Hello, everyone, and welcome to BHP Live, our information session for shareholders. I'm Gavin Notterly, and I'm joined today by our Chief Executive Officer, Mike Henry and our new Chief Financial Officer, David Lamont. Welcome. And thank you, and welcome to all our shareholders, especially for your ongoing interest in our company and for taking the time. Many of you have already submitted questions.
And David and Mike have agreed to spend about thirty minutes, so hopefully, we'll be able to get through all of your questions in that time. If any of our shareholders are joining live, you can still ask a question by pushing how to ask a question in the top right hand of your screens. But David, maybe if we could start with you. You joined the company in December, but I understand you were saying that it's not actually the first time you've worked for the company.
Yeah. Thanks, Gab. It was fifteen years ago that I actually was at BHP, and it's a great privilege to be back at the organization in this role as CFO and joining such a strong leadership team. But during 2001 to 02/2006, I headed up the finance area for both the energy coal business and also the carbon steel materials business, and that's where I actually first got to meet Mike and work alongside him. So it's great to team up with him again now.
Perhaps just a little bit on my background, I'm a chartered accountant by qualification. I've spent time in a range of large manufacturing complex industries and also through to the pharmaceutical industry, working for such companies as Oreca Insightec. And the last role that I was in was the CFO for another icon Australian company in CSL, and I look forward to bringing that experience and the skills to BHP as we continue to move forward and execute on our strategy. From my side of things also, it's great to actually be here and BHP Live for the first time. I very much look forward to listening to our shareholders and hoping to answer
some
of their questions and give them a bit more insight into how their organization's performing.
Thank you. Well, welcome back, David. Mike, perhaps if I could ask you about the company, particularly over the past year. COVID has has been such a challenge for the world, and it's changed how we all work and live. How has BHP performed during that time?
Well, thanks, Gab. And and it has, as you say, been such a challenging year for the the the world, and COVID nineteen continues to to take a, you know, heavy human toll and economic toll around the world. But from a BHP perspective, thanks in large part to support from so many, including our shareholders and the other stakeholders in the company. And we've been able to continue to operate safely and reliably And that's what's underpinned the very strong operational and financial results that we've realized.
Of course, that has then led on to the record interim dividend, where we've declared USD 101. And of course, that will be paid to shareholders on March 23, 5,100,000,000.0 US dollars in in total. So very strong performance for the half, all thanks to the support that we've had from so many.
I'll I'll jump straight through to some of the questions that shareholders have submitted, and and there are a couple on the results. Terry asks some great news on the iron ore result. Are you assuming similar margins over the next twelve months? Have you a contingency plan? And there's a similar one from Mark, who says, is BHP now producing good results by riding the iron ore and copper boom?
Is this a function of good luck or the product of good management? And then he goes on, is the plan B a fallback to the resilience of a portfolio strategy encompassing a broad base of commodities? Maybe, David, if I could ask you to respond to Terry and Mark?
Yes, certainly. The strong financial performance was underpinned by exceptional operational performance, where we did see record production in both Western Australian iron ore and also out of Escondida. And that certainly enabled us to benefit from the higher prices that we're seeing in both iron ore and copper. Specifically, But if we look at Western Australian iron ore, it's a great asset that continues to perform year in, year out and continues to actually meet the expectations of the market. And what that's they've been able to do that by is concentrating on robust production and giving also the opportunity to manage costs far more effectively as well.
So that combination of production and cost focus has enabled us to benefit from the higher iron ore prices today. Now that's been underpinned by strong rebound in China demand, and what we also saw towards the back end of the half also the rest of the world starting to actually rebound post COVID. Now both of those demand issues happened at the same time that in Brazil, were some supply issues. And that certainly has underpinned where we've seen the iron ore price. But if you look out in the medium to longer term, we don't think that pricing level is necessarily sustained, and it will come back to more long term trend pricing.
From our side of things, what do we need to do? We need to continue to be the low end of the cost curve, continue to operate safely and reliably and deliver our products into the market. And that's the key focus that we actually have right across the company, which enables us to benefit from the pricing side of things. So contingency plans, I'd say two things to that. The first one is that production level.
Being low on the cost curve enables us to give an economic return throughout the cycle. And the second thing that I'd point to is our portfolio. Right at the moment, yes, we've got good iron ore prices and good copper prices, but at the same time, gas prices and coal prices are down. And so the portfolio effect comes to play and enables us to deliver long term value to shareholders through that cycle.
Thank you. Mike, our next question is from Hugh, and he's interested in action on climate change. He asks, what are the detailed plans of BHP to reach net zero for your Scope one, Scope two and Scope three emissions, particularly in relation to coal operations? And there's a very similar question from Tim. Mike, could you respond?
Sure. Well, thanks Hugh and and Tim for the question. VHP has been been taking action on climate change for over two decades now, Gavin. That's what's allowed us to become the lowest operational emissions footprint of of the major mining houses globally. But we're not stopping here.
You know, we've we've announced last September a further 30% reduction in operational emissions by or over the course of the next decade, and that keeps us on path to achieving net zero by 02/1950. In addition to that, we've announced that we'll be undertaking projects with customers and the transporters of our product to reduce emissions in our supply chain. And in recent months, we've announced three pretty significant partnerships with steelmakers where we will be investing money and lending technical capability to help them in their efforts to reduce emissions from steelmaking. We've also announced the world's first tender for LNG fueled bulk carriers, will help reduce emissions in transport. And then back in operations, we've entered into a number of big renewable power contracts to allow us to reduce the emissions in our mining operations.
So lots underway, continuing the multi decade track record that we have here of action in this space. Final point I'd note is that last September when we came up with these commitments, one of the things we also spoke about was some scenario work that we had done. It looks at a 1.5 degree centigrade world, so achieving Paris ambitions. That world happens to be a better value outcome from a BHP perspective as well. So it's not just the right thing to do to take action on climate, It actually creates great value for shareholders as well.
Because in order to get to that world, there is going to be significant or even more demand for many of the commodities that we produce.
Obviously, a lot happening in this space. Thank you, Mike. David, the next question is from Morris. He writes, congratulations on your record result. One hot topic is China's input bans on specific Australian commodities.
What, if any, are BHP's contingency plans? Should these bans extend to iron ore?
So let me start with the fact that we certainly subscribe to a robust China economy and what that actually means for the demand for the commodities that we actually produce. Now on the back of the tensions, of the trade tensions, that certainly did impact our China inflows of coal. On the iron ore side of things, we see that still being pretty robust, given the quality of the product that we produce and also where we sit on the cost curve. But specifically on China and demand for coal, around about 25% to 30% of our coal historically has gone into China. So all credit here to our commercial team, whereby they've been able to pivot the business quickly and find other avenues for outlets for that.
Now it has been at a lower price, and certainly we've had the impact of that, but it was significant that we were able to transition to find other homes for those products. Now for us, moving forward, we obviously run a number of scenarios, and we look at what would happen if this was to be prolonged, what would it mean if it actually flowed across into iron ore and other areas. But we need to ultimately manage what we can control, and that's around on the ground relationships with customers, which is still very sound, and that's contributing to the fact that we've been able to get our iron ore into China despite the trade tensions. But we do look at the other scenarios, and for us, that's about ensuring, again, that we're seen as a reliable supplier of high quality product, which is what China demand is there for in the steel side of things, and that's our core focus at this point.
Thanks, David. Mike, turning to a different part of the portfolio. Natasha is interested in oil. She says, I note BHP intends to invest in crude oil exploration exploration, sorry, in anticipation of future shortfall and potentially higher oil prices, possibly back toward a $100 a barrel, she questions. But she says this seems to be somewhat out of step of achieving net zero carbon targets.
Could you explain and justify where this sits?
Sure. So, Gab, oil and gas are essential to so many of the products and processes that underpin life as we know it today. And the expectation is that that's going to continue for some period of of time. So we think that's going to provide a certain resilience to demand for these commodities for, let's say, the next decade and likely beyond. You couple that resilience and demand then with natural depletion of current producing fields.
And it means that there's going to need to be continuing or more investment in new production in both oil and gas. And we think that there's going to be attractive value and returns to be generated for shareholders for the next decade, likely beyond. From a BHP perspective, even as we pursue those opportunities to create value and returns, we are going do it in a balanced way. So we will be investing in new opportunities, creating fresh value, but at the same time we will look to divest out of more mature assets that have shorter lives and and less upside.
That's helpful to understand some of the decisions that you're making about investments lately. Mike, thank you. Stephen also has a question about our portfolio. He says, how do you view potash? And could you update us on your Jansen potash project in Canada?
Okay. Well, thanks, for the question. Potash, we like potash. We think that the long term demand fundamentals for potash are quite strong and that's the demand for potash will be driven by ongoing growth in the global population, increased living standards, the push towards decarbonization and action on climate change also will be positive for for potash. So lots of things working in potash's favor.
We think that the demand outlook is pretty strong. On the supply side of things, the market is currently in oversupply, we and we think it will only come back into true balance towards the back end of this decade, which is around the timing that we may bring on our first potash project. Right now we're continuing to work on that project. So this is the Jansen project in Saskatchewan in Canada. Not only do we need to have a commodity or commodity fundamentals that we like, we have to have a project that delivers great returns for shareholders with the right risk profile.
We expect to have our work on that finalized towards the middle of this year, along with securing a route to market or a port option for the project. And we'll make a call then as to whether we think this project is attractive enough for us to carry forward to the Board for consideration.
Thank you. Changing tack to a couple of questions on options for shareholder returns, David. Elias asks, is BHP looking to make any acquisitions this year or restart its buyback? And w Mitchell asks, can you tell us about any possibility of another off market buyback?
Yeah. Good question, Gab. Thanks for that. Certainly, we do look at is the six month period and the performance. And it starts with what has the company delivered from a cash perspective in that period.
We certainly have a bit of an eye to the future as well when we determine what we're going to do in returning money back to shareholders. But all of that is done under the focus of our capital allocation framework, or the CAF as we refer to it internally. And that starts with the first aspect is ensuring that we continue to put the right level of capital into the business to sustain our operations. One of the strengths of BHP is the reliability of our operating performance, and we need to continue to enhance that. The second thing that we then look to do is also have a look at the strong balance sheet that we have.
And we look at the net debt range that we have, and that guides us in relation to our balance sheet strength. Third thing is we know that we need to return money back to shareholders, and our commitment is at least 50% of our earnings will be returned to as dividends to shareholders. Once we've done that, we look at the balance that's left, and that gives us some discretion around what do we want to do in relation to organic growth within the company itself, what do we want to do in relation to potential acquisitions and M and A activities, but also in relation to further dividends to shareholders and or a buyback. Now I think we've got a great track record demonstrated by, as Mike mentioned, the March 23, where the 101¢ per share will be paid as a dividend, which is a record interim dividend. And if you look at what we've done over the last three years, in excess of 30,000,000,000 US dollars has been returned to shareholders.
And we so think we have a track record of balancing out how shareholders are benefiting at the same time as ensuring the company continues to prosper.
Perhaps as a follow, Mike, how how are you thinking about acquisitions for BHP at the moment?
Sure. So we've been very clear that we want to secure more options, in future facing commodities. So these are those commodities that are going to benefit from some of the long term trends that we see underway around us, like decarbonization and electrification. We have a few levers available to us to to do that. One is exploration.
Another is early stage entry. So these are the commercial partnerships that allow us to gain early access to to to new resources. Innovation, getting more out of the resources that we have, and of course acquisitions. But I have to say, what we've seen over the past six to nine months in terms of asset values for assets in a commodity like copper, for example, it's unlikely that we'll see acquisitions in near term because any acquisition has to be for the right assets at the right value. So these acquisitions have to deliver great returns for shareholders and they need to compete well under capital allocation framework.
Right now, that's looking a little bit tougher because of the higher asset prices. So it means even more focus on exploration, early stage entry and innovation.
On that, there are a couple of questions here around investments in green options for the company. Brian Brian says, why is BHP not investing capital in green energy projects like solar and wind farms to complement copper needs and iron ore in electric cars. And Simon asks, is BHP interested in hydrogen energy? There's a further one here from Donald who says, will BHP be a supporter of green steel production in the Pilbara, like others have announced? Maybe, David, if I could ask how you're thinking about those from an investment perspective?
Yes. So certainly from an investment perspective, we start with how does it fit with our strategy, and that is underpinned by how do we create shareholder value, where do we invest a dollar, and how do we ensure that we're getting a right return for that investment. So it starts, as Mike mentioned earlier, around looking at commodities and picking the right commodities to invest in. The second thing is we look at the assets that underpin that commodity. And the third thing is our own internal capability.
And let me start by saying that we certainly are a supporter of renewable energy. We like the idea of solar. We like the idea of wind farms as well. But we got to look at that in the context of how do we, as BHP, get a return out of that as well. So if you look at the renewable energy space, we certainly think the best thing that we can do to help the decarbonization and that energy transition is continue to mine effectively copper, which goes into the solar side of things and is critically important.
And we also continue to support the steel industry, which is paramount into the wind farms. And we think by doing that and looking at our capabilities, which are far more orientated towards mining, gas, and oil rather than infrastructure, we're going to get a better payback than actually going into those areas. So that's our focus to help the world decarbonize and and move through with that renewable energy side of things. And as Mike mentioned earlier, we're committed to that because we've already signed up some renewable energy contracts to help support our business as well.
Thank you. And and on the technology side of things, Mike, how how are you seeing things like green steel hydrogen?
Sure. So, we we believe hydrogen will have its its day. Of course, hydrogen has many different applications, and one of the things that we've established in recent times is a hydrogen consortium, where we brought together a number of others in industry to look at how, hydrogen might be used in our value chains to reduce emissions. Our view of the economics is that in the near term that's likely to be in industrial processes on some of our sites. So in our waste heat boilers on-site or some of our other industrial processes, whereas hydrogen into steelmaking, we see the economics as currently being quite challenged.
We think that it will become more economic over time, In our view, that's still some time out. Now of course I come back to the business opportunity for BHP. As David was saying earlier, we always have to think about where do we best invest shareholder and is the opportunity, do we see the returns as being attractive and is the risk profile attractive and do we have the capabilities to do it. I think in the case of renewables, also in the case of hydrogen, these aren't naturally aligned with the BHP capability set. So it's likely that we will rely upon others in progressing that.
Final point is in steelmaking. We are supporting initiatives, as I said, downstream with steelmakers. We're there looking at developing technologies to use hydrogen in steelmaking, but primarily their effort that we're lending our support to.
Thank you. Mike, this next question from Lawrence is about our workforce. He says, Lawrence asks, when will you do away with labor hire and make all employees on-site permanent BHP employees?
Okay. Thanks, Lawrence, for this question. It's something I'm pretty passionate about. It's you know, I've been clear that we do want to see a higher proportion of the BHP workforce that are permanent employees. I believe that that's necessary if we're to achieve the ambitions that we have in safety, in terms of productivity.
So we've embarked on quite a significant effort to bring more people into permanent employment. That ranges from the operations services entity, an approach that we've set up here in Australia, which is now bordering on 4,000 people, where we've brought in 4,000 people into permanent work over the past few years. We've also announced in the past year support for 3,500 apprenticeships and traineeships. And this was in the midst of COVID where we're investing in building skills for those people who are new to industry that will also support this broader effort. Now how big is the ambition?
We currently have about 30% to 40% of the workforce across BHP that are permanent employees, the rest being service contractors and labor hire. My ambition is for us to be able to double that in the coming years.
Thank you, Mike. There's a question here from David. Nickel West seems to be an unloved part of BHP sorry, Nickel West was seemingly an unloved part of BHP not that many years ago. I note that there is now more focus on it, but seemingly not a lot of capital allocation to that metal. Can you talk through your plans for Nickel West over the next five years?
Is this nickel of quality that can be used in green energy that many that may be ahead for all of us? Mike, perhaps I could ask you to answer that question.
Well, thanks, Gavin. So I'm glad you added the the clarification around it was seemingly. Because certainly now, Nickel West is a is a much loved part of the BHP portfolio. But I really do have to give credit here to the team at Nickel West who's turned that asset around. And it wasn't that long ago that we were looking at closure or investment of that asset.
But thanks to their efforts, they've created an option for the company that is well aligned with the trend that we see underway globally towards electrification, that has implications, of course, in terms of increasing nickel demand. So we think there could be an attractive business here. We have been investing capital. So the team has just been through a series of investments into new mines at Nickel West. So as the previous mines have been mined out, we've opened up a number of new mines.
We're investing in our first nickel sulfate plant. This is to produce a raw material that goes into batteries. And then the question around the quality of the Nickel West product and whether that's suited to the world's needs, it absolutely is. So Nickel West produces a very clean product. It produces it from nickel sulfides, which is a lower cost ore to be able to produce the nickel that goes into batteries.
So we're quite optimistic about the opportunity here. Nickel prices are still not at a level that we believe is that reflects the future opportunity, but we anticipate that as demand increases that we will see the price rise. That coupled with the great work of the team will create a great business for BHP.
Thank you. Mike, I wondered if there are a number of shareholders, and I'll just summarize. They've asked about the future. What are you seeing for commodities and for BHP? Some have asked about next year, and others have said longer term, thinking about their investments.
So perhaps would you mind outlining what are your expectations for our commodities and for the company in in coming year and years?
In one word, positive. And, you know, over the next year, clearly, demand for commodities is going to be driven by the economic recovery underway around the around the world. And we've seen sustained strong recovery in China. We're now seeing an acceleration in economic recovery elsewhere, and that's leading to to to stronger demand for many of the commodities that we produce. Over the medium to long term, commodity demand will be strong and potentially getting stronger for a number of commodities because of their essential nature in ongoing global economic growth, rising living standards, and the decarbonization push, which which is quite metals intensive.
And this comes back to copper, nickel, even steel and steel making raw materials. And of course, I mentioned the potash opportunity earlier. So BHP has a portfolio today that is well suited to meeting the needs of the world in the future. And I believe that the way that we go about producing these commodities and the strong track record we have on the sustainability front is going to allow us to do that and to meet the world's needs for commodities better than others. So strong commodity demand, our strong ESG track record and all of the capabilities that David spoke about earlier, I think, create a great formula for ongoing creation of terrific value and returns for shareholders.
Thank you. And thank you. We're just about out of time. So thank you, Mike, and thank you very much, David, for joining your first BHP Live. We hope it won't be your last.
And thank you very much to all of our shareholders for your interest and for sending in questions. We really love hearing from you and hearing and then having the opportunity to answer your questions. If there's anything that we haven't got through today or it spurred any interest for you, please just do get in touch with our investor relations department, and we hope to see you again soon.