BHP Group - H2 2024

Transcript

Mike Henry (CEO)

Hello, and thank you for joining us to hear about BHP's results for the 2024 financial year. I'm joined today by our Chief Financial Officer, Vandita Pant. The company performed well again this year, operationally and financially. We delivered reliable operational performance, achieving a number of records. However, tragically, a colleague was fatally injured on the job in January, and this is a heavy reminder of the imperative to continue our relentless efforts to eliminate fatalities and serious injuries from BHP. Our strong underlying operational and financial performance is enabled by our simple, clear strategy and the discipline with which we execute it. This includes our differentiated portfolio of the best assets in the most attractive commodities, as well as our approaches to operational excellence and capital allocation.

Our portfolio is focused on large, long-life assets in commodities that are set to benefit from the megatrends playing out around us: a growing population, increasingly urbanized, seeking higher standards of living and embarking on the energy transition. We are passionate about operational excellence. This focus ensures we unlock maximum value from our assets and the capital we have deployed, and consistently deliver high operating margins and good returns. The combination of these attributes delivers strong, consistent cash flows. Coupled with our resilient balance sheet and the discipline embedded through our capital allocation framework, this gives us the ability to fund our growth and deliver attractive returns to shareholders. The creation of broader social value is also vital to our business and goes hand in hand with long-term shareholder value.

Our actions throughout the 2024 financial year are consistent with that strategy, pursuing operational excellence, creating social value, and shaping our portfolio for the future. This proven strategy, consistently delivered, keeps BHP in a strong position to create value now and for decades to come. Reflecting our focus on operational excellence, this past year, we met final production and unit cost guidance at all of our assets. This includes record production at Western Australian Iron Ore, Spence, and Carrapateena. We widened our lead as the lowest-cost iron ore producer in the world and grew copper production by 9% for the second consecutive year. We are now producing almost 300,000 tons of additional copper each year, making us the company with the fastest-growing copper exposure over that period, with a further 4% expected in 2025.

Supported by this strong underlying performance, we've determined a final dividend of $0.74 per share, which takes our total dividends for the year to $7.4 billion, continuing our track record of delivering attractive cash returns to shareholders. In addition to our sharp focus on safety and unlocking the greatest potential returns for shareholders through our existing operations, we're also continuing to invest in value-adding growth and are shaping BHP for the future. Stage one of our Jansen Potash Project is ahead of its initial schedule, with first production forecast for late 2026, and Stage two is in execution.

At Copper South Australia, we've already unlocked more synergies faster than anticipated at the time of the OZ Minerals acquisition, and we're increasingly excited by the growth pathway, both there and in South America, with our work on a pipeline of projects in Chile indicating attractive returns. We have also recently announced an agreement to form a significant joint venture with Lundin Mining related to a future copper growth opportunity in Argentina. In recent months, we made the difficult decision to temporarily suspend our Western Australian nickel operations in light of the very tough market conditions for that industry. We understand the impact that has on the team there and the surrounding communities and are working closely with them to both mitigate the near-term impacts and to ensure the business is best placed to restart operations if and when market circumstances warrant. Everything we do must be done safely.

The safety of our people and those around us remains our absolute priority, and the loss of a coworker in a light vehicle accident at our Saraji mine was tragic, and it is paramount that we continue our efforts to reduce and eliminate fatal risk from our business. Our structured work in this regard is helping to reduce the frequency of high-potential injuries, those incidents that had the potential to result in a fatality and in which someone was injured. We improved on this measure by 36% during the year. Safety will remain an area of utmost focus for me and for the leadership team. We made very good progress this year on our social value goals. We remain on track to meet our 2030 operational greenhouse gas emissions reduction target, where we've cut emissions by 32% from our 2020 baseline.

This has been achieved even with a slight expected increase in operational emissions this year, as activity lifted across our business. Our 2024 Climate Transition Action Plan, published today, reaffirms our commitment to achieving challenging and credible greenhouse gas emissions reduction targets and goals, and continues the multi-decade action we've been taking on climate change since we set emission intensity targets for our operations in the 1990s. Today, BHP's operational greenhouse gas emissions are among the lowest of our competitors. Following strong support from shareholders for our 2021 Climate Transition Action Plan, we look forward to engaging with our shareholders on our 2024 plan as we move towards our second Say-on-Climate vote at our upcoming annual general meeting. We continue to make meaningful progress towards a more inclusive and diverse workforce, a key enabler of better safety and productivity.

We increased female employee participation across the group to over 37%, up almost two percentage points from last year, and our global leadership team is balanced. We increased our spend with small, local, and Indigenous businesses to $3.3 billion, including more than $600 million with Indigenous businesses, which was up 83% on last year. Our total economic contribution across the regions we operate in was over $49 billion, which includes $11.2 billion in taxes and other payments to governments, around 85% of which was in Australia. These are strong numbers, representative of a healthy company performing well. I'll now hand over to Vandita to go a little further into the results.

Vandita Pant (CFO)

Thanks, Mike. Before we get into the results, I want to say that it is a privilege and an honor to have been appointed BHP's Chief Financial Officer in March. Having been with BHP for more than eight years as Chief Commercial Officer, and before that as Group Treasurer and Head of Europe, it is clear to me that our incredible assets, proven strategy, capital allocation framework, and superior operational capability truly set BHP apart. We delivered another strong set of results this year, enabled by the disciplined execution of our strategy. Underlying EBITDA increased by 4%, with a healthy margin of 54%. Our adjusted effective tax rate, including royalties, was around 42%, which gave us an underlying attributable profit of $13.7 billion, and a return on capital employed of 27%.

Our total attributable profit was $7.9 billion after net exceptional charges of $5.8 billion. These included a $2.7 billion non-cash impairment of Western Australia nickel business, a $3.8 billion charge for the Samarco dam failure, partly offset by a $674 million gain on the sale of BMA's Blackwater and Daunia mines. Underpinned by a focus on operational excellence, we continue to generate significant cash. This year, we generated more than $20 billion of net operating cash flow. This enabled us to invest $9.3 billion in our business, 31% more than last year, reduce net debt to $9.1 billion, and deliver attractive returns to our shareholders. Our full-year dividend is $1.46 per share.

Our underlying EBITDA was higher year-on-year due to solid operational performance and higher prices for key commodities. We performed well in areas within our control. While we spent more on maintenance, labor, exploration, and business development, reflected in the $800 million change in costs shown in the waterfall, overall, our productivity and cost discipline helped us to mitigate the effects of inflation. While we experienced a global inflation rate of 4%, predominantly driven by higher labor costs, unit costs across our major assets increased less than 3%, and we met our final unit cost guidance at each of our assets. Our operations performed well across the portfolio. In iron ore, we delivered record production volumes at an EBITDA margin of 68%. We achieved this with strong performance and cost discipline across the supply chain.

South Flank completed its ramp-up to the full production capacity, and the Port Debottlenecking Project, PDP1, enabled us to get this to market. WAIO has been the lowest-cost iron ore producer globally for over four years now, and this year, with C1 costs of just $15.84 per ton, we further extended our lead. In copper, strong performances from our operations underpinned an EBITDA margin of 51%. Overall, copper production was our highest in over 15 years. Escondida achieved its best production outcome in four years. Spence had another record year, and at Copper South Australia, successful integration of the OZ Minerals assets and strong underlying performance delivered a number of operational records. BMA production was impacted by the higher stripping needed to improve supply chain stability and restore inventory levels. Pleasingly, we're starting to see signs of improvement, but it will take time to recover.

We also completed the sale of the Blackwater and Daunia mines, further upgrading our steelmaking coal portfolio to focus on higher-quality coals and further simplifying our operations and transport logistics. New South Wales Energy Coal continued to deliver strong operating results, and we are on track with our plans to stop mining there in 2030. In July, we made the decision to temporarily suspend our Western Australia nickel business, including both the Nickel West operations and the West Musgrave Project. While we still expect demand for nickel to grow substantially, significant global oversupply and higher costs mean our nickel business was losing money. We see that oversupply continuing for some time to come until later this decade, so we have chosen to suspend operations from October this year. This suspension preserves the option to restart if and when conditions get better.

Now, let me talk about our Capital Allocation Framework, or CAF. The CAF is the mechanism by which all users of capital compete in order to maximize value and returns for our shareholders. It sits at the core of BHP and has delivered strong results. Our balance sheet is in great shape. We have consistently delivered attractive cash returns to shareholders, and we continue to execute our strategy through reinvestment into our business. The first step to achieving any of this, however, is through our focus on operating and capital productivity to maximize the cash we have available to allocate. We consistently deliver a high baseline of cash flows, having generated net operating cash flow above $15 billion for all but one of the past 15 years.

We have achieved this due to the quality of our portfolio and our focus on operational excellence and cost discipline, despite market and operating conditions varying greatly over that time. This stability is a hallmark of BHP. We have a lot of opportunities in front of us to invest for attractive returns. Looking forward, we expect to increase our capital and exploration expenditure as we unlock productivity, work to decarbonize our assets, and deliver growth in future-facing commodities. We expect to spend around $10 billion in the 2025 financial year, of which majority will be directed to growth and improvement. For example, smaller projects that enable better productivity. In the medium term, we plan to spend around $11 billion per year on average, but can flex this for value as we phase projects to match market dynamics and cash flow generation.

Around two-thirds of spend is expected to go towards future-facing commodities, including more spend on Jansen and growth at our copper assets. Mike will touch more on these later. We will also spend on our steelmaking commodities, in particular at WAIO, as we creep production more than 305 million tons per year. To wrap up, we have reported a strong set of results for the 2024 financial year. We remain focused on operational excellence, and we remain committed to our capital allocation framework to make sure we keep generating long-term shareholder value. With that, I will hand back to Mike for an update on the business.

Mike Henry (CEO)

Thanks, Vandita. Looking ahead now to what the world looks like for us in the near term. We expect global economic growth slightly above 3% for the 2024 and 2025 calendar years, so similar to last year. Developed economies will face gradual relief from the lingering effects of higher interest rates, and India is set to continue as the world's fastest-growing major economy. However, China is experiencing an uneven recovery among its end-use sectors. While we see steady growth in some parts of the economy important to commodity demand, like conventional infrastructure, zero and low-emissions technologies, machinery, automotive, and shipbuilding, its property market remains under pressure. The effectiveness of recently announced pro-growth policies will be key to China achieving its official target of around 5% growth in 2024.

Overall, while these dynamics will support continued strong demand for our products, growth in supply over the next couple of years will likely result in a small to mild surplus for a number of those and continued price volatility. Our ongoing leadership on cost and cash flow position us well in this environment. The longer-term fundamentals that drive demand for our products have not changed. Population growth, urbanization, rising living standards, and increasingly, the infrastructure of decarbonization are expected to drive demand for steel, non-ferrous metals, and fertilizers for decades to come. The demand outlooks for copper and potash are particularly durable.

Global demand for copper is projected to grow by around 70% between 2021 and 2050, driven by continued urbanization and industrialization underpinning traditional copper demand, a growing, wealthier population in developing countries, driving adoption of more copper-containing goods, such as air conditioners, refrigerators, and electronics, and infrastructure upgrades and replacement of aged capital stock in the developed world. The energy transition, including renewables, electric vehicles, and power infrastructure to enable it, and the need for data centers to support increasing computerization and use of artificial intelligence, will be layered on top of that demand. We are not yet seeing an adequate supply-side response to meet this forecast demand. The challenges to bringing on new supply remain significant, and that's reflected in consensus long-term copper price expectations inching upwards.

BHP stands to benefit, given our incumbent position, our world-leading copper resource position, and our healthy pipeline of growth options. We're also confident about the outlook for potash, in which we hold a world-class resource in Canada, an investment-friendly jurisdiction. Similar to copper, we expect global demand for potash to grow by around 70% by 2050, again, driven by rising population and improving living standards, but also changing diets and the need to improve productivity of existing land, and as an indicator of the strong appetite for this product and excitement about having another supplier in a relatively concentrated market, we already have memorandums of understanding in place with buyers around the world with respect to sales as the mine ramps up.... The Jansen Potash Project is strategically significant for the future of BHP. It stands to create value for many decades over several potential stages.

The team is making excellent progress on construction and readying it for the start of operations. On site, significant work has been done on the permanent headframe of the service shaft, the structure of the wet and dry mills, as shown on the right of this slide, and power generation infrastructure, and we've started work on stage two, which was approved in October last year. Stage one is now over 50% complete and remains ahead of our original schedule, with first production just over two years away. Our focus on technology, our scale, and our modern approach to mining and processing is expected to see Jansen enter the market at the low end of the global cost curve and to generate strong EBITDA margins and cash at all points in the cycle. In copper, we are in a very good position today.

BHP has the largest copper resource of any company in the world, but simply having the resources isn't enough. To get the most out of them, we strive to be the best operators, more productive, consistent, and reliable. We've delivered the largest absolute growth over the past two years, more growth, in fact, than the annual production of a lot of other companies. Today, we are one of the world's largest copper producers, and we have a pathway towards well over two million tons per year of copper production, so our strong position is set to become even stronger. For those that want to invest in copper today, BHP is very well-placed. Copper South Australia is a key part of that industry-leading copper story.

In recent years, Olympic Dam has achieved more consistent, strong operational performance, and that has certainly been the case since the last smelter rebuild in 2021. In the past year, the team has successfully integrated Carrapateena and Prominent Hill, unlocking significant synergies in the process. Together, the strong underlying operational performance and the expanded asset base provide a stable foundation from which we can invest in growth with confidence. The best way to deliver this growth is in phases. This would allow us to leverage Olympic Dam's existing smelter and refinery infrastructure and better match processing capacity with planned mine and concentrator growth over time into the 2030s. This makes for a more capital-efficient and value-accretive pathway.

The first of these phases, the Smelter and Refinery Expansion, or SRE project, involves installing a new primary smelting furnace in front of Olympic Dam's existing smelter, converting it to a two-stage smelter and an expansion of the refinery. Phase one would deliver value on multiple fronts. First, it would allow us to process all of our copper concentrate from the province in-house, unlocking value through, for example, a reduction in treatment and refining charges and transport costs. Second, it would be sized for growth, including a near doubling in volumes from Carrapateena as its block cave comes on towards the end of the decade, and growth from Olympic Dam through investments in a new decline and expansion of the southern mining area. The timing of these is indicated in the bottom left of this slide.

SRE is expected to help unlock around $1.5 billion in synergy value from the OZ Minerals acquisition, including $600 million already captured to date, underscoring the value we saw in that deal and the potential of this world-class province. We expect a final investment decision on phase one in the first half of the 2027 financial year, and if approved, this would see copper production grow from 310 to 340 thousand tons per year today to over 500 thousand tons in the early 2030s. Including byproducts, this equates to around 700 thousand tons in copper equivalent terms, 100% owned by BHP.

The second phase would further expand smelting and refining capacity, potentially to 650,000 tons of copper per year by the mid-2030s, to match production growth as we further define and develop our upstream options, including Oak Dam and continued growth from Olympic Dam. In addition to the growth from our Australian copper operations, we've made good progress in narrowing down the growth pathways at our Chilean copper assets. At Escondida, our projects are shaping up well. They have the potential to add around 200,000 tons per year of incremental copper production, with attractive returns in the range of 14-19% and competitive capital intensities. We'll take a staged approach to executing these, with some, like the Laguna Seca expansion and a potential new concentrator, ready for final investment decisions sooner than others, like some of the leaching options.

At Spence, we're looking at the potential expansion of the concentrator and extending the life of our leaching operations. And finally, at Cerro Colorado, where we still have 1.7 billion tons of inferred resource, there's the potential to restart operations with the application of novel leaching technologies a bit further down the line. We look forward to taking investors and analysts to our Chilean copper assets later this year, where we'll be able to be more expansive on these growth pathways and projects. In addition to organic growth, over the past several years, we've also been building a portfolio of early-stage investments, where we seek to gain exposure to undeveloped resources with world-class potential.

In late July, we progressed one of these with the agreement to jointly acquire Filo Corp. with Lundin Mining, to acquire 50% of the Josemaria project from Lundin Mining, and to form a fifty-fifty joint venture between us to advance the Filo del Sol and Josemaria copper projects in the Vicuña District in Argentina and Chile. This is a rare opportunity to grow our pipeline of long-term copper options by securing access to what we consider to be one of the most significant copper discoveries globally in recent decades, and it creates a long-term partnership with Lundin, in which both parties bring complementary skills and experience to the table.

The proposed transaction, which is expected to complete in the March 2025 quarter, builds on a multi-year relationship between BHP and Lundin, through which we've developed a strong understanding of the resource potential of the Vicuña District and possible pathways for development. In the near term, while Filo continues exploration at Filo del Sol, we'll be focused on setting up the joint venture with Lundin and working with them to determine the best path forward to develop this emerging copper district and deliver long-term economic and social value for stakeholders. We intend to update the market on the timeline for technical studies in the first half of 2025. So in closing, BHP is in great shape. Our differentiated portfolio and clear strategy provide a platform for consistently delivering great results and outperforming our competitors.

Our proven track record of excellence in operations has resulted in an EBITDA margin of, on average, 55% over the last decade, over 10 percentage points higher than our next closest major competitor. This gives us not only greater profitability and ability to fund returns and growth, it also gives us greater resilience. Our projects have typically come in on time and on budget, a track record that stacks up very well against others, and when combined with our capital allocation discipline, this has delivered a superior return on capital over the long term. We begin this year energized and focused. We will continue to execute the clear strategy that we've laid out and continue to create value and returns for our shareholders and stakeholders now and well into the future. Thank you.