BHP Billiton Ltd ADR BHP
Q2 2012 Earnings Call Transcript

Operator: Mr. Paul Young, Deutsch Bank

Paul Young - Deutsche Bank: Your comments on your sequencing and development of projects as important and focusing on those, the highest return and lowest risk; I’m interested in those comments. And I’ve got a question on your copper strategy, and if I look at your mega projects that you might approve this year, the Olympic Dam expansion sticks out to me as the one with the highest CapEx, longest payback, and therefore potentially lowest returns. When I look at your proposed expansion at Escondida and it has a much shorter payback and significantly higher return. So the question I have is have you considered actually delaying Olympic Dam and allocating the CapEx into accelerating in a more aggressive expansion of Escondida, i.e., compressing OGP 1 to 3 and the construction timeframe. And just a second part to the question is just an idea, with the 15 year build time and higher technical risks than the other mega projects, I mean, how do you prevent CapEx blowouts on such a project?

Marius Kloppers - CEO: Paul probably a couple of comments some of which agree with you and some which perhaps stand in a little bit of a contrast. In the first instance, I should reiterate what I’ve said about project activity over many years. We have to look forward well into the future, and we have to gear the level of staffing on our project teams consistent with what we see today and what we hope to see over that five year period. The ability for us to dramatically alter towards the quicker side projects, to do projects quicker than what we’ve been preparing for is very limited. The opportunity to go slower is -- you know, you’ve got many more options to do that, Paul. So, I think our ability to actually go and do the additional projects, project number two and three and so on at Escondida at a quicker pace than what we’ve signaled to the market is just not there. We’re doing them at the pace that we can do them, because you have to have four things in place in order to do a project; you’ve got to have the resource, you’ve got to have the approvals, you’ve got to have the people, and you’ve got to have the cash flow. And all of those things, you know, its years of work. We cannot accelerate appreciably, CapEx from the trajectory that we set ourselves. We can go lower, but we can’t easily accelerate, and I think that probably tells half the story on why we would like to do both the ODP 1 and OGP 1, sorry about the confusing three letter acronyms, one in Escondida, and one in Olympic Dam. With regards to technical risk, we’ve had a close to 30 year test kit on the metallurgy at Olympic Dam. I don’t want to say there is none, but I’m going to come close to. There is no other ore body which at this stage of investment, is as drilled, as delineated, with as much testing having gone on in the metallurgy of that ore body. It’s the same ore that we’re going to take out, that we've always taken out. So, as I look at the two phases of expansion there, let’s call it the stripping activities, building the pit itself, and then building the surface infrastructure, nothing is ever low risk in our environment and things can only wrong, rather than go better than expected. But phase 1 is largely dig hole. It’s largely build airstrip, build camps, dig hole, and keep digging for a five year period. And that is the pre-commitment. The subsequent phases, again, not low risk but the metallurgy of the ore body is very well known and we’ve got a couple of years before we need to approve the final configuration of what the second and third phases of expansion are. So, again, nothing is low risk when it comes to spending a lot of money, but we feel very comfortable in deeply understanding the Olympic Dam ore body and we feel that what we’re going to do there is slap bang in the middle of the strategy and the core skill set of the corporation. But we cannot go quicker in other parts of the portfolio just because we want to go quicker. There are constraints around how many people we can bring in at Escondida, the size of the engineering teams and so on and so on.