Okay. I'm very pleased to introduce our next company. BHP is the largest mining company in the world. One of the largest iron ore miners, one of the world's largest copper miners, largest steelmaking coal producer, and also an emergent producer of potash in the next few years. Presenting for BHP, we have Mike Henry. I think, when I first met Mike, it was nearly 20 years ago, and he was the Head of Marketing for BHP. Now he's the CEO. It's great to welcome you here. Mike's chosen a presentation format, and then we'll have a couple questions at the end as well. Mike, over to you. Look forward to your remarks.
Morning, everyone. It's great to be here in Barcelona, and obviously to see a mix of both new and familiar faces in the audience. I'll be catching up with a number of you one-on-one in the coming, days. Jason, thank you to you and the Bank of America for once again hosting the conference. Today, I'm going to be talking about the opportunities we at BHP are pursuing to grow value for shareholders and why we believe our portfolio, focus on operational excellence, and approach to social value present an attractive and differentiated investment proposition. Before I talk about any of that though, I really do need to acknowledge the tragic fatality that occurred at Olympic Dam at the end of April. That follows on the heels of a fatality earlier this year at Port Hedland.
As far as we've come in recent years, we've now had two colleagues who haven't made it home at the end of shift to family and friends. That really does tell us that we're not yet getting the most important basic right. We need to shift gears yet again. We're going to be determining what went wrong, and we'll share our learnings widely. We'll also be seeking to learn from others as to how they're handling safety in our efforts to become safer. The macroeconomic drivers of growth in our sector and our business remain favorable. In the near term, as we've been saying for some time now, we see China being a stabilizing factor in global economic growth and commodities demand. China, coupled with India, is expected to provide roughly half of all global economic growth this year.
Others are progressively arriving at the same view on China with consensus forecasts for 2023 having been revised upwards in recent months. We do expect that the second half of the calendar year is going to be better than the first, especially for construction, and therefore the steel value chain. I recently visited China for the first time post the pandemic, and I left feeling confident, both because of an upturn in the leading indicators of resource-intensive activity and simply because of the conversations I had there and the level of confidence that I was able to sense from our partners and others in China. That's the near term, but the long term also remains very positive.
The global economy is expected to be 2.5 times larger by 2050, with the biggest contributions coming from China, where the economy is expected to double in size, and India, where a 4-fold expansion is anticipated. In capital investment, which is the most resource-intensive segment of the economy, China is expected to provide the most significant change, obviously coming off a large base, with India also expected to grow. Our work to date on the potential physical impacts of climate change across the world also implies that the global economy could become even more capital-intensive going forward, with increased capital stock turnover and more defensive investments to mitigate climate risks. In addition to these investments in adaptation, significant infrastructure will also be required to facilitate decarbonization. I'm going to be returning to this theme in a moment.
By 2050, the global population is expected to increase by around 25%, while the urban population is expected to go from 4.4 billion today to 6.6 billion. That's an extra 2.2 billion people who are all going to be enjoying a significant uplift in incomes, in their consumption patterns and diet, while bringing additional demands for housing, commercial floor space, transport and logistics infrastructure, power and utilities. These forces together will drive increased demand for many of the products that we produce. The mega trend of decarbonization is likely to amplify that demand, and combined with the challenges of bringing on new supply, this indicates a positive outlook for the commodities that we're in. This is what I wanna spend some time on now.
Through BHP's efforts of recent years, we now have a portfolio comprised of large assets in commodities which have upside in a faster decarbonizing world. That's the BHP portfolio. In our 1.5-degree scenario, we expect that the world will need almost twice as much steel, twice as much mined copper, twice as much potash fertilizer, and four times as much primary nickel over the next 30 years as the past 30. Other scenarios from organizations like the UN's Intergovernmental Panel on Climate Change, the International Energy Agency, and a number of others all confirm that a significant uplift in the supply of metals is going to be needed for a successful energy transition. Now the questions are, where is the supply going to come from? Will it arrive on time, and what's it going to cost? We take copper as an example.
As we sit here today, there is simply not enough capital being deployed in the industry to meet expected demand. Based on our estimates of a plausible upside case of a 1.5-degree scenario, the industry could require around a quarter of a trillion dollars in growth capital by the end of the decade. $250 billion over the next six or seven years. Yet currently committed projects over this period only amount to around $40 billion or $50 billion. A significant shortfall. Ultimately, higher prices will induce further investment and more supply, but this takes time. Governments have it within their control the levers needed to accelerate the pace with which fresh supply is brought on and to ensure it's as economic as possible. They can make permitting processes clearer, faster, and more certain.
Importantly, they must also maintain stable fiscal settings. Otherwise investment risk increases, required returns increase, projects take longer to come on, if at all, and supply becomes more costly. Beyond this, another challenge the industry has is the lack of economic discoveries. The scale of new copper discoveries has decreased since the 1990s, which was the heyday of the South American copper belt. Many of the major operating assets that form the backbone of supply today were discovered 20, 30, 40 years ago. They're now mature and facing grade decline headwinds, such that a considerable amount of capital is going to need to be deployed in the coming decade merely to stand still. Whilst discovery of new copper mineralization does continue, discovery of large economic deposits is becoming rare, with new greenfield discoveries tending to be deeper and more complex.
Beyond this, some of the most technically attractive deposits, so with higher grade, closer to surface, are increasingly skewed towards difficult operating jurisdictions. Greenfield projects are there accordingly becoming some combination of harder to come by, more technically challenging, more expensive, riskier, all of these leading to longer development timelines. Projects around existing operations, so brownfield expansions or proximate new developments can also be difficult to develop because of permitting challenges, local stakeholder opposition, and in today's inflationary and labor market climate, higher cost. The industry has seen project after project after project run over on time and over on budget in recent years, while operational disruptions have roughly doubled from where they were in the late 2010s . BHP's strategy is designed to allow it to win against the backdrop of exactly these sorts of challenges. Our portfolio of leading basin plays is unique.
Paired with our BHP Operating System and our capital allocation framework, this represents competitive advantage. Our first advantage is our incumbent position in large resource space. We have the world's largest endowment of copper, including significant undeveloped resource at Escondida, and this is at around the highest average grade of the competitor group. We have the world's second-largest nickel sulfide resource, we're developing our large-scale potash resource in Saskatchewan in Canada. This is all in addition to our significant and world-class iron ore and higher-quality metallurgical coal positions. I should note that our first focus for growth is to enhance productivity from our existing assets. This is by far and away the largest value opportunity, and it's the one that's most within our control. At the same time, we are looking for new, agile, and innovative ways to grow our resource base and production.
Our metals exploration team has recently had technical success discovering new copper mineralization at Oak Dam in Australia, and more recently at Ocelot in Arizona, United States. Our explore and ventures teams are building partnerships with companies across a range of jurisdictions and technologies. Lots happening. Now at BHP, we're already a significant producer in many of the commodities we mine. Whilst we're always looking for ways to grow our production, we're not focused on growth at any cost. We will only pursue growth where we believe we can deliver long-term value for shareholders.
We recently completed the acquisition of OZ Minerals and have accelerated studies on a number of greenfield projects across our efforts in an effort to better understand the options that we have available to us. Looking out to 2030, we do have a number of organic options to add meaningful volume growth even after factoring in mine depletion and grade decline. Beyond these nearer-term opportunities, we have a substantial pipeline of long-term options we're actively considering, and these could provide even greater growth and upside. We also have a proven track record of delivering projects in recent times, and that's on time and on budget. I do wanna close this part by saying that we are very focused on productivity. This is our largest opportunity to grow value, and our BHP Operating System is key to that.
Now, two of the near-term growth options we're specific growth options we're currently advancing are in iron ore and potash. Our industry-leading Western Australia Iron Ore business sets us apart as the lowest cost iron ore producer globally. This business, just for your reference, this business was designed with an initial capacity of 240 million tons per annum. It's currently producing at around 280 million-290 million tons per annum, and that's all been through a focus on productivity and incremental debottlenecking of the business. We're now looking at initiatives to grow our production to 300 million tons per annum over the medium term, and this low capital intensity volume increase involves further debottlenecking of our port and rail systems, the rollout of autonomous haulage trucks, and ongoing productivity enhancements.
Beyond that, we're studying options to grow our annual production to 330 million tons as well. Some of the alternatives that we're assessing are a further debottlenecking of our port and rail systems and adding a six-car dumper. Now these are studies that are currently underway. They'll be concluded in 2025. They will have to compete against other options in the BHP portfolio for capital and growth. We'll make a decision at that time as to whether or not we pull the trigger and elect to proceed. Then potash. We are really excited about the pipeline of growth projects that we have ahead of ourselves in potash. The long-term fundamentals for the market are compelling and have improved further, in fact, since we sanctioned Jansen Stage 1.
Jansen Stage 1, the first stage of Jansen, remains on track and on budget, and in fact, we've been able to accelerate first production from 2027 into late 2026. We've recently started blasting and excavation works at the bottom of the shaft, and we're looking forward to a productive summer construction season, with a continued focus on civil and mechanical construction activities on the surface and underground. We've accelerated studies on Jansen Stage 2 and expect to have the option to trigger an investment decision on that second stage within the 2024 financial year. All of the major permits that we need are in place for stage two, and we have the necessary port capacity.
While our studies are not yet complete, we now expect capital intensity for Jansen Stage 2 of between $1,000-$1,200 per ton, which is lower than Jansen Stage 1. Should we proceed, Jansen Stage 2 will add an additional 4 million tons per annum of potash capacity with possible first production estimated to be in the 2029 financial year, and that's around the time that Jansen Stage 1 will be finishing its ramp up. We'd see Jansen Stage 1 ramp up starting in 2026 through 2029, and then we'd be able to roll Jansen Stage 2 onto the back of that. On May 2, we successfully completed the acquisition of OZ Minerals, which brings the opportunity to unlock synergies and further grow copper and nickel production.
Combining Olympic Dam, Carrapateena, Prominent Hill, and Oak Dam will create a tier one copper province in South Australia. As we've demonstrated at Western Australia Iron Ore and BMA, having operations in close proximity to each other brings substantial benefits, including the leveraging of shared infrastructure and relationships towards better productivity and long-term growth. Our focus is on building scale and optionality across this new province. While OZ directly adds about 120,000 tons of copper production now, it also brings further copper and nickel growth in both the near and longer term. Studies are underway to evaluate the next steps for Olympic Dam as we integrate the OZ assets and continue our exploration program at Oak Dam. We will share further details on this in due course on what the growth in South Australia could look like.
Conceptually, our aspiration is for our South Australian copper assets to grow over time to 500,000 tons per annum of copper cathode or more. Of course, our ability to grow is supported by being a reliable operator, which gives us higher margins and earns us the trust of shareholders. We've demonstrated this over the last few years. In the face of COVID and other disruptions, our production guidance has been markedly better than the competition. We have also done better than most of our competitors on cost guidance as well. It was really pleasing to see our approach to operational excellence recognized recently by the Shingo Institute, and some of you may be familiar with the Shingo Institute, but it's an organization which helps companies achieve operational excellence through the principles of the Shingo Model. Cultural enablers, continuous improvement, and enterprise alignment.
The cathodes team at Escondida was awarded the prestigious Shingo Prize for Operational Excellence. In addition to being a very good operator, we must also be good at designing and delivering major capital projects. We've demonstrated our projects capability with our recent success at Australia at South Flank and in Chile at the Spence Growth Option, both of which were delivered on time and on budget in spite of the challenges presented by COVID. Learnings from these have positioned us well to deliver at Jansen and on our future growth. In fact, we have the individual who led the South Flank project also building Jansen for us and when we've been able to replicate learnings from one to the other. In short, we continue to execute the strategy that we've laid out. We're doing what we said we would do.
We are delivering consistent, strong performance and attractive returns. We're increasingly well positioned for the mega trends of decarbonization, urbanization, and population growth, and the future for us really couldn't be more exciting. We have a portfolio of world-class assets. They're low cost with options to expand. We operate them very well, and we're delivering well in a disciplined way on cost and capital, while at the same time continuing to deliver on social value. The commodities we're focused on are vital to the world's future. Governments around the world are finally increasingly alive to their essential nature and are working to speed up approvals processes, provide fiscal certainty, improve competitiveness, and attract investments from the right like-minded businesses like BHP. Our focus not only on what we do, but how we do it, is making BHP a preferred partner to governments and other stakeholders.
We aim to manage our business responsibly and more sustainably and in a way that creates enduring benefit for all of our partners and stakeholders, of course, shareholders front and center in that. We are strongly positioned to deliver value and returns both now and well into the future. Thank you.
Yeah. Thanks for those opening comments, Mike. I think there's a killer slide or two in there.
Great.
We'll be sure to borrow those. Look, Mike, since you assumed the role of CEO, you really hit the ground running, right? You've collapsed the DLC, you've exited oil, you're selling down some lower quality oil, coal assets, you bid for OZ Minerals. I guess the question is, to what extent are you just executing to a plan that you came up with years ago versus just reacting to the market and the opportunities that you see?
Right. I hope I'm not disappointing you, Jason, but no, it's not a random walk. There actually is a method to the madness. In fact, if we go back to, you know, some of what I attempted to lay out when I first became CEO back in early 2020, just before COVID hit. Everything's very well-aligned with that, of course. The plan is very clear. I think it's a pretty simple plan in terms of the focus on operational excellence, social value creation, re-weighting the portfolio over time to ensure that we've got maximum leverage to the upside in the faster decarbonizing world where we're seeing continued you know, global economic growth and rising of living standards. Everything is in line with that.
However, of course, we need to be cognizant of what's happening in the world around us and be quite deliberate about when we choose to act on certain aspects of the strategy. You've certainly seen that with the OZ Minerals transaction, with a few of the other things that we've done.
Okay. Our conference theme this year is the pivot to growth. You've got your acquisition of Oz, you've got your commitments to delivering, Jansen Stage 1, bringing forward phase two. I guess what I always struggle with BHP is that it's so big. It's big. You've got these giant assets that just crank out the cash and, you know, what a thing to have. Ultimately, you know, they do create this base effect that makes it difficult to deliver meaningful growth relative to your size. I guess the question is, do the cash cow businesses, do they really go with the growth businesses?
Maybe if I just take a step back, Jason, I think that people would have said that about BHP one decade ago, two decades ago, three decades ago. Yet, if you look at the value that we've generated for shareholders over that period of time, I think it's something that certainly within the company we can be pretty, pretty proud of. Yes, I acknowledge the fact that we're a big company, but being a big company also means that we have big resources which provide you a lot of optionality to grow. They also provide us with the opport....
I called out in my presentation, when we talk about growth inside the company, we always come back to the first and most important thing that we need to focus on is running the business that we already have super well and improving productivity. If you think about our cost base, you know, circa, let's say a 10% sustained improvement in costs over time, that alone will add $15 billion-$20 billion of value.
Mm.
There's all these other things that, of course, we're focused on doing, you know, looking at where we can create more by way of greenfield or brownfield expansion opportunities to grow the underlying base. That has to come in tandem with ensuring that we're getting maximum value for the capital that we already have deployed in the business. With this big business where we've got these basin plays, you've got something like iron ore, which has many similarities to metallurgical coal, with some similarities to the big bulk, or the kind of Escondida and Spence, for example, where we're running large fleets of trucks, moving a lot of material.
Being a big business, we can learn in one of those businesses and replicate quickly into others, which allows us to unlock that big productivity, benefit or value that I spoke to.
Mm.
We're doing both. Focused on productivity. You can see that off the resources that we have, we've got more options that we can develop for growth. We're not standing still in terms of seeking to bring into the portfolio more resources through Greenfields exploration. We've shown some technical success on that front. Through early-stage entry, so becoming a little bit more commercially agile in terms of gaining toehold positions in new resources. In, you know, in the case of OZ Minerals, an acquisition where we believe that through the acquisition, we can create more value than would have occurred just as a standalone company. Now on the final part of your question around do the cash cows make sense with the rest of the business, we believe they do.
It's a discipline that we hold ourselves to of regularly testing that. Again, whilst we term them cash cows, it's not just set and forget. There's still a ton of value to be unlocked out of iron ore, a lot of value to be unlocked out of the metallurgical coal business, even as we grow further in copper, nickel and potash.
We've got time for a couple questions from the floor. Anybody wants to ask one? All right. People are shy, huh? Another one for me. I mean, you alluded to this a little bit in your presentation, Mike. The world needs more greenfield and brownfield investments. Yet at the moment, I think we have all this focus on M&A, right? How do we think about buy versus build? I guess more generally, you know, if all mining companies are doing is buying each other, are we actually sort of delivering the metal that the world needs?
Well, a great call out. you know, as I gave the one example of copper, of course, copper is one of many.
Mm.
There are some freakishly large numbers in terms of the capital required, to be invested in this industry over the coming decade, over the coming, 2 decades. Now if I bring it back to, well, what are the implications for us? One, we obviously have a constructive outlook on the commodities that we've chosen to be in. We always have to test where is BHP going to add incremental value for shareholders.
Mm.
Any opportunities that we pursue have to be in the commodities that we've chosen to participate in. They have to be the sort of assets that we've elected to hold as BHP: large, long life, low cost. We have to see that through the capital that we invest, be it an acquisition or a project, that we're creating value for shareholders. More often than not, that's going to drive us towards the build, be it brownfield or greenfield. There will be discrete acquisition opportunities where through synergies or through our better ability to unlock growth in that portfolio, where we can add value.
What we're not going to do is simply go out and buy a stream of copper or buy a stream of nickel or buy a stream of potash, because then all we're doing is calling the market, and that is the thing that's going to be least in our control at the end of the day. Of course, we need to have a view on the market, but I'll always feel safer, we'll always feel safer if in addition to trying to get the timing right, there's something intrinsic to bringing that business into our business that allows us to unlock more value than if they had remained standalone.
Interesting.
Give you guys one more chance. Any questions on the floor? There's one there, please. Hi. lithium's not part of your portfolio at the moment. What are your thoughts on that?
Yes. We've elected not to participate in lithium. There's probably two strands to the response. As we go about testing which quantities we want to be in, we want to ensure that the industry is large enough to make it meaningful for BHP. I think in the case of lithium, it is, or it will ultimately be. Two, we have to believe that the shape of the cost curve long term is steep enough such that if we have the right assets, we can generate very high margins, i.e., at the low end of the cost curve. The assets have to be individually large and aligned with our capability set.
Our belief in lithium is that over the long term, the cost curve is more likely to flatten out, therefore not give us the margin potential that we'd normally be looking for. The second strand to the response is we have to be focused. If there's one thing that we've learned at BHP over time, is that if we allow our focus to get too dispersed, we do a lot of things not well. We've made deliberate choices about which commodities we want to be in, and those are in terms of the future-facing commodities, copper, nickel, and potash, whilst continuing to grow value in our iron ore and metallurgical businesses.
Thanks, Mike. Any other questions from the floor? Got one right here at the front.
Hi. Francisco Blanch. I'm with Bank of America, Bank of America. One question on dividends. Industry's delivering pretty large dividends. At the same time, we've heard from Jason in the morning that, there's huge need for investment. Does it make sense to keep paying these high dividends? What do you think about dividend growth medium term? Is this an industry where shift needs to focus a little bit, to use some of this capital for growth as opposed to paying it out to shareholders?
I think the reality is that there was a period of time where, through, you know, the players right across the sector having not done a good job with capital allocation, not having been, you know, demonstrated a track record of reliable operations, that we all needed to rebuild. One, we needed to focus the business so that we got the basics right, and we needed to rebuild trust with shareholders. As a result of that, over a period, you've seen probably lower capital investment than we'll need, than the world will need to see over the medium to long term if the world is to continue to grow and to decarbonize. Having said that, at the end of the day, I don't think it's one or the other.
We need to be very cognizant of the interests of shareholders as we seek to grow value. Now, the better a job that we do in being productive, which will improve underlying project economics, and the more that we're able to advance work in developing options off the base of the current portfolio, the more optionality we'll then have as to where we deploy that capital to. It's not like we've said we've taken a deliberate decision not to invest in growth and just return all cash to shareholders, at least not as BHP. The reality is that we haven't had the shovel-ready projects to bring forward.
The more that we bring those forward, if we, you know, as we maintain the trust of shareholders, if we've got great projects with good returns, I know that we'll have the backing of shareholders, but at the end of the day, it's gonna be a balance. We've tried to backstop that balance at BHP by saying that we have a 50% minimum payout ratio, and that stays. That's, I think that's a really good discipline. It instills a competition for capital internally. Having personally lived through a period where we were, you know, as BHP, spending double or triple what we're currently spending, you know, it comes back to the point I made in response to the earlier question about focus. If we try to do too much at once, we do a lot of it badly.
Whereas by constraining ourselves 50% minimum payout ratio, it forces a competition from capital, which ensures that each of the individual projects is better and higher returning than if we didn't put that constraint on ourselves.
Okay. Thanks a lot for that, Mike.
Thank you.
Yep. Folks, we're out of time. Could you join me please in thanking Mike for his presentation? Thanks.