, what we are focused on is how do we actually preserve cash? As Mike mentioned, part of that impairment was driven by the fact that in the first six months, the business was actually losing a substantial amount of cash. So the prudent thing to do is to actually look at how can we preserve cash moving forward.
Part of our analysis also is that care and maintenance that Mike mentioned, and to understand that for us, we have not only a mine, but we also have a refinery and a smelter, and that is different to some of the other players in Western Australia today. Now, to put that in a little bit of context as well, 30% of the Australian nickel market today has gone offline, and another 30% is also under pressure alongside the cash scenario. So we're conscious of what we need to be looking at on an ongoing basis.
Part of that care and maintenance is that we, if we did go down that path, we would stop operating and producing product, but we would also have to have an eye to how could we bring it back online if conditions changed operationally and financially, that makes it attractive to do so. So that's the analysis that we're actually doing. As Mike mentioned, we've got a timeframe, understanding the importance of that and giving certainty to our employees and the broader community, and therefore, we're sensing, doing that with a sense of urgency.
Sticking with nickel, some shareholders have asked about government support packages on offer in Australia for nickel producers, and what might BHP need? And Mike, then perhaps if you could expand more broadly on government policy here in Australia.
Sure. Thanks, Gab. So there are live discussions afoot about how government, both at the federal level and the state level, can support the nickel industry, which is under significant pressure here in Australia. And BHP hasn't called for these measures, but to the extent that they're being discussed, we're certainly as able and willing to lean into a conversation about them. But I also want to call out that. And we've been clear and consistent in our advocacy around this. The most important thing for government, the industry, and at the end of the day, all Australians, is that we have policy settings in place here that support a competitive industry. Keeping in mind that we're competing in fiercely contested markets globally for all of the commodities that we produce.
Now, what do those effective policy settings look like? We have to have competitive tax rates, competitive industrial relations framework. There have to be the right settings in place to support the skills development, and attraction that we need as a nation and as an industry. And in pockets, we have seen positive government steps or actions being taken in that regard. We see very constructive engagements, in particular in WA and South Australia from a government perspective, looking at how they can attract more capital and ensure a vibrant and healthy mining industry. At a federal level, some of the measures that have been taken around skills and migration in particular, I think have been important for not just our sector, but other businesses here in Australia.
We've also been public on with our views on industrial relations policy, and I'll start by saying that as a company, we are very supportive of well-paying jobs and the belief that there's a role and benefit that we and the sector play in ensuring a high-paying jobs for Australians. And just to frame this up a little bit, right now, average wages here in Australia in the mining sector are about somewhere between 12%-15% higher than they are in Canada and the U.S., and BHP pays higher than the average here in Australia. So, you know, but we are, as I said, very supportive of well-paying jobs....
But for us to remain competitive in these globally contested markets, there has to be a commensurate productivity uplift associated with that. And that's where we think at times policy can get in the way of enhancing productivity. And that's our fear about some of the recent changes that are being pursued here in Australia, and it's why we've been strong in our advocacy around them. But as I started this response by saying that government and businesses have a shared interest in a healthy industry, and we always want to sit down with government and other stakeholders to figure out what the right policy settings are that support that outcome, and through that outcome then support ongoing prosperity for the nation.
Thanks, Mike. I might now turn to David and ask if you could respond to Glenn. He asks, "Will the company allocate more funds to overseas exploration and acquisitions because of these difficult trading conditions in Australia?
So certainly, thanks for the question. As Mike mentioned, capital is globally competitive and actually will flow to where we ultimately see that we've got a good balance between the returns that we can get and also the risk that we're actually facing. Now, here in Australia at the moment, we are facing one of the highest corporate tax rates, and then when you overlay with that royalty regimes that exist at a state-based level, we do get to some very high effective tax rates. I'll reference the fact that in Queensland, at the moment in our BMA operations, it's in excess of 62% is the effective tax rate. So it's a high taxing regime. So against that, we've actually got to see the reward balancing out against that, that risk exposure that we have.
When you get to some of the future-facing commodities that we're talking about, and specifically, if I look at copper, which is the area that we're spending the largest growth in our exploration spend, we actually need to have a regime and an in-place in-country, whereby we can see the longevity of that project. So not only are we looking at the exploration side of things, but ultimately we want to turn that into a mine, and that takes a long-term investment, and we've got to actually consider all of that when we're balancing out the risk and the reward that we actually see.
So we are certainly seeing exploration as a growth avenue for us. We are spending more on exploration than we have historically, and that's positive to try to find the next major resource base that we can work with.
But that's in a global context of competitiveness, and so Australia needs to be competitive, as Mike mentioned earlier, for us to actually look to do that, in country. But we are encouraged by our growth in exploration, where the opportunity sits, as part of that, and we'll continue to balance out that risk and reward through our capital allocation framework, which provides discipline for us in making those decisions, where we look at a range of potential outcomes and factors that actually come into the, into the mix.
Thank you, David. I'd like now to move to iron ore. We've got a question which I might put to you, Vandita. It's on the iron ore market. It's from Peter, who says, "Given incoming supply from Africa and weakened demand in China, is there a prospect of a crash, and how is the real side of the market assessed and by whom?" He then further asks, "Does the same parameters apply to the mid?
Yeah. Thank you, thank you for the question, Peter. As you can imagine, iron ore is a very important part of our portfolio. We study its demand quite deeply. Last year, China, which is the biggest source of demand for iron ore, had produced 1 billion tons of steel for fifth year in a row. In spite of having this state, it was more than offset by demand from infrastructure and green parts of the economy, including transportation, renewables, et cetera. So the demand for iron ore was very strong. This year, we continue to see that the demand of iron ore from a demand-supply perspective will be balanced. However, as you mentioned, in long term, we do see more supply coming in, and this is a surprise.
For a very long time, we have been saying that China demand is now in a plateau phase, and African supply will come in later this decade. And that's why it's so important that the commodity market, which is going to be more competitive, we are very well positioned for that. And how do we get well positioned for it? Is by being really good at on our operations as well as in our cost position. As I mentioned earlier, we are, for the fourth year in a row, the lowest cost producer of iron ore globally, and this is a real competitive advantage for us to have a great business, not only for today, but even for tomorrow.
And on met coal?
Yes, on met coal, the drivers are a bit different. For met coal, India is a really big source of demand. As India continues to build its country, infrastructure, manufacturing base, steel will continue to be increasing in production in India. From currently 140 million tons, we expect the Indian production of steel to double by the end of this decade, and as it goes on the journey, it will require a lot of met coal. India does not have any endowment of met coal locally, and hence is a very big portion of demand for our met coal. You may not know that, but 40% of our met coal already goes to India.
As India starts to, and other countries start to go on the journey for decarbonization, they will continue to pivot towards highest quality met coal. As you would know, we have reshaped our portfolio in last couple of years towards highest quality metallurgical coal portfolio. 85% of our portfolio now is the highest quality met coal, and that demand will continue to increase, and the margin for that will be higher than the other products as well.
I'll move to copper, actually, and shareholders are keen to understand the outlook there. Mike, could I ask you to respond to Catherine? She asks, "What is the future of copper, particularly considering the acquisition of Oz Minerals in South Australia? And are there some challenges in that market, like nickel?
This is a really good news story. We have made a lot of progress in recent years on developing more copper growth options for BHP, and this is a key commodity for us and the world. Over the next 30 years, the world's likely to need two times as much copper as it needed over the last 30 years. That copper is becoming harder to find, harder to develop, more risks need to be addressed in development. So if you're an incumbent producer like BHP is, with big resources and great capabilities, you're in a very advantaged position. Right now, BHP has the number one and the number three largest individual copper resources in the world between Escondida and Copper South Australia.
And overall, BHP holds the largest copper resources of any company out there. So against this backdrop of strongly growing demand, new supply being harder to bring on, we're in a great position. Now, of course, in addition to the existing production that we have, we've been looking at how we can go about developing more growth options. But we have a lot of work underway at Escondida to look at new options around concentrator capacity or leaching capacity, and we'll have probably more to say about that later this calendar year. The acquisition and then integration of OZ Minerals has gone really well. We're ahead of plan on the synergies that have been unlocked there.
Ultimately, we believe that we can take what is currently about a 300,000 ton per annum copper cathode production, and ramp that up to over 500,000 tons per annum through expanding the smelter, developing a little bit more mines capacity and so on, towards the end of this decade or early next. And outside of those two options, we have a number of other copper growth options at various phases of progression and development. And so I'm feeling much better today than we were feeling a few years ago about our ability to lean into this opportunity that the world's presenting as the whole decarbonization thematic plays out.
Moving now to an announcement that the company made just prior to the results. It's... We've got some questions here on Samarco, including one from Douglas, and he asks, "What was the reason behind the provisions, and what is the status of ongoing litigation against BHP?" David, I might ask you to address this.
So, Douglas, thanks for the question. Just before I answer it directly, just some context setting, I think, which is important in relation to what's happening. Firstly and foremost, Samarco, BHP Brazil and Vale as shareholders, are fully committed to fair and full compensation to those people affected by the dam failure. On the ground in the last 18 months, we've made real traction. We now have 84% of payments made for compensation. We've also had 220 families move into new homes in the newly constructed communities. We've had over 430,000 compensations paid to people in relation to compensation. And we've also seen the water quality in the river come back to what it was prior to the dam failure.
In addition to that, it's also good to see that Samarco is actually up and running, and we have also announced that a second concentrator is looking to come online over and above the first concentrator. So on the ground, activity is happening, and certainly we're seeing compensation being paid to those affected people. In addition to that, we did increase our provision to $6.5 billion, and that is our best estimate of what it will take to resolve the litigation that exists within Brazil. So that's the Federal Public Prosecutor's claim, as well as also resolve the framework agreement that we have in place through the Renova Foundation. Now, there's some uncertainties still exist with that, but we do see that all parties are motivated to find a settlement.
Those discussions are ongoing, and we do see that as the basis that it forms behind that provision that we have actually created. Now, I will just call out, there is other legal cases outside of Brazil, in both the U.K. and Australia, and they are still held as a contingent liability, so they're not included within that provision, and we'll continue to vigorously defend those.
Thank you for that update. The next question is for you, Mike, I think. It's around BHP's approach to ESG, generally. Scott asks, and it's, I'll summarize a bit. He says, "Given failures across multiple sectors and increasing disdain from the broader community for diversity, hiring and green energy, are you ready to move away from DEI and ESG, and make a sorely needed return to meritocracy?
Okay, so it's, that, that's an interesting question because it assumes that there's a disconnect between our focus on ESG, our focus on DEI and meritocracy and performance. I would just call out that, you know, these are areas where we have had a strong but very purposeful focus on a few key issues, like achieving a gender-balanced workforce, for example, with the inclusive culture that's required to achieve that, and our focus on, for example, decarbonization of our underlying operations. At the same time as we've been focused on those things, company performance has lifted. We've gone from being an operational laggard in the industry to now leading the industry when it comes to our operational performance. Returns for shareholders have been strong.
So not only do I believe that both things can be achieved in parallel, I believe that what's required to achieve some of those things actually boosts underlying performances as well. We've made remarkable progress. We've gone from 16 or 17% female participation in the workforce to now 35, 36% and above. Well on track to achieving the aspiration that we set out to have a gender-balanced workforce by 2025, and that is going to both boost and then support sustainable high performance for the company into the future. So it's, I think, the premise of the question is one that, you know, certainly in practice, has played out differently for BHP.
Mike, I have another one, in a similar theme. This is from Hannah, and she asks: Does BHP have a strategy to reduce Scope one, Scope two, and Scope three emissions consistent with science-based targets necessary to limit global warming to 1.5 degrees?
So great question. You know, I go back to the time I joined BHP back in 2003. Even then, the company was focused on the issue of climate change, the risks that it presented to our business and the markets we operate in, and was quite thoughtful about what we could be doing to reduce our own emissions. Now, what that's meant is that we've started from a very solid base already, with relatively low emissions in terms relative to our competitors. Notwithstanding that, since 2020 through to last year, we've reduced our Scope one and Scope two emissions by a further 30%. Now, a lot of that has come through moving to purchase of renewable power.
We are working, though, very closely with equipment manufacturers and others to develop the equipment that will be required for us to unlock the next wave of emissions reductions on our sites, and that comes through battery electric trucks, battery electric locomotives, and so on. That'll be towards the end of this decade, and into next. Suffice it to say that we're well on track to achieving our 30% reduction relative to a 2020 baseline by 2030, even as we continue to grow the BHP business. And we have a goal to become net zero by 2050 in Scope one and Scope 2.
We're also working with our supply chain partners to support their efforts to reduce emissions, so our Scope three, and we have a number of collaboration agreements in place with steel mills, for example, with shipping companies or ship manufacturers, to work with them on reducing that aspect of emissions as well.
Vandita, I know you've been working on some of the Scope three partnerships that Mike mentioned. Is there anything that you would update shareholders on with regard to those?
Yeah, as Mike said, Scope three are the emissions of our customers down the value chain, and we have almost 20% of world steel production as partners working on low carbon emission technologies for steelmaking. These are customers in India, in China, in Korea, in Japan, in Europe. So we are very excited to be working with them around low carbon technologies. And here in Australia as well, we have done an in-industry consortium with BlueScope and Rio Tinto to look at piloting of ESF, which is a electric smelting furnace, which is a way of making steel, which will be near zero emissions and can utilize Pilbara iron ore quality, which is exactly great for BHP, industry, and Australia.
We are working very hard to make sure that we are very much across all these technologies, which over the next few decades, will start to come in as steel decarbonizes.
Thank you. Actually, that's about all we've got time for, but, Mike, is there perhaps anything that you'd like to say before we do sign off?
Thanks, Gab. Look, just a couple of things. Now, I've asked David to take on some other challenges for the business, but I do want to acknowledge the outstanding job he's done as BHP CFO for the past few years. And if we think about, you know, the performance of the company over that period and the transformation of our portfolio, that's in part thanks to the wisdom and experience that David brought specifically to the CFO role. So even as David takes up some other focused responsibilities for us, I do want to thank you, David, for everything that you've done as CFO for the past few years.
I want to welcome Vandita into the CFO role so recently into the CFO role, and Vandita brings a wealth of experience both within BHP, having, you know, been initially treasurer for the company and then having looked after our commercial function for the past number of years. She brings all of that experience and external experience into the CFO role as well. So welcome, Vandita, and of course, we're all looking forward to working with you in your new capacity. Other than that, Gab, just wanted us to leave shareholders with the fact that the underlying performance in the company remains strong, both operationally and financially.
Our work on executing our strategy when it comes to portfolio and all of our efforts to become even better at how we go about unlocking broader value for our other stakeholders, through our differentiated approach to social value, that remains on track. All of these things are setting BHP up for the future to allow us over the longer term, to continue to generate great returns for shareholders, and to have a resilient business.
That's great. Thanks very much, Mike. Thanks to all our shareholders for your ongoing interest and support of BHP. This session will remain online, and you can go to our website to view it or to find out more about our company.