Energy Coal CSG Investment Community Briefing. July 9, 2002 Sydney, Johannesburg and London

Transcription

1 Energy Coal CSG Investment Community Briefing July 9, 2002 Sydney, Johannesburg and London 1

2 Objective To provide an overview of BHP Billiton s Energy Coal business and an update of our strategy, markets, assets and growth opportunities 2

3 Agenda Energy Coal CSG overview Markets Assets Financials Industry and growth Wrap up Mike Oppenheimer Jon Dudas Mike Oppenheimer David Lamont John Smith Mike Oppenheimer 3

4 Our Energy Coal business Servicing power markets globally 96 mtpa of coal, more than 2000 PJ of energy Number 1 energy coal exporter Major supplier to domestic markets Multi-source supply capability Diverse operations and markets Headroom for growth 4

5 A key part of BHP Billiton Energy Coal 11% of Revenue Energy Coal 16% of EBIT Total Revenue $13.6bn 9 months to 31 Mar, 2002 Total CSG EBIT $2.8bn 9 months to 31 Mar, 2002* Earnings diversity Growth potential Major exposure to non-oil energy markets Leverages upstream and market links across BHPB 5 * EBIT contribution excludes group and unallocated items

6 Business overview 33 Mtpa Traded 2 Mtpa Mtpa New New Mexico Mtpa Mtpa 1 Mtpa 12 Mtpa Kalimantan 9 Mtpa Mtpa Colombia QLD/NSW 7 Mtpa Coal Coal Mtpa 4 Mtpa Mtpa BHBP seaborne trade Operated Ingwe Ingwe Mtpa Mtpa Hunter Valley Valley 5 Mtpa Mtpa Export Supply Non operated 6 Domestic Supply Marketed

7 Led by an experienced management team Jon Dudas Marketing Director Dallas O Brien VP Marketing Asia Noel Halgreen Asset Leader Colombia Derek Nightingale Chief Operating Officer Hunter Valley John Grubb Chief Operating Officer New Mexico 7 Eddie Scholtz Chief Operating Officer Ingwe Mike Oppenheimer President John Smith Chief Development Officer David Lamont Chief Financial Officer Scott Lowe HSEC Steve Keogh HR

8 Aggressive actions to create world class business Boschmanskrans approved Sale of Matla/Glisa to Black Empowerment Carbones del Cerrejon acquisition Carbocol acquisition Kwagga approved BHP Billiton Merger Mt Arthur North approved Intercor acquisition Lake Mines divestment Rietspruit closure Positioned to deal in convergent European energy market Renegotiate San Juan contracts San Juan Underground approved Secured Arutmin marketing Establish Hague & Singapore marketing hubs PT Arutmin divestment Complete first structured marketing deal Integrated Cerrejon Coal fully functional 8 New Projects Portfolio Actions Marketing activities

9 Continued portfolio improvement FY00 FY02 FY07 Sales Domestic 59% Export 32% Domestic 54% Export 46% Domestic 50% Export 50% Unit Earnings* Unit Cash Cost* Plan Indonesia 9% Relative indices 2% Target * Normalised to FY00 FX/Price/Inflation

10 Focused strategy Asset Portfolio Export Markets Domestic Markets Innovation & Leveraged Growth Extract full value from asset & project portfolio Grow share of high value markets Grow in selected domestic markets Leverage knowledge and global position World class assets Market positions Global logistics Energy liquidity Specialist skills BHP Billiton Charter, capabilities, cross-commodity commodity opportunities 10

11 Aligned with BHBP strategy value drivers Corporate Value Drivers Outstanding Assets Growth Projects Customer -centric Marketing Innovation Energy Coal Initiatives HSEC strategy Portfolio quality Operating Excellence Cost reduction Mount Arthur North San Juan Underground South African projects Colombia Marketing hubs Network offices New capabilities Solutions focus Structured coal marketing deals Dealing with energy market convergence 11

12 Mt Strategy to deliver value adding growth Historical Production profile Forecast Concept/Pre-feasibility Feasibility Mount Arthur North San Juan U/G Ingwe Projects Indicative earnings growth FY02 Hunter Valley Colombia New Mexico Concept/ Pre-feasibility Indonesia FY07* Marketing Ingwe 40 Base Feasibility Ingwe Hunter Valley Colombia New Mexico 12 * Indicative earnings based upon normalised FX/Price/Inflation

13 Energy coal markets Jon Dudas - Marketing Director 13

14 Coal has a future Cons Climate change issues Gas perceived as being a clean fuel Pros Competitive Low price volatility Abundant Easy to store and transport Largest share of global generation Electricity and generation fuel demand 1999 = Market Share Coal 36% 32% Gas 18% 26% Gas Electricity Other Fuel Coal CAGR ( ) 3.8% 2.7% 1.5% 1.3% Source: EIA International Energy Outlook 2002 Conclusion Coal is relevant Substitution is not the answer Clean coal solutions being developed 14

15 Energy coal market growth to continue Total energy coal market ~ 3100 mtpa* Europe 0% China US 1.5% 5% Rest of Asia 5% 1% South Africa 1% Australia Seaborne market (384 mtpa) Domestic market Power generation coal market growth (2000/05 CAGR) 15 Source: McCloskey s Steam Coal Forecaster, IEA ; * Excludes Lignite

16 Europe A market undergoing considerable change European Energy Coal Import Domestic CAGR ( ) Demand declining imports growing slowly Kyoto already influencing market 350 EU subsidy reduction program Mt (6.3%) Energy market convergence Power generation growth from gas Strong coal/gas competition % Deregulation and liberalisation Emergence of spot and derivative markets Changing customer buying patterns 16 Source: IEA Coal Information 2001

17 BHPB participates in all areas of an evolving market derivatives market Established over past 3 years Volume will exceed physical trading this year 4 direct sales Declined from 90% to 75% over 5 years 75% 1% 1 power generators 2 24% 3 commoditised exchange GlobalCoal 17 non-commoditised coal traders Coal producers Power generators Trading houses

18 Asia - Strong demand growth Mt Asian Energy Coal CAGR ( ) (5.7%) 10.7% 14.0% Increasing flexibility in coal purchasing China penetration spot purchases Lack of pipeline gas alternatives LNG competitiveness Nuclear concerns Slowly embracing deregulation Asian market model emerging Environmental consideration on the rise Japan only Kyoto Annex B country % Import - Japan Import - Other Import - Korea Domestic 18 Source: IEA Coal Information 2001

19 China will play a key role Domestic - Circa 1,000mtpa - Forecast growth of 5% pa - High value - Strong power demand & GDP growth - Industry efficiency improvements - Poor safety record 120 MT** Exports* 72MT Down 12.2% May 02 YTD - Growth incremental 72MT 74MT 45MT 79MT Imports* MT MT May 02 YTD - Domestic opportunity 29MT Source: * McCloskey s Steam Coal Forecaster Q1 2002, ** Barlow Jonker

20 Today s market Simultaneous slowdown in US and European growth 40 South African spot price (FOB RBCT, 6000 NAR) Historical (*) Warm winters in the US and Europe Record UK gas availability in 2001, low gas prices Prolonged economic malaise in the East US$/mt forward curve (**) Spot energy prices convergence in Europe 20 history repeats Merit order of fuel burn (per region) is critical 15 Jan -94 Jan -96 Jan -98 Jan -00 Jan -02 Jan -04 (*) McCloskey SA marker (**) TFS API#2 Current market situation to be short lived? 20

21 21 Different fuels continue to compete $/MWh $/MWh UK spark spread -20 Jan-01 Apr Jul Oct Jan-02 Apr 40 Power Gas Coal German spark spread Power Coal Fuel Oil 0 Gas -10 Fuel Oil -20 Jan-01 Apr Jul Oct Jan-02 Apr Gas and coal competing head on Deregulated gas market Coal still favoured Regulated gas market in the process of deregulating

22 Customer focused marketing Santiago Newcastle Jakarta Energy Coal Assets The Hague hub Singapore hub Energy Coal CSG Mumbai Johannesburg Tokyo Seoul Beijing 22

23 Example - Customer centric marketing The deal Just in time coal service Customer value Close purchasing dept Risk free sourcing Reduced inventory costs BHPB value commodity $ + service $ Supply partnership Multisource optionality Freight arbitrage Benefits transferable Participation in customer expansion 23

24 Marketing strategy: Coal plus Drivers Liberalising markets in Europe changing customer needs Energy market convergence in Europe Increase share of growing Asian market share Asian market model evolving Strategy Utilize BHP Billiton profile Differentiated products Customer solutions Selective trading Outcome Adds expanded range of services to the basic commodity Creates a stronger and broader real customer base Grows contribution without simply increasing equity volumes Increased share of high value markets 24

25 Energy Coal assets Mike Oppenheimer - President 25

26 World class asset portfolio Operated production* 74 mtpa Non-operated production* 11 mtpa Agency marketing Reserves** 11 mtpa 4 bt 26 * 100% production for operated assets, equity production for non-operated assets ** Reserves for producing assets only

27 Low cost supply position Delivered cash cost - US$/t $ $45 Europe Optimum Douglas Middleburg Cerrejon Norte Koornfontein Mt Asia Carbones del Cerrejon Rietspruit 74 Venezuela USA Colombia South Africa Market 123 Mt (2002) 27 Source: Delivered cash cost - US$/t Future Mount Arthur North Indicative China supply cost 0 Mt AME 2002 FOB cash costs plus freight (excludes China, Russia and Poland) China cost band BHP Billiton estimate Bayswater 189 Canada USA Indonesia Australia Market 224 Mt (2002)

28 Major focus on enhancing competitive position HSEC 10 point safety plan Leadership, behaviours, fatal risk management Community relations integral to business success Operating Excellence Actively identifying and improving global business processes Six Sigma Plus improvement methodology striving for BHPB best practice Knowledge transfer across BHBP coal assets Knowledge networks and benchmarking across CSGs Leverage Infrastructure & Logistics Rail, storage, barging & shipping Influencing non-operated assets 28

29 Ingwe, South Africa GAUTENG PRETORIA JOHANNESBURG Khutala Douglas Middelburg Optimum Koornfontein Value Drivers World class, low cost assets Leverage domestic supply position Shareholding in Richards Bay Terminal VEREENIGING NAMBIA BOTSWANA Pretoria Johannesburg MPUMALANGA ZIM. MOZ. Richards Bay Rail Line Strategic Focus Multi-product mining Cross lease synergies Utilisation of Richards Bay entitlement Safety behaviour and fatality focus Health and community issues Cost management SOUTH AFRICA 29

30 Hunter Valley, Australia Muswellbrook Gloucester Bayswater Mount Arthur North Koorangang Port Waratah Newcastle Value Drivers Bayswater/Mount Arthur North integration Low cost supply into growth market Increasing production footprint Leverage domestic supply position SYDNEY Strategic Focus Deliver Mount Arthur North project Grow Asian market share Domestic and export mix AUSTRALIA Sydney 30

31 New Mexico, US Four Corners Power Plant Ute Mountain Indian Reservation San Juan Generating Station San Juan Mine Navajo Mine La Plata Haulroad Navajo Indian Reservation La Plata Mine Farmington Value Drivers Long term stable contracts Mine mouth generation Western regional electricity market position Resource (coal and water) Relationship with Navajo nation Los Angeles U S A Albuquerque New York Strategic Focus Deliver San Juan Underground Pursue expansion opportunities Maintain customer competitiveness 31

32 Colombia Porto Bolivar La Guajira Carbones del Cerrejon Cerrejon Zona Norte (Carbocoal & Intercor) Rail Line Uribia Riohacha Maicao COLOMBIA VENEZUELA Cerrejon Coal Value Drivers Unique positioning for US and Europe Significant and scaleable operation Quality product Competitive cost Strategic Focus Integrate acquisitions Extract synergies US market 32

33 Energy Coal financials By David Lamont 33

34 Earnings analysis 600 EBIT by Asset 9 months to 31 March 600 EBIT by Driver 9 months to 31 March US$ Million (15) (9) 462 US$ Million (18) (30) March 2001 YTD Ingwe Indonesia Colombia Hunter Valley Third Party Products New Mexico Divisional Activities March 2002 YTD 200 March 2001 YTD Price Exchange Rate Portfolio changes Other Volume Inflation March 2002 YTD 34

35 Substantial earnings improvement to date 600 New Mexico Coal Ingwe Indonesia Hunter Valley Colombia 30 EBIT US$ million EROC ROC (%) months to 31 March 0 35

36 Sensitivities FX and price impacts on EBIT EBIT Sensitivity Cash Cost of Production (2%) Export Price (US$1) Exchange (0.2 RAND:USD) Exchange (US$0.01:AUD) (40) (30) (20) (10) US$M 36

37 Energy coal industry and growth John Smith Chief Development Officer 37

38 Industry structure has significantly improved Industry Consolidation Comparisons 90 Production from top four firms (%) Steel Seaborne Energy Coal 99 Zinc/Lead Petroleum Aluminium Copper Seaborne Energy Coal 01 Alumina Industrial mins Diamonds Iron Ore Producer gains Economies of scale and efficiency Cost structure change Rational investment decisions Consumer gains Price stability Security of supply Share of efficiency gains 38 Source: * UBS Warburg; BHP Billiton

39 Evidence of more rational supply side behaviour $40 $35 Announcements during downward cycle* April May mtpa in announced expansions 6 mtpa in new production 8 mtpa in closures FOB RBCT US$/t $30 $ Mt 0 $20 $15 April April mtpa in announced expansions 7 mtpa in new production 0 mtpa in closures Expansions New Closures SASC 39 Source: * AME Export Coal Outlook, Barlow Jonker Australian Coal Report, Barlow Jonker South African Coal Report

40 World seaborne coal supply/demand balance Seabornesupply and demand Total Demand Australian projects GAP Supply/Demand Indonesia, RSA, Colombia Projects China Brownfields / Capacity creep Existing supply Year 40 Source: Barlow Jonker, AME, ABARE

41 Development projects update US San Juan Underground Colombia Intercor integration South Africa Development projects Australia Mount Arthur North 41

42 Boschmanskrans & Kwagga, Ingwe, South Africa Boschmanskrans % complete Start Date: December 1999 Production: 6.5 mtpa (2002) On budget $118M Kwagga Years $42M % complete Start Date: January 2003 Production: 10 mtpa (2004) On budget 42 Years

43 San Juan Underground New Mexico, US $146M % complete Start Date: October 2002 Production: 6 mtpa (June 2003) On budget Years 43

44 Mount Arthur North - Hunter Valley, Australia % complete Start Date: March 2002 Production: 12 mtpa (2006) On budget $411M Years 44

45 Cerrejon Coal - Colombia Mt 40 Phase 1 Phase 2 20 Optimise Years 45

46 Growth opportunities Strategic positioning at key points in logistics value chain China MOU with Yanzhou High value seed investments Trading opportunities New Mexico Expansion in Western US power market Bowen Basin Growth leveraging BMA infrastructure Colombia Expansion to optimal capacity Multi-product opportunities (Leandra, Carolina, Khutala) Klipspruit New export mine Hunter valley Wyong, new underground mine 46

47 Project pipeline potential of $1 billion Energy Coal NPV US$ 1 bn NPV US$m Base Approved projects Feasibility Concept/ Prefeasibility Year 5 47

48 Wrap up Unique platform for value delivery Market innovation critical Premier asset portfolio Focus on asset competitiveness & project delivery Strong market driven growth potential Organised for success 48

49 Questions and Answers 49 Richards Bay Coal Terminal