BHP Billiton Aluminium April 2002
Introduction and Strategy Mike Salamon
Presentation objectives BHP Billiton context Aluminium strategy and positioning Industry and competitive review Aluminium performance Prospects
Presentation outline Introduction & Strategy Mike Salamon Industry Paul Everard South America Australia Southern Africa Mahomed Seedat Marketing Rod Kinkead-Weekes Finance Alex Vanselow Conclusion Mike Salamon
BHP Billiton - Diversification Year end 31 December 2001 Revenue - Geographic Origin EBIT - CSG South Africa 12% North America 13% Southern Africa 15% Europe 12% Rest of World 6% Total Revenue $18.6bn Australia 42% Aluminium 13% Stainless Steel & Other 3% Base Metals 8% Steel 3% Carbon Steel Materials 26% Energy Petroleum Coal 32% 15% Total CSG EBIT $3.9bn EBIT contribution excludes exceptional items
Role of Aluminium in BHP Billiton Critical mass and cost competitive Cash generative and gearing capacity Value growth Portfolio balance Trading and financing capability Base for innovation
Aluminium: Growth in low cost capacity Fiscal Year Mozal 2 & Hillside 3 1600 1400 Hillside starts up Mozal starts up 000t 1200 1000 800 600 400 200 0 Alusaf stake acquired Billiton acquired from Shell 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Alumina: Growth in low cost capacity Fiscal Year 000t 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Billiton acquired from Shell Worsley expansion Worsley acquisition 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
BHP Billiton Aluminium today Embedded growth options mainly exercised New opportunities mostly outside existing asset base Alumina good industry for low cost players Smelting the right projects provide good returns Low cost portfolio provides robust growth foundation Strategy And our aims Lowest unit cash cost producer of alumina and aluminium Greatest rate of profitable growth in industry Number 1 or 2 in third party alumina and aluminium Top 3 aluminium company in financial performance The world s best upstream aluminium company
Value Drivers The focus of Aluminium VALUE DRIVERS What distinguishes us from others Outstanding assets Customer-centric marketing Innovation Worsley Hillside Mozal Growth - project inventory Brownfield Greenfield Strategic analysis and implementation Marketing STRATEGIC IMPERATIVES What we have to get right Zero harm Operating excellence $1.5bn in 2002-2006 Mozal 2 & Hillside 3 Worsley & other Global book Organisational capability Alumina base Opportunity identification Commercial judgement Transaction execution PERFORMANCE MEASURES How the market should judge us Safety and environment Low cost Productivity improvements Leveraging future returns On time and budget Delivering project value Preferred supplier status Creative solutions Focus on Business opportunities Creative customer solutions
Global cash alumina refining costs in 2003 Cash Cost (US$/t) 200 150 100 Worsley Paranam Sao Luis Cost ($/t) Tonnes (mt) BHPB 89 4 Alcoa (WMC) 122 15 50 Alcan 130 4 Global 145 58 0 0 10000 20000 30000 40000 Source Brook Hunt Production (k/t)
Global cash aluminium smelting costs in 2003 1600 Cash Cost (US$/t) 1200 800 400 Mozal Hillside Sao Luis Santa Cruz Bayside Cost ($/t) Tonnes (mt) BHPB 865 1.2 Alcoa (WMC) 1,110 3.6 Alcan 975 2.3 Global 1,020 25 0 0 5000 10000 15000 Source Brook Hunt Production (k/t)
BHP Billiton Aluminium s growth options V a l u e Embedded Mozal 2 / Hillside 3 and Worsley Suriname /Alumar Restructuring New Projects Greenfield M&A Scale The world s best upstream aluminium company Upstream focus Significant growth potential Value creation set to maintain momentum
Industry Environment Paul Everard
The industry Dimensions Demand 33mt of which secondary 8mt Industry capitalisation $150bn of which upstream about 50% Characteristics Mature Wide-ranging applications Capital intensity and scale Economic bauxite scarce Power intensity Historically integrated High upstream entry and exit barriers Metal price volatility
The industry key issues Demand Automotive can aluminium trump steel? China Rapid smelting growth and growing alumina deficit Supply Power PNW a once-off Smelting technology AP 50 and Alcoa s inert anode Recycling Greater growth than primary Environment More value for clean energy Industry structure Upstream downstream split
Industry structure the value chain Value chain Our view Bauxite and alumina Alumina concentrated Steepening cost curve Bauxite access constraints Core element of strategy Smelting Fragmented Terminal market pricing Downstream Inter-material competition & strong buyers in downstream lead to little pricing power Two tier cost curve providing stranded power rent Stay clear of downstream
Brazil Paul Everard
Aluminium assets in Brazil Capacity BMSA Share Share MRN 11.3 Mt 1,7 Mt 14.8% Alumar Refinery 1270 Kt 457Kt 36.0% Alumar Smelter 365 Kt 175 Kt 46.3% MRN SANTA ISABEL? ALUMAR VALESUL 92 Kt 42 Kt 45.2% São Paulo VALESUL? MACHADINHO
Operating performance 500 Production Quantity (Kt) 400 300 200 100 0 1800 1600 1400 1200 1000 800 600 400 200 0 1991 1992 1991 1992 1993 1994 1995 1996 1997 Cash Cost($/t) 1998 1999 2000 2001 1993 1994 1995 1996 1997 1998 1999 2000 2001 1800 1600 1400 1200 1000 800 600 400 200 0 Alumar Refinery Alumar Smelter Valesul Alumar Refinery Alumar Smelter Valesul # of Employees 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Alumar Refinery Alumar Smelter Valesul Smelter
Developments Actual MRN bauxite mine From 11.3 to 16.3mt to be completed in 2003 Capital expenditure $190M (BHPBA share $28M) Valesul smelter Potential Machadinho hydro power station Valesul has 8.8% of investment and 7.3% firm energy take Start-up 2002 Alumar refinery expansion
Key issue power for Alumar smelter Alumar power contract expires in 2004 Consortium formed to bid (100% basis) for: Santa Isabel 1,087MW and US$600M * Estreito 1,200MW and US$775M Serra Quebrada 1,328MW and US$825M Consortium: CVRD (43.85%), BHPB (20.6%), Alcoa (20.0%), Votorantin (10.0%) and Camargo Correa (5.55%) * Won Santa Isabel auction in November 2001 Estreito and Serra Quebrada auctions in 2002/03
Suriname Paul Everard
Alumina industry in Suriname Paranam (Suriname) Joint ventures with Alcoa as follows Bauxite 76% BHPBA and Alcoa 24% Alumina 45% BHPBA and Alcoa 55% Production BHPBA 855kt Alcoa 1,045kt
Continuous improvement 900 800 700 Alumina Production (ktpa BMS share) 1500 1000 500 Number of Employees Mining JV Refining JV 600 200 100 1990 1990 2000 AluminaCash Cost ( 02$/t) 1990 1990 2000 Restructuring efforts and continuous improvement processes enhance competitiveness 1990 1990 2000
Key issue - bauxite continuity * * Nearby + / - 10 years at 100% feed concessioned to both partners West Suriname sufficient for refinery for 3 decades under review by BHPBA and Alcoa sufficient for further development East Suriname Alcoa concessions Scope studies prove viability of various options, including import of bauxite from Brazil
Australia Paul Everard
South West Western Australia Perth Kwinana Indian Ocean Pinjarra Wagerup Boddington Bauxite Mine Worsley Bunbury Collie
Western Australia refinery production mt 10 8 6 4 2 0 WORSLEY WAGERUP PINJARRA KWINANA 63 70 72 76 79 84 88 90 95 2002 1963 Kwinana commenced production 1972 Pinjarra commenced production 1984 Worsley and Wagerup commenced 1995 Combined production approximately 8mt 2002 Combined production approximately 10.7 Mt
Worsley performance 3.1mt in 2002 and 3.5-3.7mt in 2008 Bauxite reserves at 1 January 2002 Proven and probable 441mt Minimum 40 year mine life at 3.1mtpa Employee relations history 1994 onwards staff contracts (98.7% take-up) single class employee relationship Liquor burner a social issue To alleviate concerns liquor burner has been closed until technical solution found (next 18 months)
Cash operating costs in constant dollars (2002) 210 200 AUD/tA 190 180 170 160 150 Trend 2% 1990 1992 1994 1996 1998 2000 2002
Southern Africa Mahomed Seedat
Southern African smelters Richards Bay
Primary aluminium smelter capacities METRIC TONS PER ANNUM 900 800 700 600 500 400 300 200 100 0 HILLSIDE MOZAL BAYSIDE 10 20 30 40 50 60 70 80 90 100 110 120 SMELTERS
Bayside improvement plans From: Old smelter seen as needing significant capital to stay alive Non integrated marketing / casthouse plan, resulting in poor net premiums Low productivity levels - 2850 FTE s Current: Middle of cost curve Good systems, structures, and people Significantly improved net premiums 1070 FTE s Vision: Lower 1/3 rd of cost curve Vastly improved human capacity World class net premiums <900 FTE s New energy contract Business re-engineering Capital expenditure Training Close the gap program
LME cash breakeven US$/t 1200 1000 800 600 400 200 0 '99 '00 '01 Est 02 '03 '04 '05 '06 '07
Hillside Aluminium First metal produced in June 1995 All first generation cells have now been changed-out Current production capacity : 532 000tpa (466 000tpa) Current LME cash breakeven cost of around $725/ton Expansion project officiallly commenced in April 2002 at a cost of $450M ( $3400/ton). Expansion will increase capacity by 25% (132 000tpa). LME cash breakeven will improve to around $600/ton
LME cash breakeven LME CASH BREAKEVEN US$/t 900 800 700 600 500 400 300 200 100 0 Jun- 96 Jun- 97 Jun- 98 Jun- 99 Jun- 00 Jun- 01 Jun- 02 Jun- 03 Jun- 04
Hillside Expansion - construction progress 7.0% 120.0% 6.0% 100.0% % Complete per Month 5.0% 4.0% 3.0% 2.0% 1.0% 80.0% 60.0% 40.0% 20.0% Cum % Complete 0.0% Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 0.0% Target Period Period Ending Actual Period Target Cum Actual Cumulative Man Hours
Mozal New facilities
Mozal First metal produced in June 2000 Specific capital cost of $3900/ton of installed capacity Designed for 250 000tpa Currently producing at a rate of 262 000tpa Current LME cash breakeven of $740/ton Expansion project commenced in July 2001 at an approved cost of $859M ( $3270/ ton) Production capacity will increase to 534 000tpa LME Cash Breakeven will improve to around $575/ton
LME breakeven LME CASH BREAKEVEN US$/t 900 800 700 600 500 400 300 200 100 0 00/01 01/02 02/03 03/04 04/05 05/06 06/07
Mozal Expansion - construction progress 8.0% 100.0% % Complete per Month 6.0% 4.0% 2.0% 80.0% 60.0% 40.0% 20.0% Cum % Complete 0.0% Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 0.0% Period Ending Plan Increment Actual Incremental Plan Cumulative Actual Cumulative
AP30 Smelter Comparisons Smelter Amps. ka Cur.Eff. % D.C. kwh/t Fe ppm Mozal 333,0 96,8 12 967 668 Hillside 1 330,0 93,8 13 081 1 250 Hillside 2 325,0 96,2 12 920 1 297 4 308,5 93,3 13 451 2 270 5 336,3 94,0 13 160 1 223 6 326,6 94,5 13 181 717 7 332,7 94,4 12 959 745 8 333,8 90,8 13 624 1 220 9 330,9 93,4 13 337 591 10 332,0 93,6 13 429 640 Source : AP30 newsletter
In just 10 years BHPB will have grown its Southern African primary aluminium capacity to 1.4mtpa 1600000 1400000 1200000 1000000 800000 Hillside Exp Mozal Exp Mozal Hillside Bayside 600000 400000 200000 0 1994 1996 2001 2003 2004
Marketing Rod Kinkead-Weekes
Marketing a key component of the organisational structure Strategy, Corporate Governance Portfolio composition, M&A Corporate The Hague Central & Global Marketing Function Singapore Marketing Aluminium CUSTOMER SECTOR GROUPS the business units Base Metals Carbon Steel Materials Stainless Steel Materials Energy Coal Petroleum CSGs
BHP Billiton s aluminium operations Hillside 515kt Mozal 125kt Bayside 180kt (dom & exp) Alumar 175kt (dom & exp) Valesul 43kt (dom) Equity shipments > 1mt Total book > 1.5mt
Aluminium marketing strategy STRATEGY Market diversification to maximise premium returns Build on strong physical base plus more active trading (metal and instruments) Understand, manage and control risks at all times Maximise value from BHPB Group to provide innovative customer solutions STATUS Number 2 in non-integrated primary metal sales Metal market rationalization provides opportunity
Primary aluminium - Sales destinations (Equity export) 100% 75% 50% 25% USA Far East Japan Europe 0% Jan-00 July-00 Jan-01 July-01 Oct-01 Mar-02
BHP Billiton s alumina operations Equity shipments 4mt Worsley 2.7mt Total book today > 5mt Alumar internal 420kt Suriname 850kt Alumar export 40kt
Alumina marketing strategy STRATEGY Supply increasing internal requirements Position for further growth in low cost refining capacity (including bauxite) Capabilities to supply new markets, e.g. China, Russia Provide innovative customer solutions Risk and option management systems and controls STATUS Market presence over 30 years Readily accommodated acquisition of 56% of Worsley Single global book
Attractive low-cost supplier for 3 rd party customers 10,000 8,000 Further market expansion Long-term supply potential 5-9mt pa 000 t 6,000 4,000 2,000 0 1997 2000 2005 2010 2015 2020 2025
Chinese annual alumina imports the future? 10000 8000 000t 6000 4000 2000 0 1990 1994 1998 2002 2006 2010
Market update Aluminium Improving demand in Europe, Korea, Taiwan and US, but the consumer lagging Increasing LME stocks impede price recovery, although total reported stocks lower than in past recessions Further smelter restarts anticipated; PNW to remain a swing producer Alumina Modest recovery in spot price Ongoing strong Chinese consumption Renewed Pacific North West buying
Finance Alex Vanselow
Net Operating Assets at 31 December 2001 Reflection of rapid growth over recent years (81% - Worsley, Hillside and Mozal) Suriname 2% Alumar RefineryMarketing 3% 3% Total: USD 4.7b Hillside 25% Worsley 42% Mozal 14% Valesul 1% Bayside 4% Alumar Smelter 6%
Capital Expenditure 1,412 $M 800 700 600 500 400 300 200 100 0 Sustaining Growth Acquisition 1999 2000 2001 2002 2003 2004 2005
EBIT half year to 31 December 2001 Dominated by 3 major assets Total: USD 192M Suriname 5% Alumar Refinery 1% Marketing 3% Hillside 28% Worsley 36% Bayside 5% Mozal 12% Valesul 1% Alumar Smelter 9%
EBIT Half year 2001 versus half year 2000 400 EBIT 350 300 250 $M 200 150 100 50 0 Dec 2000 EBIT Volume Exchange LME Price Depreciation Other Dec 2001 EBIT
Aluminium cash costs Other Dollar Based Costs 21% Alumina 35% Other Local Based Costs 13% Labour 7% Power 24%
Alumina cash costs Other Dollar Based Costs 38% Bauxite 20% Other Local Based Costs 9% Labour 13% Caustic Soda 20%
Real cash cost index - Alumina Normalised to 1999 Exchange Rates 100 2001-2005 2.3% pa decline 80 % 60 40 20 0 1999 2000 2001 2002 2003 2004 2005
Real cash cost index - Aluminium Normalised to 1999 LME Price and Exchange Rates 100 2001-2005 3.2% pa decline 80 % 60 40 20 0 1999 2000 2001 2002 2003 2004 2005
EBIT aluminium price sensitivity Fiscal 2003 1,500 1,000 EBIT $M 500 0-500 -1,000 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 LME Price
EBIT US$/A$ exchange rate sensitivity Fiscal 2003 630 580 530 EBIT $M 480 430 380 330 1.00 0.83 0.71 0.63 0.55 0.52 0.50 0.45 0.42 0.38 0.36 0.33 Exchange Rate - A$/US$
EBIT Rand/US$ sensitivity Fiscal 2003 560 540 EBIT $M 520 500 9.50 10.00 10.50 11.00 11.50 11.70 12.00 12.50 13.00 13.50 14.00 14.50 Exchange Rate - ZAR/US$
Value drivers Aluminium Reduce costs by > 2% pa real in planning period normalising LME linkages Improved EBIT and increasing free cash flow (before cap-ex) Deliver minimum $1.5bn in value adding projects by 2006 15% of Group total 2006 forecast nominal EBIT returns LME $1,350/t (2002 $) ~ 12% LME $1,550/t (2002 $) ~ 18%
Conclusions Mike Salamon
Conclusions Vision To be the world s best upstream aluminium company Within this envelope we will: Develop embedded and greenfield growth options Pursue opportunistic M&A Exploit outstanding cost competitive position Pursue innovative marketing and finally, be creative across all aspects of our business Leading to strong cash flow and financial performance