Bank of America 2024 Global Metals, Mining and Steel conference

Presentation and speech

14 May 2024

BHP

Thank you, James, and to Bank of America. Well, like they say, never a dull day.

So obviously, lots going on now, and I know there's going to be a tonne of interest in the audience about the proposal that BHP has put forward to combine with Anglo American - and I do promise to talk briefly about it - but one of the things I love about coming to this conference every year is that it's an opportunity for us to re-baseline all of you on the great progress that BHP is making on it's very clear existing strategy.

And so that's actually going to be the main topic of my discussion today. Because at the end of the day, it is the most significant and most certain avenue for us to continue to grow shareholder value. And not only is the company performing well, but we are so much better placed than we were even just a few years ago when it comes to growth, including in the future facing commodities.

Now in some ways, we reflect or embody the theme of this conference, which is 'the future is now'. The strategy that we set out a few years back - back in 2020 - and which we've been executing consistently against, was all about positioning BHP even better to capitalise on the global megatrends unfolding around us - population growth, urbanisation, rising living standards, and the energy transition.

And what we said then was that we aim to be known for our operational excellence and our disciplined approach to capital allocation. We wanted to create a distinctive approach to social value, recognising the importance of this in an increasingly fast paced, uncertain and volatile world. And we were intent on protecting and growing shareholder value through ensuring that we increase the leverage in the BHP portfolio and the growth options in future facing commodities that stood to benefit greatest from the megatrends.

And we are continuing to make great progress against this strategy.

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BHP

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Now, our track record is one of discipline and consistency - and that's even on the hard stuff.

In the past few years, we've reshaped our portfolio for the future.

We've sanctioned the first two stages of the Jansen potash project, and BHP will be a major global producer of potash, a very attractive commodity and industry, by the end of the decade.

We've acquired OZ Minerals, consolidating the largest combined copper mineral resource in Australia1.

We merged our petroleum business with Woodside, and then spun out our share of the combined business to shareholders, providing value and choice.

We've simplified our metallurgical coal portfolio to focus on the higher-quality coals and operations that stand to benefit greatest in a faster decarbonising world.

And we unified our dual listed company structure. In doing so we removed a 10 to 20 per cent discount on the 40 per cent of the company that was primary listed in London, and it's made us simpler and leaner.

Now, as flagged at the time, it's also made it more practical for BHP to pursue scrip-based acquisitions, as we're now doing with our proposal for Anglo American.

We've increased our greenfield exploration effort, and we've had some early successes. We've secured toe-hold positions in potentially significant new resources. And we've progressed organic options within our existing large, highly-attractive resources. We've done all of this in the past four years.

Now, our mix of assets and commodities position us well for today, and into the future. And we have the right people and systems in place to operate them excellently.

We also have a clear approach to how we engage others and those around us in social value creation, which is an essential part of us being a trusted partner through creating long-term mutual benefits for all our stakeholders - as well as our shareholders.

Now, continued successful execution of our strategic priorities is delivering strong results.

However, in spite of the very significant progress we've made already, there's much more to come.

Now, let me take you through a few examples of what we are focused on.

1. Based on published data from BHP and peers.

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BHP

Our focus on operational excellence is most clearly evidenced in our Western Australia Iron Ore business. And this is a business that is most directly comparable to others.

Over the years, we've undertaken productivity improvements and capital efficient investment to grow production from a nameplate capacity of 240 million tonnes per annum - and that was first achieved in 2015 - to around 2852 million tonnes today. We expect that to increase to more than 305 million tonnes over the medium term at very low capital intensity. We also have studies underway on options to grow up to 330 million tonnes longer term - and this will also be more capital efficient than greenfield developments.

Our focus on operational excellence, supported by our asset configuration, with large mines and fewer processing hubs, has enabled us to establish industry-leading performance. And for the last four years - and consistent with the strategy that we set out in 2020 - Western Australia Iron Ore has been the lowest cost major iron ore producer in the world. In fact, in an inflationary environment, we've been extending our lead.

We're consistently generating greater free cash flow per tonne than our competitors. And this supports shareholder returns, for all of you, as well as reinvestment in value adding growth, guided by our Capital Allocation Framework.

Western Australia Iron Ore and the performance that we've managed to achieve there is a source of pride for everybody at BHP. We remain focused, of course, on further improving both safety and productivity. So there's more to come. Western Australia Iron Ore will continue to deliver significant value for decades.

2. FY23 WAIO production was 285.3 Mt (100% basis). FY24 WAIO production guidance remains unchanged at 282 - 294 Mt (100% basis).

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BHP

Now, while iron ore has been part of the BHP portfolio for decades, we are excited to be entering a new commodity - potash - with potassium being an essential nutrient for plant growth and more sustainable agricultural production.

Now to illustrate the attractiveness of this business, I would note that we announced sanctioning Jansen Stage 1 on the same day that we announced our exit from petroleum.

If and when all four stages of Jansen are sanctioned and built, that business is expected to generate materially more EBITDA than our former petroleum business did. And unlike petroleum, it's a business that isn't going to be on an intense capital treadmill. It's iron ore-like in that it's a large resource and it has relatively low sustaining capital needs. And because of its size and relatively low sustaining capital needs, it will support materially higher free cash flow than what we had with petroleum - meaning more net cash contribution to the Group for reinvestment or return to shareholders. So Jansen is more akin to WAIO. It's a bulk commodity, low-cost position, high margin, long life, with expansion potential.

Potash is a future facing commodity with long-term demand growth expected over decades. It's going to be increasingly required for agricultural use as growing populations seek more and better food production from constrained arable land.

So the market opportunity here is significant, and we already have MOUs in place with buyers around the world to cover sales as Jansen ramps up.

Now it is, obviously, a very significant project in terms of size and scope. But our focus on operational excellence and capital projects execution discipline means that we are on track budget-wise and actually ahead of planned schedule. And there is a graph on a slide that I'm going to present, the next slide, in fact, that shows our relative performance when it comes to executing major capital projects.

Jansen Stage 1 is now 44 per cent complete. Stage 2 will double planned production capacity - creating one of the world's largest potash mines3. It will deliver better returns - with sizeable synergies4. And it's going to position BHP among the leading players in the global potash industry.

Our focus on technology, and modern approach to mining and processing, is expected to deliver industry-leading efficiencies, placing Jansen towards the bottom end of the global cost curve.

So in short, Jansen is a world-class asset… it's in an investment friendly jurisdiction… and expected to generate cash at all points in the cycle.

  1. Based on expected production capacity for Jansen Stage 1 and Stage 2 of 8.5 Mtpa.
  2. Jansen Stage 2 is expected to deliver better returns than Stage 1. Potential synergies of US$0.3 billion have been embedded into Jansen Stage 2's economics.

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BHP

The other main future facing commodity growth focus for us, of course, as we announced a few years ago, is copper.

And the world, as I'm sure all of you would agree, is going to need to produce a lot more copper over the coming decades to meet the significant demand growth from both traditional sources and the energy transition. And BHP is well-placed to help meet this demand.

We already have the world's largest copper endowment5, with a strong pipeline of organic opportunities being progressed, which we're excited about.

We're progressing options at Copper South Australia, where our aspiration is to grow copper production to at least beyond 500 thousand tonnes per year6. And given the gold, silver and uranium co-products, this is equivalent to over 700 thousand tonnes per annum copper equivalent7 (100 per cent BHP).

At Escondida, we're progressing a variety of options across multiple timeframes, including expansions of existing concentrators, a new concentrator to replace Los Colorados, and leaching technologies to unlock latent capacity.

And we, of course, continue to build our pipeline of options through multiple other levers.

We're much better placed today than we were just a few years ago in terms of our copper growth optionality.

Our strong balance sheet, and the consistent cash flows provided by our diversified portfolio, means that we're well placed to fund and progress the projects when they're ready. And when we do, we deliver to plan. Our projects have typically come in on time and on budget - a track record that stacks up very well against our competitors.

Operational excellence, capital allocation discipline, world leading iron ore business, exciting pipeline of potash growth already underway, largest copper endowment and increasingly rich option set… BHP is in a great position today for the coming decades.

  1. Largest copper mineral resources on a contained metal basis, equity share. Peers include: Anglo American, Antofagasta, Codelco, First
    Quantum Minerals, Freeport, Glencore, Rio Tinto, Southern Copper and Teck. Source peers: Wood Mackenzie Ltd, Q2 2023. Source BHP data: BHP Annual Report 2023.
  2. Represents our current aspiration for Copper South Australia, and not intended to be a projection, forecast or production target. Includes potential increases in production rates, as well as potential impacts from our exploration program.
  3. Copper equivalent production based on 2024 long term (real) consensus prices as at 29 February 2024 of US$3.94/lb for copper, US$1,694/oz for gold, US$22.40/oz for silver and US$62/lb for uranium.

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Now, turning to the topic that I know many are interested in - our proposal for Anglo American.

Consistent with BHP's strategy and supported by our recent track record of high performance - and as I said, that's driven by operational excellence and disciplined capital project execution - we're pursuing a proposed combination of BHP and Anglo.

Now, stating the obvious, we are disappointed that Anglo have chosen not to engage with our offer to create value.

There are things to admire about Anglo. They have some great assets and people. We happen to believe that there's more that can be unlocked through our proposal. It's a unique and compelling opportunity to unlock significant synergies through bringing together our two highly complementary world-class businesses.

And as shareholders know, opportunities don't come along like this for shareholders that often in the resources sector.

The proposal is consistent with our simple strategy.

BHP starts with a leading portfolio of assets in copper, potash, iron ore and met coal - commodities that are all positively leveraged to the global megatrends unfolding around us. This portfolio would be made even stronger through the proposed combination.

And BHP's track record of operational excellence would maximise returns for every dollar invested in this business.

The combined business would have the capabilities, cash flows and balance sheet strength to bring on growth in a way that maximises value and returns.

We think it would take an already great story and make it even more exciting as we look to unlock a win-win situation for both sets of shareholders.

Now, I'm not going to make any specific comments about the Anglo plan announced this morning - in part because I realise it's ultimately for shareholders to judge what they've heard. They will need to consider how confident they are in the delivery of value from that plan, their timetable and the execution risk.

What I can say is that I am wholly confident in the merits of our proposal - how it crystallises value through a premium and shared synergies over time.

And it builds upon our track record of delivering value and simplification that both sets of shareholders would benefit from.

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Together, these businesses would be more than the sum of their parts, with asset bases in copper, iron ore and met coal, that are uniquely complementary.

These are high-quality assets in jurisdictions that we know well. The overlapping geography and commodity exposure of BHP and Anglo gives us confidence in our ability to continue operating these assets to a high standard and to deliver incremental value for all stakeholders.

Both BHP and Anglo have attractive growth options. With the benefit of BHP's capabilities, significant cash flows and balance sheet strength, the combined business would have the financial capacity to advance these value-adding growth options.

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BHP

Now, in addition to enhancing our global, leading portfolio of assets and growth options, the combination has the potential to unlock meaningful and, in many cases, differentiated synergies.

In short, the combined company would have an exceptional portfolio of world-class assets, focused on future facing commodities and higher-qualitysteel-making raw materials. It would create meaningful synergies, and have an enviable growth pipeline and the financial capacity to advance them.

We believe that both sets of shareholders would stand to gain from the very clear proposal and plan that we've tabled to Anglo. All shareholders will be able to participate in a pretty exciting story.

However, I also have to note that I've always been clear, our existing resource base and our multi-faceted approach to how we go about building future shareholder value means that BHP is never dependent on acquisitions. And that remains the case.

We have a very, very hard-won reputation for discipline when it comes to capital allocation, and we do not take that lightly.

This combination is consistent with BHP's focus on long-term fundamental value and our Capital Allocation Framework, and we will remain disciplined. And we've demonstrated that in previous endeavours.

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BHP Group Limited published this content on 05 June 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 June 2024 01:48:05 UTC.