Towards Alumina Index Pricing. Peter Finnimore Vice President Marketing, Aluminium, Manganese and Nickel 24 September 2014

Transcription

1 Towards Alumina Index Pricing Peter Finnimore Vice President Marketing, Aluminium, Manganese and Nickel 24 September 2014

2 Disclaimer Forward-looking statements This presentation contains forward-looking statements, which may include statements regarding: trends in commodity prices and currency exchange rates; demand for commodities; plans, strategies and objectives of management; closure or divestment of certain operations or facilities (including associated costs); anticipated production or construction commencement dates; capital costs and scheduling; operating costs and shortages of materials and skilled employees; anticipated productive lives of projects, mines and facilities; provisions and contingent liabilities; tax and regulatory developments. Forward-looking statements can be identified by the use of terminology such as intend, aim, project, anticipate, estimate, plan, believe, expect, may, should, will, continue, annualised or similar words. These statements discuss future expectations concerning the results of operations or financial condition, or provide other forward-looking statements. These forward-looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this presentation. Readers are cautioned not to put undue reliance on forward-looking statements. For example, our future revenues from our operations, projects or mines described in this presentation will be based, in part, upon the market price of the minerals, metals or petroleum produced, which may vary significantly from current levels. These variations, if materially adverse, may affect the timing or the feasibility of the development of a particular project, the expansion of certain facilities or mines, or the continuation of existing operations. Other factors that may affect the actual construction or production commencement dates, costs or production output and anticipated lives of operations, mines or facilities include our ability to profitably produce and transport the minerals, petroleum and/or metals extracted to applicable markets; the impact of foreign currency exchange rates on the market prices of the minerals, petroleum or metals we produce; activities of government authorities in some of the countries where we are exploring or developing these projects, facilities or mines, including increases in taxes, changes in environmental and other regulations and political uncertainty; labour unrest; and other factors identified in the risk factors discussed in BHP Billiton s filings with the US Securities and Exchange Commission (the SEC ) (including in Annual Reports on Form 20-F) which are available on the SEC s website at Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or review any forward-looking statements, whether as a result of new information or future events. Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 2

3 Disclaimer (continued) Non-IFRS financial information BHP Billiton results are reported under International Financial Reporting Standards (IFRS) including Underlying EBIT and Underlying EBITDA which are used to measure segment performance. This presentation also includes certain non-ifrs measures such as Underlying EBITDA margin. These measures are used internally by management to assess the performance of our business, make decisions on the allocation of our resources and assess operational management. Non-IFRS measures have not been subject to audit or review and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity. UK GAAP financial information Certain historical financial information for periods prior to FY2005 has been presented on the basis of UK GAAP, which is not comparable to IFRS or US GAAP. Readers are cautioned not to place undue reliance on UK GAAP information. Basis of preparation Historical financial and production data for NewCo has been included on the same basis as reported by BHP Billiton. Figures for NewCo represent the sum of NewCo s assets, with no adjustments made to include overhead costs, except to the extent these were charged to the assets within BHP Billiton. Unless specified otherwise, all references to revenue, Underlying EBITDA and Underlying EBIT exclude third party trading activities. Unless specified otherwise, production volumes, sales volumes and capital and exploration expenditure from subsidiaries (which include Escondida, Jimblebar, BHP Billiton Mitsui Coal and our manganese operations) are reported on a 100 per cent basis; production volumes, sales volumes and capital and exploration expenditure from equity accounted investments (which include Antamina, Samarco and Cerrejón) and other operations are reported on a proportionate consolidation basis. No offer of securities Nothing in this presentation should be construed as either an offer to sell or a solicitation of an offer to buy or sell BHP Billiton securities or securities in the new company formed by the proposed demerger (NewCo) in any jurisdiction. Reliance on third-party information The views expressed in this presentation contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. This presentation should not be relied upon as a recommendation or forecast by BHP Billiton. No financial or investment advice South Africa BHP Billiton does not provide any financial or investment advice, as that term is defined in the South African Financial Advisory and Intermediary Services Act 37 of 2002, and we strongly recommend that you seek professional advice. Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 3

4 Key themes 1. Market evolution 2. Role of Price Reporting Agencies in ensuring a representative index 3. BHP Billiton s approach 4. A new global metals and mining Company 5. Concluding remarks Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 4

5 Evolution of commodity markets Commodity markets often follow a similar pattern of market evolution: 1. Shorter-term pricing periods 2. Market transparency 3. Standard Industry Contracts 4. Physical trading platforms 5. Risk management tools 6. Transparent premium & discount structures Benchmark pricing Short term pricing Journalistic pricing Further market development Index pricing Physical trading platforms Commodity Established index BHP Billiton portfolio Crude oil Yes Energy coal Yes Copper Yes Nickel Yes Gold Yes Soybeans Corn Coffee Yes Yes Yes Freight Yes Iron ore Yes Steel (incl. scrap) Yes Metallurgical coal Yes Manganese ore Yes Aluminium Yes Aluminium Premiums Yes & Evolving Alumina Evolving Alumina Atlantic Differential Evolving Calcined Petcoke Evolving Source: BHP Billiton Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 5

6 Recent scandals and investigations Europe Raids 3 Companies in an Inquiry on Oil Prices - The New York Times, 14 May 2013, Stanley Reed Forex claims as bad as Libor says FCA -Financial Times, 4 February 2014, Delphine Strauss & Daniel Schafer Lie-Bor is an Existential Crisis for the Big Banks - The Atlantic, 3 July 2012, Matthew O Brien Brussels plans end to selfregulation of market benchmarks - Financial Times, 8 September 2013, Alex Barker Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 6

7 Roles and responsibilities of price reporting agencies (PRAs) PRAs play a crucial role in the formation of indices. Developing regulations are likely to hold PRAs to stricter governance standards, ensuring: - minimum qualifications for PRA employees - conflict of interest rules - rigorous audit and record keeping procedures Indices must be based on: - sufficient and accurate input data - from a reliable and representative panel of contributors - using a robust and reliable methodology Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 7

8 BHP Billiton s approach BHP Billiton s interactions with PRAs are governed by a strict protocol Provision of market commentary by BHP Billiton employees is prohibited. We disclose factual data regarding trades, and where there is low liquidity, price assessments based on factual data in accordance with PRA published methodology. We ensure that information does not directly or indirectly identify counterparties. We make sure that our employees are authorised and specifically trained to provide transactional data, and must not have compensation or job performance directly linked to commodity prices. We do not selectively report transactions. We report data for all transactions to which we are a party and which are supported by firm sales and purchase contracts. Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 8

9 Concluding remarks Pricing has undergone a dramatic shift in the last five years. The move towards shorter-term, market-based pricing will continue to deliver benefits to the industry over time. In order to remain reliable and representative, indices need to reflect the contributions of a wide range of market participants. It is the responsibility of both PRAs and market participants to ensure that reporting is unbiased and in compliance with relevant regulation, leading to trusted indices. Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 9

10 A new global metals and mining company On 19 August 2014, BHP Billiton announced plans to create an independent global metals and mining company ( NewCo ) based on a selection of its high-quality aluminium, coal, manganese, nickel and silver assets. A final Board decision on the proposal will only be made once the necessary government, taxation, regulatory and other third party approvals are secured on satisfactory terms. Once the necessary approvals are in place, shareholders will have the opportunity to vote on the proposed demerger. Peter Finnimore, VP Marketing, Aluminium, Nickel, Manganese, 24 September 2014 Slide 10

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