Andrew Mackenzie - CEO Peter Beaven - CFO

Craig Sainsbury - Goldman Sachs Clarke Wilkins - Citi Paul Young - Deutsche Bank Lyndon Fagan - JP Morgan Hayden Bairstow - Macquarie Securities Glyn Lawcock - UBS Duncan Simmonds - Bank of America Merrill Lynch Brendan Fitzpatrick - Morgan Stanley Paul McTaggart - Credit Suisse Myles Joseph - UBS Securities Peter O'Connor - Shaw and Partners Menno Sanderse - Morgan Stanley

Okay. Well welcome everyone to our 2016 Interim Results. I'm in Melbourne and somewhere, Peter Beaven, our new Chief Financial Officer will join us from London. So as usual, let me point you to the disclaimer, and remind you as always, its importance to today's presentation. We are in challenging times. Economic uncertainty, extreme volatility and geopolitical instability. On top of already well-supplied markets. Our thought sentiment, weight on our commodity prices and they've driven the shares in our sector to decade lows. And it's the speed and the quantum and the synchronized nature of those declines that have been more than we or frankly anyone else in the industry could have expected. However, we did foresee many, if not all of those trends sometime ago and this has caused us to take a series of actions which have prepared us well for our current conditions. Our powerful Tier-1 assets and continually improving productivity have secured sector leading margins on operating cash flow, even at today's prices. We have a strong balance sheet and highest credit rating in the sector. And last year, we completed the demerger of South32. Before then since 2012, we divested assets of over $7 billion and combined this has created a vastly simpler company that is particularly well suited to the current environment. And we were to the first, to embark on our productivity push and delivered over $10 billion in gains since 2012. And over the same period, with more than half our capital investment mainly by productivity. We've maintained a consistent strategy for our capital allocation throughout and we remain committed to cash returns to shareholders and have always stated the strength of our balance sheet is paramount and this strategy has not changed. But economic circumstances have. So today, we've taken the next step in how we apply our strategy. Our progressive dividend policy has served our shareholders well. Since 2001, we've returned $77 billion to shareholders in dividends and buybacks and that's more than four of our largest mining peers all combined. So to match the economic conditions that we face today and expect to face in the future. The board has now adopted a dividend payer policy. Equivalent to a minimum of 50% of underlying attributable profit. And this new policy will protect the balance sheet by more closely linking shareholder returns to the underlying performance of the business, as well as providing financial strength to generate value in the current conditions. And this level of cash distribution to shareholders will equal the average payout over the last 15 years and the board remains committed to return cash to shareholders in the future. The change in dividend policy will be coupled to our rigorous capital allocation hierarchy, which balances investment and returns to shareholders to maximize value creation. It will allow us to continue to invest at the bottom of the cycle, while protecting the balance sheet and at the top, it will drive large cash payments to shareholders. At the time, when most in the industry face growing constraints. Our combination of financial strength and optionality positions us well, for an extended period of lower and more volatile commodity prices. Peter will shortly summarize the financial results. But I wanted to first to come back to Samarco. Everyone, at BHP Billiton has been deeply affected by the tragic events that took place at Samarco's iron ore operations in Brazil. 17 people are confirmed dead, five from the community and 12 people working on dam at the time of the event. And two people also from the dam remain unaccounted for. This is a truly heartbreaking event and so we are committed to do everything we can, to underpin and help Samarco as it continues to response effort. As it wants to rebuild the communities and restore the environment. And we've established dedicated resource to do this. Dean Dalla Valle, a very senior member of my management team has now relocated to Brazil and is leading our response full time. He has a team of over 30 of our top experts, who'll be relocated to Brazil from our operations all over the world. And good progress has and is being made, all of the families affected have now been re-accommodated and major financial relief has been provided and Samarco and the authorities continue to make food, water and emergency supplies available. We are continuing to engage with the community there and are encouraged by the trust, that community has shown in Samarco, despite this terrible event. To Samarco and itself has engaged world-class consultants to develop the necessary humanitarian and environmental response funds. Along with Vale and Samarco, we've all commissioned an external investigation into cause and when we're ready, we will publicly release its findings. Discussions are also ongoing with the Brazilian Government as well as the state government of Minas Gerais and Espirito Santo. And these discussions are about, how best to manage and fund the longer term rehabilitation of the affected communities and the environment. And in parlous [ph], we continue to assess the financial impact on us, on BHP Billiton and Peter will provide an update later. The health and safety of our people and the communities in which we operate, must come first. So we continue to focus on safety and the management and control of fatal risks, so as to eliminate serious illness and injury right across our business. And as our operating sites during the last half year, we had not fatalities. We did however report a slight increase in the total recordable injury frequency to 4.4 per million hours. And well this is a low level, by historic standards for us, any increase is unacceptable and we will not rest, until we create a safe environment that is free from illness and injury. So I'll now hand over to Peter who'll summarize, our results. So welcome, Peter.

Thank you, Andrew. In this turbulent market conditions we generated net operating cash flows of $5.3 billion and free cash flow in every one of our businesses. Our 40% EBITDA margin is significantly higher than our closest peer at only 29%. We maintained our strong balance sheet, holding net debt broadly stable over the last 12 months, despite substantially weaker prices and significant dividend payments. From this position of strength, we've also implemented measures to further protect the Group's balance sheet and align our capital allocation framework with the cyclical nature of the industry. Our new dividend policy, based on a payout ratio will support both the balance sheet and long-term value creation. It enhances our ability to effectively allocate capital in a world characterized by volatility. The policy provides flexibility at the bottom of the cycle and returned more cash to shareholders at the top. The Board is determined to pay an interim dividend of US$0.16 per share, which is covered by free cash flow. This comprises the minimum payout of US$0.04 per share and an additional amount of US$0.12 per share. While the dividend has fallen, this is a necessary step in response to changing markets. We now expect lower prices for an extended period of time. We're also protecting our cash flow through our reduction in capital expenditure down 40% to $3.6 billion during the period. We now expect to invest $7 billion in the 2016 financial year and $5 billion in 2017. Critically all projects, that deserve to get capital are included in our funding plans. With more productivity, we're generating substantial operating cash flow at today's prices. And our more flexible dividend policy and transparent capital allocation hierarchy will ensure that free cash flow is allocated to the most valuable outcome. Andrew will provide more details on this later. Now before our present our usual water flow chart. It's worth noting, that we achieved EBITDA of $6 billion this period. Our depreciation charge of $4.7 billion included in EBIT masks the significant cash, that our assets are generating. The left-hand side of this chart identifies uncontrollable factors and their impact on earnings. And you can clearly see the impact of weak commodity prices, which reduced underlying EBIT by $7.8 billion in the first half, alone. That's over 90% of EBIT in the prior period. Favorable exchange rate movements of $1 billion, offset a portion of this price impact. There are also some important controllable factors, I'd like to draw your attention to it. We've spoken before of the tireless efforts of our people, to safely improve productivity and having already unlocked annualized savings of more than $10 billion over the last three years, our businesses have continued to improve productivity. We've lowered our unit cost even further in the current period and there's still much more to come. After isolating the impact of expected grade declines Escondida, we secured additional productivity gains of approximately $600 million in underlying EBIT. Olympic Dam unit costs are down 36%. This reflects supply renegotiations and a reduction in headcount. Our Black Hawk drilling costs are down 30% to $2.6 million per well. At Queensland Coal unit cost declined by 17%. Due to reduction in labor costs and a stronger US Dollar. Western Australian Iron Ore is already nearing its full year target of $15 per tonne. What's not visible in this earning's waterfall are the targeted reductions we've also achieved in working capital that supported free cash flow of $1.2 billion for the half year. For example at Escondida, lower-grade stockpiled inventory was drawn down to maximize cash flow. This contributed to a temporary rise in unit cost in this half. However when combined with other working capital initiatives facilitated a substantial increase in cash flow in the period. Importantly, our full year grade adjusted cost guidance Escondida remains unchanged. We have very strong momentum from productivity initiatives. They're expected to reduce the cost of capital further and deliver a strong recovery in concentrate volumes in the second half of this year. I'll talk to the three exceptional items included in attributable profit for this half year. We've recognized an impairment charge of $4.9 billion after tax in relation to our onshore US business, following the biannual review of the company's assets values. This impairment reflects changes to price assumptions, discount rates and development plans which have more than offset substantial productivity improvements. We've significantly reduced activity. Our Eagle Ford rig count is down to three from a peak of 32. These assists contain some of the best shale acreage in the world and the long-term resources. We believe the value maximizing strategy is to be patient, focus on cash preservation in the near-term and be ready to respond when there is a recovery in oil and gas prices. Our second exceptional item $390 million has been provided for global taxation matters, in relation to unresolved taxation disputes. And finally, Samarco. We're all incredibly saddened by the tragic events at Samarco. Andrew has described the critical response efforts underway and now we can also provide the financial impacts on BHP Billiton in this period. We've recorded an exceptional charge of $1.2 billion before tax or $860 million after tax. The figure is comprised of three significant items. Firstly, $655 million charge or less which is how it's described in our accounts. This represents our 50% share of Samarco's $1.3 billion provision for costs relating to the dam failure. Secondly, a $525 million impairment to reduce the value of our investment to zero. Subsequent to recognizing our share of Samarco's provision. We've assessed the recoverability of our investment. The decision to write off the carrying value, does not reflect our views on the potential restart of the mine, but rather the uncertainty at this point in time surrounding the nature and the timing of future cash flows that BHP Billiton would receive. And lastly, the tax effect. A $330 million reduction to our deferred tax liabilities to reflect the reduction in undistributed earnings. Separate to the exceptional charge, we are also outlining a number of continuing liabilities in our interim financial accounts. These contingencies include environment and community rehabilitation costs and legal claims. Where a potential obligation cannot be reasonably determined at this time. It's currently too early to say, what the final cost may be. Discussions with the authorities are ongoing and we're actively seeking to reach an agreement. Our dedicated team on the ground in Brazil remain committed to working closely with Samarco and Vale on response efforts as well as continuing to evaluate the financial impacts. Now to discuss our portfolio. In this increasingly volatile world, our already simplified portfolio of Tier-1 assets, sets us apart from our peers. Our Tier-1 assets are defined by their underlying resource fundamentals. They've large high-quality reserves, they're long life and expandable, which supports their low cost base with now and into the future. When combined with our best in class operating performance, these assets underpin free cash flow at all points in the cycle. Each of our four businesses iron ore, copper, coal and petroleum have proven their resilience by delivering free cash flow this half year in the face of tough market conditions and commodity prices, more than a third lower than 12 months ago. We also have the ability to grow it for less capital than before. For example, Escondida the world's largest copper mine with first quarter cost is already a strong free cash flow generator, with our water supply project completing next financial year. We'll have water availability when three concentrators to deliver 1.2 million tonnes of copper per annum for the next decade without new major capital. It's assets like these that have the right fundamentals in place, which allow us to produce sustainable cash flow. To further illustrate this, our portfolio even at spot prices from earlier this month will generate $10 billion in operating cash flows and an excess of $3 billion of free cash flow in this financial year. Next year, we expect our ability to generate free cash flow to increase even more, as we continue to unlock productivity gains and reduce our capital and exploration expenditure by a further $2 billion. Simply put, the cash flow we can generate from our Tier-1 assets not only protects us in a prolong downturn, but importantly also provides us with valuable flexibility to take advantage of opportunities, that are more likely to appear at the bottom of the cycle. Now, I'll finish with our balance sheet. We have the strongest balance sheet in the sector and it remains a competitive advantage. Our maturity profile is long dated, with lower refinancing risk. Our gearing ratio remains under 30%, we have the highest credit rating in the sector and we ended the period with $11 billion of cash on hand, which combined with our revolving credit facility gives us $17 billion in total liquidity. And despite falling commodity prices and significant dividend payments, our net debt remained broadly stable year-on-year. Our strong balance sheet allows us to insulate our Tier-1 assets through this period of increasing volatility and capitalized on opportunities. We've taken additional steps to ensure our balance sheet remains strong. We issued $6.5 billion of hybrid bonds to pre-fund upcoming debt maturities, adding substantial flexibility into our maturity profile. We reduced our working capital by $800 million and our new flexible dividend policy will provide further protection. Our decisive actions coupled with a sustainable cash flow from our Tier-1 assets, place in a commanding position to remain strong, grow shareholder value and return cash through the cycle. Back to you, Andrew.

Well, thanks. Peter. So as you've seen, BHP Billiton has produced since the merger, extraordinary results. And we've had capital management policies to match the economic condition since then and this period was characterized by steady growth in demand and persistent shortages of supply, which rightly encouraged investment in our Tier-1 assets, significant investments. And as a result, we've grown production by 6% on average each year and today have higher margins and lower unit costs. We've returned $77 billion to shareholders through dividends and share buybacks and that's doubled the level of cash returns made by any other miner. We've also maintained the sectors premier credit rating and generated industry's highest average returns on capital. We've performed well over the last 15 years, but market conditions have changed. As we've forecast, China's economic growth is slowing as it matures. And although, its headline GDP growth is consistent with our expectations, its composition has changed more quickly than most anticipated. We see signs of a faster transition from an investment and heavy industry-wide economy to one led by services. And the strength of the service sector creates employment, which allows acceleration of important structural reforms including the State-Owned Enterprises. But in the near-term, as industrial over capacity is reduced, this will further constraint demand for commodities and these near-term changes have been amplified by disruption to the oil markets and broader global uncertainty. Both have affected sentiment and further increase the volatility of commodity prices, which we expect will continue in the short to medium-term. In the longer term, we expect and plan for growth in commodities demand driven by population growth, ease Chinese reforms and arise in the living standards, particularly in emerging economies. And the bottom chart here illustrates the significant upside, we see particularly in oil and copper longer term. Because although these markets are currently well supplied, we expect demand to continue to grow, while well decline in oil and grade reductions in copper erode supply. If we have to handle, short to medium-term price volatility and capitalize on longer term growth, especially in the emerging markets, now is the time to update our capital management policies. So the board has adopted a dividend payout ratio of a minimum 50% of underlying attributable profit and that's a level equivalent to the cash that we've returned by dividends and buybacks, since the merger of BHP and Billiton. This decision has not taken lightly and the new policy, does not in any way reduce our desire to pay material dividends into the future. Today the Board has determined an interim dividend of US$0.16 per share, as $0.04 per share in accordance with our new payout policy, plus the Board has exercised its discretion to also pay an additional amount of $0.12 per share. And a combined divined of US$0.16 per share significantly exceeds the minimum 50% payout ratio. And it also recognizes the importance that shareholders plays on cash returns. Our payout ratio is the right dividend policy for the world today. Not only is it suited to the increasing volatility and cyclicality that we face, it also secures competitive advantage through the delivery of balance sheet strength with increased optionality. And this changed in dividend policy compliments of simplified portfolio, our focus on productivity, our reduction in capital expenditure and the variety and length of our debt book. It uniquely positions us for the challenges ahead. As Peter has told you already, this financial year we expect to generate at current swap prices significant free cash flow and even more next year with further gains in productivity and further reductions in capital investment. And this free cash flow will cover the new dividend policy and provide greater scope to improve capital allocation and maximize returns or projects that deserve capital are still included in our funding plans. Excess free cash flow will be dedicated to the value creation and shareholder returns, but let me be clear, that is value and returns not volume. We will be accountable for every dollar we spend and strictly adhere to our capital allocation hierarchy, which is been enhanced to reflect the changing conditions that we now face. First, we start with maintenance capital to drive safety and operational excellence, then comes the balance sheet to be protected at all stages of the cycle, then the new dividend policy closely linked to business performance. And finally excess free cash will be used for additional returns to shareholders. Buybacks or dividends, organic and inorganic value creation projects are simply used to strengthen our balance sheet. This rigorous competition for capital makes sure than it is an absolute focus to deliver value to shareholders. So in 2016 financial year, we now anticipate capital and exploration expenditure of $7 billion and no more than $5 billion in the 2017 financial year. That's a total of $3.5 billion below previous guidance. And with the exception of reduced spend on shale and miner improvement projects, this decline broadly reflects increased capital productivity, which continues to improve. We now deliver the same for less and in future, we'll have even more discretion as major projects are completed. Capital efficient projects that leverage existing infrastructure and release latent capacity, continue to present attractive near term opportunities even at current prices. High quality medium to longer term projects that enjoy prolong security of tenure, will only be pursued however at a time when we add greater value in all other options and do not exacerbate the current supply demand and balances. We will continue selectively to invest in high return in copper and conventional oil exploration. In anticipation of the demand and price recovery in the longer term, that I spoke before and finally in the current environment. Our financial strength and optionality have never been more important. It allows us to acquire Tier-1 assets in distress. Our new dividend policy will not dilute our cost discipline or our productivity focus. Our emphasis on productivity has not veined, and as we build on the track record of annualized and sustainable productivity-led gains, which have already exceeded $10 billion of reductions in annualized unit cost and have driven the live reductions in capital spend that I spoke off. Since our focus on productivity began in 2012, we've reduced unit to below 2006 levels. And see significant potential from more reductions. In the 2016 financial year alone, when adjusted for the impact of lower-grades at Escondida. We expect to realize further gains of $2.1 billion and while we're rightly proud of the significant productivity led gains that we've already banked, we're not satisfied and we continue to see further opportunities and so alongside our new dividend policy, we've also announced today, the next step to further delayer, simplify and streamline our company. And this has been made possible by the demerger and the string of preceding divestments that have created this stunningly simply company. And this step will further free our assets to focus on safety volume and cost and increase the efficiency and global integration of our functional activities. Going forward. To reemphasize growth, strategy will now be fully integrated by Peter. Peter Beaven. Our minerals productions operations will be organized into two regional units. Minerals Australia and Minerals Americas. And the company's petroleum operation will continue to be held separately reflecting via distinct operating environment. Minerals Australia will be led by Mike Henry, who'll have responsibility for iron ore and coal operations. The Olympic Dam copper mine, Nickel West and the IndoMet Coal Project. And Mike will also be responsible for a new center of excellence for maintenance because we see that as a major driver of future safety and operating cost reduction. Minerals America will be headed by Danny Malchuk, who will oversee our copper assets in Chile and the Antamina and Cerrejón joint ventures and the Resolution Copper project and Danny will also lead a new center of excellence for project. In some ways the counterpart to Mike's low maintenance to drive further efficiency in our capital cost. As a result, Jimmy Wilson currently President, Iron Ore will leave the company later in the year. And as a role of President, Petroleum will change in school. It's been agreed that Tim Cutt will also leave the company. Steve Pastor currently the President of our conventional Petroleum Operations will replace Tim. I sincerely thank Jimmy and Tim for their exceptional leadership and service over many, many years. And behalf of all of us, BHP Billiton I wish them every success and thank them for all they have done for the company. These organizational changes will develop deeper capability and higher expertise within our assets in functions. And we will require significantly fewer people to leading in our company. We'll become more agile, better place to respond to the challenges and opportunities presented by a rapidly changing global marketplace. We will deliver new levels of safety, of productivity, of cost, risk management. With an accelerated pace of best practice sharing and more rapid adoption of new technology and all of this will be coupled a more dynamic execution of our strategy for growth. So as to truly differentiate us from our peers. So in summary, while challenging market conditions are expected to be persist for sometime our asset quality and operating excellence, our organizational efficiency and leadership, our financial strength and optionality and discipline capital hierarchy position us to lead our sectors. Our superior asset base generate sustainable free cash flow, the strength of our balance sheet absorbs the impact of volatility and our new dividend policy like shareholder returns with more closely with business performance. The adaptability and speed of response we have created sets BHP Billiton apart from its peers. And positions us to deliver shareholder value through the cycle. Thank you and I'd now be pleased to take your questions. Q - Craig Sainsbury: Craig Sainsbury here Goldman Sachs. Two questions from me. Surprised there was not a single mention of strong single A credit rating, all through the presentation. First part of question, were you backing away from that as a metric of how strong your balance sheet is , just want to have a question in light of I guess the dividend cut. How committed is the company to maintain that strong single A credit rating? And then, how should we look at your balance sheet or the other metrics going forward. Second question from me just on the change dividend policies good to come out with a change or sort of aggressive dividend policy was a little stale. I'm just curious as to why you would set the new policy of at payout ratio. You understand payout ratio in the history has been 50%, but pay load this quite nicely that D&A is divorcing the profit from cash flow and you still support that $0.04 dividend and another $0.12 from cash flow. Why not just have the dividend payout ratio of dividend policy that reflects the cash flow it's been generated rather than sticking to an impact seeing pretty much resemble to the cash flow generation in the company at this point in time, that's all I've got.

Okay, I'd like Peter to answer the question on the balance sheet and on the A rating and he can maybe build on Mike, short answer to why not the payout on a cash flow basis rather on earnings basis. We looked at this, I acknowledge everything you say, but the reality is convention is closer to earnings. It's a lot easier for people to think about that, we've been and our experience and so, we're stuck with earnings, we're determined obviously to do as well as we can in both covering the dividend but going beyond there and generating cash flow that will give us number of options in excess of the payout ratio in earnings basis. Peter, why don't you take that over and then cover the fact that we didn't talk about A rating in our presentation.

Now look I think, just to concur with what you said in regard to the payout versus our cash flow derived ratio. I think it is something that's earnings are very committed to people. I think they're well analyzed by folks such as yourself Craig and so on. And I think ultimately, although there are points in the cycle where you get a disconnect between depreciation and CapEx certainly over a period of time, you'll tend to find that those things will be inline and so as we've seen in the past. We have in fact paid out historically around about 50% of earnings, that seems to be about the right number for a company like BHP. We're a strong cash generator and I think that you should expect that ratio is about the right amount, going forward. In the event that we do have dislocations, of course we have the ability. As we're doing today of in fact additional amounts should that be the right value decision for the allocation of that spare capital, if you like. On the first question on single A. We're not stepping away from that at all. We have always felt and I think we've been absolutely vindicated that having a strong balance sheet through the cycle is absolutely fundamental part of strategy for a company like in a cyclical industry. If you don't have a balance sheet that's strong, clearly when you get a hit on the downside of a cycle, then you can get yourself in some difficulties. But it also provides that the blur point in the cycle is optionality to take advantage of opportunity may not otherwise exists. So strong balance sheet, fundamental part of what we do. There are number factors that we assess when we think about the strength of our balance sheet. Certainly, we think of our cash flow to debt ratios, we think of gearing, we think of liquidity, we think of maturity profiles. We think all of those are in good shape and for convenience, we have always referred to having a strong a rated balance sheet through the cycle, something again. Something everybody is very familiar with and but I just want to also just pause there for a second and say, our view on our strong balance sheet is obviously based on our own views, our own assumptions and our own models. So I think we're just - there is no inconsistency whatsoever from what's come in the past.

Thanks, Peter. Okay, a question from the phone maybe.

The next question comes from the line of Clarke Wilkins from Citi. Please ask your questions.

Just looking through the sort of the new executive leadership team and when you sort of look through the nine that is, particularly on your three operation in people sort of reporting in view out of the 11, is that just reflective I suppose of the current organizational structures or is that sort of skewed to bit too much, the other way and also might appear a question for Peter just in regards to the cash. Its $11 billion in cash given the notion returned effectively you around that sort of cash balance for the moment. Is that like a war chest for potential M&A or is it, can we say that cash balance reduced down and what would be the normal cash balance sheet would require through the cycle?

Okay, Peter will pick up on that. And I'll just address the organizational issue. Mike, Danny and Steve of great operating pedigree. They planned different roles, particularly Mike and Danny through their time in BHP Billiton, but more recently they proved themselves as really very effectively operators are known, and so they'll be very powerful players and leaders in our company. Underneath them, they have seven, eight of very strong asset President's, who will in many ways get a lot of exposure to the top team and to me. To counterbalance things in the way you describe, so when you look and say, what I would regard is maybe the top 15 to 20 of the company the majority of them will actually be operators. Operators, within most and many cases tend if not 20, 30 years of experience. So any impression that you've got I would completely say the opposite actually. It's meant to increase the exposure of operations to the very top of the company and get even more rapid reports, if you'll like from the frontline. And as well of course the drive that Mike will do on operating productivity by the levers of maintenance and manufacturing, excellence and we talk about that a lot in a way that Danny will handle from the point of view of capital I think will only make that even clearer. So I hope that addresses that point, maybe Peter if you want to talk about the cash flow.

Thanks, Andrew. Yes, obviously we're very happy with $11 billion of cash flow, as I said earlier I think it's part and parcel of having a strong balance sheet, having strong liquidity. It does have negative carried, but the negative carried at this point and time based on what we've raised our debt at obviously at this point in the interest rate cycles, is somewhat muted. So, we understand that but what it really provides us an insurance again for further volatility and it's part of a suite of initiatives that we've undertaken the dividend being another one, just to make sure that we have the right flexibility to deal with volatility. Certainly to buffer them down, but also to provide opportunities should they arise. Now this is not a war chest as such, but clearly as I say, we always want to buffer them down and we always want to allow ourselves the opportunity to take, advantage of any opportunity should they arise. So I think, is a more than normal. I'd say this point in cycle where it is higher volatility, lower prices, lower margins our operating gearing is higher, it is higher than we would normally run out, but again I think it's entirely appropriate for, what we're trying to achieve here.

And the opportunities that we think, may arise in these sorts of environment. Next question from the phone.

Your next question comes from the line of Paul Young from Deutsche Bank. Please ask your question.

Andrew, you previously said that you can grow 5% per annum in copper [ph] equivalent terms, going forward. There is no reference to this, so to me this is remission that your x growth certainly new term. This leads to me to my question on your $5 billion CapEx for FY 2017 to me this is not far away from your same business levels, when you include conventional CapEx. So first question is, why the world's biggest mining company not investing more on your supposed plus 20% ROI projects, here in the downturn. And my second question relates to other opportunities or is the focus now in acquisition. You mentioned three times your presentation that falling share prices provide opportunities. So I guess question here is, are you saying it is cheaper to buy companies at the moment and build projects. Thank you.

Okay. There's a lot of in that question, Paul. But let me start off by saying, within that $5 billion, we still have the studies of some of the more significant growth projects that we expect we'll do in the future. As Spence [indiscernible] know about, Mad Dog 2 which we do with BP. We're still ticking on, not always accepted that this will happen quickly and potash. We are continuing to explore from things particularly in oil and to some extent in copper, which might lead to future investments. We have also some studies particularly in our gas areas in the US as well. When prices recover, we can move very quickly to rise it up our investment in shale and in shale oil. For example and that will give us, many aspects of the growth that you're describing. We will, within the five and within the seven this year continue to pursue some of our debottleneck opportunities, which don't cost much but give us quite a bit of growth and therefore dilute our unit cost and there's a few more particularly in coal side, where we could wait for a bit more price recovery. But you're right this is an environment where in many respects buy rather than build is more attractive and I think doubley [ph] so, one because buy is potentially cheap and Peter referred to that a little bit and saying it's not quite a war chest, but who knows what might come under distress in this sort of environment. But also we are a little bit thoughtful, about continuing to invest in new projects and to deliver new supply into markets, which are currently oversupplied, until we see some more evidence that things are coming back into balance. But I think for us growth of course is ultimately about growth in free cash flow, growth in value, growth in margin if you like. There's a range of things that we're doing some of which would fit into more of the traditional copper equivalent growth and would drive things there and others which will be more to do, we're just improving the efficiency of our operation or perhaps engaging in a degree of consolidation by buying properties that are in distress, but are actively producing and therefore wouldn't add necessarily to some of the supply and balances that some of the others would So we'll be very thoughtful about that and for sure, we have the flexibility. If in order to get the growth and the growth is attractive for shareholders and the balance sheet is strong and we've got our maintenance capital covered and we've got our dividend covered. So we can potentially do more, but for now we're planning on a period of relatively low prices, where without the kind of opportunistic activities, the attraction of over investing and particularly in build is not there yet.

Your next question comes from the line of Lyndon Fagan from JP Morgan. Please ask your question.

Just back to the balance sheet, Andrew. I was wondering, if you could provide a gearing or an absolute net debt target or even a range because I guess you still got $26 billion of net debt and gearing to 30%. So if we're trying to sort of work out, how much the board is likely to top up the 50% payout ratio of EPS. It would be nice to at least have a rough target of where you'd like net debt to be?

Well, I mean I'm going to ask Peter to answer the detail of the question, but I'm going to tell him, I don't want to give you net debt target that is far too simple. And how we think about managing the balance sheet. But with the CFO present, he's appropriate guy to the handle the detail of the balance sheet questions. So go ahead, Peter.

Thanks, Andrew. If I could just take you back to the capital allocation framework. First of all, that we allocated $1 billion or so at this to maintenance capital. It's about the amount that we need to spend, the strength of the balance sheet is really the next key step in trying to assess to what likelihood or otherwise, we would pay on a dividend and that is defined not by a net debt target or a gearing ratio so much. It's really around that ratio that core ratios of cash flow generation to net debt. Now we have, as I said earlier through the cycle. We’re aiming at having an aim front of rating. It is I think something which is very familiar to most folks and so I think you can from that derive hopefully, certainly what's left over for the next leg in the capital allocation framework, which is of course, the 50% payout. In the event that there is anything left over for that goes to compete between further investments and again we've got a suite, which you're familiar with. You know what those are, we're transparent about what that looks like and we guide on capital and obviously we ensure that when we guide on those projects and the capital that most importantly we think that the returns on those are higher, on a risk adjusted basis and that's certainly on a buyback and so and finally, if there's any capital left over, that gives made available for additional dividends. So I'm not going to give you a nice neat formula I'm afraid, but certainly that's the way we will think about it and we will think about this, along these lines every reporting period.

Thanks, Peter. Another question from the phone.

Your next question comes from the line of Hayden Bairstow from Macquarie. Your line is open, please ask your question.

Just quick on the petroleum business. So I was noticing sort of CapEx cuts that have been pushed through asked you to sort do the gas [indiscernible] down in the year and you comment sort of lower process to longer. Have you sort of further reviewed your oil price outlook and as a result, are we going to see both in oil but elsewhere some potential sort of adjustments to the book value at the full year result. Is it sort of change in commodity cross outlook given the comments you've made in result?

Well, we continue to keep these things under review, but I wouldn't go as far as to draw the conclusion you're saying there. I mean, we're very much withdrawing capital from the onshore while we wait for prices to recover. We only now have two rigs operating in the Permian and three rigs operating in the Eagle Ford and we're not fracking because we believe it's important to retain the acreage. And obviously we'll get the productions from those wells already drilled and fracked but I think wait for some sort of recovery before we would actually start fracking and then possibly, develop at a faster pace although we're doing that in many ways. With fewer rigs these days and we ever thought were possible through the gains and productivity. But I've nothing really to add on the other part of your question. Just looking at Peter, anything on your side?

No, I think we're comfortable with how we asses those key assumptions, we look at them very carefully, every six months as we go into these reporting periods. I think we're comfortable, we've made the right calls at this point in time. It's a good business, it's going to take some patience, no doubt about that, but it's a great business.

Anything else in the phones?

Your next question comes from the line of Glyn Lawcock from UBS. Please ask your question.

Andrew, I want to push a little bit if I can, I think on US onshore. You've said this business now post out 32 with, I think what would be deemed Tier-1 core assets long last, low cost. But if I still continue to look at US onshore, it doesn't fit that model, all right it's not Tier-1, it's not low cost at some bottom of the cost curve. It's well and [indiscernible] and you can come back when the oil prices rise, but there's a lot of capital caught up in your balance sheet, that who knows when oil price will rise, we've all got it wrong so far. Does this business and why does this business fit in the managed deep [ph] portfolio now as well, I'm just trying to get my head around why it fits? It does seem the odd one out, probably seen [indiscernible] as well but you've tried to get out of that you can't. So I'm just trying to understand where US onshore will fit in the portfolio?

Well, as Peter said in answer to Hayden's question. We believe it is still a good business. Part of the reason that we've been able to be so flexible with capital, is capital flexibility and that cuts both ways. You're right, we don't quite do where oil price is going and when it might recover. I mean, I think we're reasonably confident that when we get it year or two out. The markets do start to go back into balance and some sort upside is, is not an unreasonable assumption then. And but we don't have to make that assumption now about investment, we can wait for that to happen and we can very quickly restore investment and that is a nice luxury for us to have in a commodities business and the same goes to for gas. I mean, in a Tier-1 sense within a business which is called onshore shale oil and shale gas. We do have Tier-1 businesses. You could argue whether these businesses are Tier-1 in the broader availability, if you like of non-opaque oil or non-opaque gas. But I would say the flexibility it means that you have to treat them a bit differently, it's a particular appeal. But to be clear, I mean we do think that the availability of shale opportunities to invest in elsewhere in the world or even elsewhere in the United States, where there is oil or gas, which would fit into the Tier-1 bracket is few and far between, which is why our longer term strategy for oil is to get back to and grow our conventional business and grew the reserves in our conventional business in preference to those of our onshore business.

Thank you.

Your next question comes from the line of Duncan Simmonds from Bank of America Merrill Lynch. Please ask your question.

I've got two questions. The first one is, on your new structure. I wondered if you are prepared to give us some granularity on the savings available on the OpEx line there. That's the first one and the second one is, if we could just continue on US gas, at the EBITDA level was barely breakeven at the half and if I plug into those process, you're losing around $100 million of EBITDA. Given that you're not spending CapEx there, what sort of operational measures or structural changes available in that business or do we, just bumble along in line with the market in terms of gas prices? Thanks.

We don't bumble along in BHP Billiton. Duncan. We take things very seriously indeed. We continue to find ways that we can deal with some of the cost within our onshore gas business. As you're aware, we have a particular transportation take or pay clause within Haynesville that we have to work our way through and trying to see if we can find others into that or get gas developed through that. So we're working very hard to, even at these prices to get back to positive EBITDA territory and I'm confident, we will. On the organization structure, I talked in the press conference earlier about $130 million to $200 million in cost savings, that's something that we would expect to expect to add to considerably through the effectiveness of the new organization.

Your next question comes from the line of Brendan Fitzpatrick from Morgan Stanley. Please ask your question.

The first question touches on the prior one, the new strategy. Do you have a side of the equation, the cost to implement and the timeline to execute?

We'll implement it pretty quickly. There are, a number of implications for what I've suggested today further down into the organization. But I'm very confident that we'll have completed its implementation within this calendar year.

And the costs associated with any of the changes being made?

I don't have details on that. I mean, the cost will be primarily related to redundancy costs and so on and when we have agreed estimate for that and then we're obliged to provide for that in our case and then we'll give you an update. But I would have thought they were on values basis related to the savings I just gave you, which will be forever and these are just one off cost, relatively small compared to the value that's created by the savings.

Your next question comes from the line Paul McTaggart from Credit Suisse. Please ask your question.

[Indiscernible] well you've given in the release, cost for escalated. Which I think were a $1.11 and a pound, on a great adjusted basis which doesn't really help us and are trying to reconcile our models. Can you perhaps tell us what that was on a plain basis, as reported basis? And I just know it's also, when I ask about iron ore obviously cost will come down but you got - major peer that's doing better on cost and you're looking still for an average, 15 for the year. Do you still think you can do better on saving on costs? I don't know you've done some benchmarking against this peer in the past? Do you feel, you've closed the gap enough or do you think there's still more to be done there?

Yes, there's more to be done. We continue to work all angles and some of the things are part of course are going to be enabled by the new organization that we spoke about, in order to continue to drive things down. If you give me a moment, I've actually got some notes here which I can check with you. But when I see you, perhaps maybe when I see you, as it tomorrow I see, we'll come on. I think probably better that I give you a lot more detail then. But certainly more to do. On the exact number for the copper cost, I don't have that in my head but I'm sure one of our IR team can get back to you, with that.

Thanks, Andrew.

But I'll see you tomorrow on the iron ore thing, okay.

Your next question comes from the line of Myles Joseph from UBS. Please ask your question.

First of all, in terms of total expansion to 290. You've been talking about not focusing on value over volume, not interested in putting more volumes into over supplied market. Should we assume that that 290 is still sort of many years out, until prices recovered and then also, with Samarco as well produced somehow in terms of what we should expect in terms of the agreement, will it be with the state and the federal government, will it be one agreement that you're looking to sign to resolve that whole liability or could that be further litigation afterwards? Thank you.

Okay, let me do the second one, first close. I was thinking about that, the agreement on the discussion right now is more of a framework, which is kind of commitments if you like with some loans with Samarco and then through Samarco ourselves and Vale would make, to make good, what happened this terrible disaster was in a humanitarian sense and to an environmental sense. It's not going to be all embracing. Sometimes they hear the phrase, umbrella agreement, but it will be framework into which we can draw many of the claims, but it's not going to integrate all the claims. We were, of course, we'll be hopeful that it will get us arms around and there will be a commitment to trying and do that. The lion share of those claims but it won't capture all of them. And when there is one and this is a moving target of course will be and it's been what to the movement as I said, kind of what was the press conference, don't know, but owner [ph] was in the press conference. I mean, it's something that emerge in the coming weeks. I mean, there is certainly a lot of willingness to come together then clearly we'll be able to give a bit more details on, but it won't be, if you like all embracing if that's kind of the gist of your question. Can you remind your first question again just a word or two, it'll come back to me.

Just 290.

Yes, 290. The move to 290 and the Pilbara doesn't require capital or if it is, it's very small amount of capital. It requires us just to continue to run our facilities more efficiently. Our mines, our port and most importantly the movement rail and these are things that we will continue to work because it's by in large sort of three volumes because they come from us at no cost and they dilute our unit cost. I wouldn't count that as something that I would count as a major investment in growth. I think that's just a productivity peak, that in this case is very much underway, but we will provide obviously guidance as we go forward at each reporting period, as the higher successful we are in moving towards, 290 but it's not we would slow down because it doesn't require much investment.

Your next question comes from the line of Peter O'Connor from Shaw and Partners. Please ask your question. Peter O'Connor: Just in firstly, to take this call going for as long as possible because the share price is going from slight up 3% so on, let's drag this out. My questions are about these train business both iron ore and met coal and I wanted to follow on the question about iron ore 290. And I understand how that growth from the current rate to 296 within the context of your comments during the call about supplying oversupplied markets. I understand the cost benefit to you, but how does that reconcile. And then on met coal, I want to firstly applaud on your cost during your met coals have been very impressive over last year, but understand where that business is going, it's a $9 billion asset base returning negative return, what can you do, where can you go? Because that's a big lump of capital which is just not generating enough for the company.

Well as you know, within the met coal business, we have rationalized. We've closed Crinum and Norwich Park and thank you for the applaud to Mike Henry and his team. Despite some very difficult conditions, they have been able to keep all of the operations cash positive. We've seen some relief not much on the supply picture with a lot of the US particularly players in some form of bankruptcy proceedings and some evidence that in our markets that, in areas which would mean traditional supply from North America but our customers are turning more to supplies out of places like the Bowen Basin. You've also seen that we've made one or two moves to try and be even more creative around some of our mines and in which we might use contractors and so on. Obviously a source of some dispute, but there's still more to go and inefficiencies and longer term, I would say there is a supply of you like demand upside particularly from India, which is one of the brighter likes, if you like on the economic horizon right now. So we will keep working, we'll keep rationalizing almost down to individual cut and we'll keep pushing on everything to get our productivity up and we do expect that some modest recovery is possible, but probably a long way off. I think on the 290, my answer is same that, this is a productivity drift. It's very much underway, it's mainly come right about by just running plant and equipment at higher levels of utilization and availability and there can be a little bit investment required. We have actually made some of that investment or it's underway Jimblebar, in terms of additional crusher and I think it would be in appropriate to stop it, right now. But no new capital, no new significant capital in the current conditions, that's for clear.

Your next question comes from the line of Menno Sanderse from Morgan Stanley. Please ask your question.

Just two questions, please. First one on the statements around prolong downturn, more rapid transition, more volatility. And you have some implications for the long-term pricing that you're using and for the required return of projects that you're selecting. Have you made changes already or when do you think that you'll push us through? And secondly, $1.6 billion dividend that you annualized first half for just $5 billion for CapEx in 2017 and exploration obviously. Does the company think that's the right ratio price investment $1.6 billion?

Okay, I'll maybe let Peter handle little bit of that. The second question, maybe I'll make a few general comments in a moment. I'm sorry, I should write down. And the first question was again, just say a word.

Does - the company is using in terms like prolong downturn, more rapid transition, more volatility.

Okay, I got it. We update our price estimates every year. And sometimes, when we feel things have moved. We might do a little bit more frequently, as we did recently to look at the valuation of our petroleum business. But I would say that, our long-term prices haven't changed much, with the exception of oil. And I talked about that earlier. Just trying to understand the transition period, that is more difficult. What I'm trying to say, we as a company I think are reasonably sure that we're in a for period of sustained lower prices with volatility. Potentially for some years and we have built the company that's able to handle that. but as we go through some of our commodities and we'll see how that turns out, we do as we get out of year or two, start to see markets coming back into balance domestic gas then oil, then copper and longer term, potentially potash. And our planning is based a bit on that, but in some cases we can wait to see more evidence of that happening before, we're kind of really up, our level of investment and that relates to your second question, as to what the optimum ratio. I mean it really depends on how we see the medium term outlook as to what we think will be the appropriate relationship there. And indeed the competition for other uses of cash. I mean, whether it's to further [indiscernible] balance sheet, if we thought that things were looking particularly gloomy. We clearly have to look after our maintenance capital, we have to look after the dividend and then we have all the things that Peter and I've been talking about, at this point in the cycle there could be inorganic opportunities, that we're not presenting themselves any other time and they would clearly get preference relative to organic investments that could wait because in many cases these are things, which shows us that and my talk are very prolong period, security of tenure and it is, probably the value judgment is to wait for some kind of price recovery rather than to over invest right now. But I don't know, if you want to add to that, Peter?

Yes, I think what's very, very important about the payout ratio is that, it will flex with the cycle. So what you should expect and what we would expect is that, at the bottom of the cycle then you'll less fresh cash flow available in general. I mean, that's just natural course of it. And we would need to obviously continue to look after balance sheet and sustaining the maintenance capital in the first instance. What's really important is that, yes we continue to be very committed to cash payments, but as you continue to invest in at this point in the cycle, the things that really make sense because often times it's the ones the investments you make at the bottom of the cycle, that actually turn out to be the most valuable. So that's the beauty of you like, of the payout ratio. It's the value maximizing dividend strategy given the circumstances that we have today. Obviously, conversely as you turn through the cycle and we generate more cash flow then you will expect to see that ratio of dividends to investment to climb and that's exactly, how is that, so if we can get out. This is the Holy Grail of resources company getting ourselves into front, where we are investing more on the counter cyclical basis, returning more on the upcycle and so turning what has been a long history in our industry of essentially paracyclical [ph] industry investing into something else. So I think that's exactly I think your question is very good, but I think it was heart of why the payout ratio is the right strategy, for this company from this moment going forward. One last thing I just wanted to mention, which is just maybe just to side you off, this specific topic here, what I was talking about. We've spoken a lot about opportunities here, about inorganic versus organic. All fine with that conversation, but I want to be really, really clear on this, that we have a very high hurdle for assets that make it into our portfolio, so those Tier-1 assets are very rare and they're very closely held even at this point in the cycle. So our ability to actually generate opportunities to acquire assets, Tier-2, Tier-1 assets. I think full value of course because not even, if you get the opportunities to go and get the right price for it. So getting an opportunity for the right price. I think is going to be exceptionally difficult. So I just realized [indiscernible] to that opportunity but I want to make sure that everybody understand that doesn't change.

Can I just make another point, which is from what I said in the presentation? Which is that, I mean $5 billion might seem like a small amount of capital and but we're still pursuing almost everything we want to pursue, but we're able to do it for a lot less capital and the only thing we've really of significance that we've forgone is our investment in shale and believe me, we continue to see ways in which we could make this number even less, whilst maintaining the activities there. Okay, may questions from the audience. No. Okay, and any more questions on the phone.

There are no further questions from the phone at this stage.

Okay, so I mean just a few closing comments. First of all, there is no doubt that there is a shadow over this presentation which is Brazil with Nona [ph] and the team there are very much focused on the response efforts and rebuilding communities and restoring the environment made by the, impacted by the down failure. We've spoken a lot about the prices that we're facing at the moment. Although, we're making further adjustments today. I would argue, we prepared early, we saw a lot of this coming, we simplified the portfolio, we drove productivity hard and capital flexibility. And but we've now given ourselves greater flexibility I think which is going to be more suited to this period of prolonged low prices. We remain despite almost because of actually our changed to the divined policy committed to material cash returns to shareholders in accordance with an enhanced allocation of capital framework. We've got a, think about this company I strongly believe we are free cash flow positive in a very difficult period. We have a, an unrivaled portfolio both of the commodities that we're in and the assets that we have, that can actually be competed away very easily, to which we add. I would argue sector leading operating capabilities that will be built upon by our new organizational way of working. And our dividend policy will now give us additional financial strength to invest in value adding growth options. In the long-term we are confident particularly in oil and copper and we have the flexibility I think to respond to that as well as managing things in the short-term in the way that we've had set up our company. Over many years of which this is the next step. So thank you for listening. We look forward to talking to many of you, again on an individual basis in the coming couple of weeks. Thank you very much.