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Speaker 1: Joining us now live from Melbourne is BHPCO Mike Henry, Mike,

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Speaker 1: thanks much for joining us on the back of these results.

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Speaker 1: Let's first talk about that your kinda outlook. I mean,

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Speaker 1: in recent months you were a little bit more bullish

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Speaker 1: than maybe your peers out there about overall where this

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Speaker 1: economy is going. I think the mood and I think

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Speaker 1: the tone that you strike this time was a little

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Speaker 1: bit more uncertain, it seems. Can you tell us how

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Speaker 1: you feel about China? Now? What did you get wrong?

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Speaker 2: Sorry?

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Speaker 3: Certainly evon so, and I think it is fair to

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Speaker 3: characterize it's a bit uncertain.

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Speaker 1: Now.

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Speaker 3: I would start by saying there's actually a number of

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Speaker 3: sectors in China that are going quite well. That includes

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Speaker 3: green infrastructure, other infrastructure, automobiles and so on. But the

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Speaker 3: key sector, of course, that everybody's focused on, which is

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Speaker 3: very relevant to certainly to our business, is the property sector. Now,

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Speaker 3: in property, we've seen strong completions, completions up nineteen percent

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Speaker 3: year on year, But what's lagging is new starts that's

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Speaker 3: been recognized at the same government level. There's obviously policies

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Speaker 3: in place that are meant to stimulate new starts, but

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Speaker 3: they're not translating as effectively into changes on the ground

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Speaker 3: as certainly we were anticipating, and I think some others

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Speaker 3: were anticipating as well. So that's really what we're keeping

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Speaker 3: an eye on over the next three to six months,

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Speaker 3: is how effective is that translation of policy into practice

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Speaker 3: if we do see that starting to take hold, and

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Speaker 3: we think there could be good growth momentum flowing from

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Speaker 3: f Y twenty three in the calendar year twenty three

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Speaker 3: into calendar year twenty four outside of China. I was

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Speaker 3: in India about a month back. The energy on the

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Speaker 3: ground there, the optimism is palpable, So we're seeing solid

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Speaker 3: momentum in India. Of course, that's a big market for

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Speaker 3: US for commodities like metallurgical coal and for copper concentrate.

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Speaker 3: So overall we're seeing India and China comprising about half

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Speaker 3: of world GDP growth in the period ahead. And the

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Speaker 3: other point I would notice is long term fundamentals for

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Speaker 3: this sector and for BH remain really healthy.

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Speaker 2: Yeah, Mike, we'd like to talk about more about the

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Speaker 2: opportunities because certainly that is a growing market of yours.

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Speaker 2: I just want to pick up on some of the

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Speaker 2: points you're making on China, So I mean, almost every

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Speaker 2: CEO we speak with is uncertain over the environment there

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Speaker 2: there certainly hope, let's put it that way. I want

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Speaker 2: to ask you about what you're seeing across short term

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Speaker 2: pricing on many of your products in China. What's the

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Speaker 2: outlook in pricing these next six months?

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Speaker 3: So, of course it's going to depend a little bit

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Speaker 3: on what happens with the overall economy with demand for

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Speaker 3: commodities like iron ore. There are some rumors about of

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Speaker 3: potential mandated production cuts in steel, but it's not like

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Speaker 3: the industry there is starting with high inventories in iron

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Speaker 3: ore or steel, so any cuts that would occur would

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Speaker 3: very quickly start eating into into those inventories. Now, obviously,

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Speaker 3: if there was lower demand, that has implications for pricing.

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Speaker 3: But one very important part or point to note is

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Speaker 3: that the marginal cost of production across the commodities that

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Speaker 3: certainly we produce is higher now than it was pre

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Speaker 3: COVID naturally given the inflation that we've seen in the

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Speaker 3: external environment, so we expect that's going to provide a

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Speaker 3: downside cushion on pricing at a higher point than may

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Speaker 3: have been the case previously. In the case of iron ore.

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Speaker 3: We're saying somewhere between eighty and one hundred dollars per

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Speaker 3: ton is likely where the cushion kicks in, given what

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Speaker 3: we've seen on the inflation front, and of course, from

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Speaker 3: a BHP perspective, because we've done a better job in

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Speaker 3: controlling costs than our competitors, we've doubled our lead as

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Speaker 3: the lowest cost major iron ore supplier globally. That higher

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Speaker 3: cushion means that our margins relative margins end up being

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Speaker 3: more protected than might be the case for some others.

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Speaker 1: Mike, what happens if the China property sector gets worse?

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Speaker 1: What does that mean for BHP? Do you think that

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Speaker 1: there's other markets out there? You mentioned that the prospects

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Speaker 1: in India. Are they able to at least come up

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Speaker 1: and make up that sort of demand shortfall?

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Speaker 3: It really depends on the commodity and question on of course,

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Speaker 3: iron ore. China is the game when it comes to

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Speaker 3: iron ore demand globally. There's such a big They make

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Speaker 3: up such a big proportion of seaborne iron ore, you

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Speaker 3: wouldn't see that being made up in other markets. However,

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Speaker 3: we are seeing blast furnace utilization run rates in China

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Speaker 3: continue at quite strong levels, about ninety percent. Even with

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Speaker 3: the weaker growth that we've seen in the second quarter,

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Speaker 3: steel demand remains strong and we're expecting that we'll see

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Speaker 3: another fifty year in a row of over a billion

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Speaker 3: tons of steel production in China. There could be a

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Speaker 3: little bit of downside, as I said, if we do

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Speaker 3: see mandated steel cuts, but even with that, we would

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Speaker 3: expect over a billion tons.

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Speaker 4: Brandum, So, Mike, had you, I think, what if I's

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Speaker 4: getting out? Is there enough to mitigate what's going on

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Speaker 4: in China's one part of my question, and the second

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Speaker 4: is it's about your forward facing commodities now as well

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Speaker 4: as the world evolves, and tell us a little bit

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Speaker 4: about that in the strategy.

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Speaker 3: So on the first question about is there enough to mitigate?

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Speaker 3: We have to all recognize that we've been through a

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Speaker 3: second quarter here of slower growth in China, and notwithstanding

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Speaker 3: the fact that the commodity price are off, it's still

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Speaker 3: been a pretty healthy environment. You look at the earnings

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Speaker 3: that we've generated, in part thanks to the solid underlying

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Speaker 3: operational performance and records at three of our assets. We've

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Speaker 3: just declared the third largest final dividend ever in BHP's

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Speaker 3: history third largest full year ordinary dividend, So the businesses

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Speaker 3: can continue to perform quite strongly in spite of that

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Speaker 3: slightly weaker than anticipated performance in China. Now the growth

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Speaker 3: in future facing commodities. We've had a very simple, clear

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Speaker 3: strategy in recent years of improving underlying operational performance, becoming

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Speaker 3: much more reliable, containing costs, having a differentiated approach to

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Speaker 3: social value creation, so value creation for all the stakeholders

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Speaker 3: who support and depend on BHP, and importantly, increasing the

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Speaker 3: leverage in the portfolio towards what we've termed future facing commodities,

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Speaker 3: so those commodities that stand to benefit greatest from the

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Speaker 3: ongoing mega trends of population growth, urbanization, industrialization, rising living standards,

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Speaker 3: and decarbonization. And these are commodities like copper, nickel, and potash.

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Speaker 3: We've got a big potash development underway in Canada that's

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Speaker 3: preceding the plan. Recently had an acquisition of a company

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Speaker 3: called oz Minerals. Bringing that into the portfolio, opens up

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Speaker 3: a new copper basin for US, or integrated copper basin

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Speaker 3: in South Australia, and a number of other efforts. I

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Speaker 3: would finally just note that the iron ore story for

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Speaker 3: us and the metallurgical coal story is that we're focusing

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Speaker 3: both of those portfolios on the quality segments and the

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Speaker 3: kind of the cost position that will allow us to

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Speaker 3: benefit in those commodities from those mega trends as well.

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Speaker 3: So we're pretty happy with the direction of the portfolio,

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Speaker 3: certainly happy with our underlying operational performance.

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Speaker 4: So Mike that BIGS you're talk about the impact of

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Speaker 4: inflation one part of it. Then, of course with your

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Speaker 4: debt portfolio, how arising interest rates eating into that and

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Speaker 4: overlying that, how are you also perhaps hedging the currency

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Speaker 4: gyrations that we've been witnessing.

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Speaker 3: Yeah, so I might start in reverse order on that one.

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Speaker 3: As a company, because we're exposed to commodity prices, of course,

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Speaker 3: and to some extent we see currency fluctuations reflected in

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Speaker 3: prices for our key commodities, we adopt a starting position

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Speaker 3: of no hedging. We see that there's the riskless position

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Speaker 3: for BHP. The question about, you know, the impact of inflation,

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Speaker 3: interest rates on debt and so on. We've got a

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Speaker 3: very strong balance sheet. We have seen an uptick in

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Speaker 3: debt this period, but within a very narrow range when

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Speaker 3: compared against some other industries or some other competitors. And

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Speaker 3: then finally, I'm sorry, the first question you asked again

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Speaker 3: was or the first part of that question.

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Speaker 4: Was it was essentially in this environment again of a

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Speaker 4: higher interest so it's in debt servicing. That was, but

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Speaker 4: that was really it, and I think you addressed part

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Speaker 4: of that.

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Speaker 2: Right. Yes, Okay, Mike, just quickly, since we talked about well,

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Speaker 2: we'll talk more about sort of individual commodities in a moment.

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Speaker 2: But at the beginning of the interview, you touched on India.

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Speaker 2: If you could clarify for US, I'm just looking at

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Speaker 2: my numbers here. Last year India was about eight percent

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Speaker 2: correct me if I'm wrong. Off your revenue is full year.

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Speaker 2: What is India now with these earnings? And how big

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Speaker 2: do you see India getting US a percentage of your

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Speaker 2: pie Let's say these next five years, does this become

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Speaker 2: a twenty percent.

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Speaker 4: Market for you?

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Speaker 3: Look, I think in the next five years twenty percent

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Speaker 3: is it would be pushing the envelope. But we do

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Speaker 3: see it growing over time, and it's going to be

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Speaker 3: a little bit commodity dependent. So what India is the

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Speaker 3: big market for US for cocing coal growing market for

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Speaker 3: US in copper concentrates as well, But of course that's

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Speaker 3: the direct demand out of India. Now, as India grows,

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Speaker 3: it helps support overall global economic growth as well, so

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Speaker 3: the flow on effect of India is even more significant

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Speaker 3: than it may appear at first Blush in terms of

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Speaker 3: direct sales.

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Speaker 1: You're also spending no growth capital on coal, though, I

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Speaker 1: want to stress, because you're ramping up as you mentioned

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Speaker 1: capex on copper, potash, nickel. Is there enough potential in

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Speaker 1: these commodities to pick up the slack that's left by

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Speaker 1: coal and in some ways left by iron ore too.

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Speaker 3: So if I start with iron ore, we do have

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Speaker 3: growth plans in iron ore, initially through productivity, which is

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Speaker 3: the single biggest value growth lever for the company. We've

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Speaker 3: spoken today about the intent to get iron ore to

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Speaker 3: three hundred and five million tons pranum. That's up from

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Speaker 3: current levels and potentially even higher levels down the road.

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Speaker 3: We have studies underway looking at the potential to get

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Speaker 3: the three hundred and thirty million tons pranum across in

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Speaker 3: cocin coal. We have said that given current circumstances there

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Speaker 3: with returns being impacted by higher royalties and risk having

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Speaker 3: gone up that we're not investing in growth capital over

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Speaker 3: time if that were to change. We do see opportunities

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Speaker 3: ahead for cocing coal out of Queensland, but not for

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Speaker 3: the time being. But that doesn't mean that we won't

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Speaker 3: see higher sales or a weighting of sales towards India

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Speaker 3: as demand picks up up there.

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Speaker 4: I believe you're selling very quickly, Mike, some co assets

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Speaker 4: in Queensland. How's that going?

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Speaker 3: So process remains underway. Part of our strategy in cocon

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Speaker 3: coal is to concentrate the portfolio on the highest quality

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Speaker 3: hard cocon cols because we believe that they stand to

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Speaker 3: benefit from a faster decarbonizing world because they contribute the

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Speaker 3: higher steelmaking productivity. The sale of the Dounia and Blackwater

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Speaker 3: assets is in line with that strategy. We kicked that

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Speaker 3: process off about six months ago and we're still in

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Speaker 3: the middle of that of that process.

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Speaker 4: Mike, let's see in three months. Thank you so much

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Speaker 4: for joining us. Mike cant read the CEO of course.

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Speaker 2: HB