Andrew Mackenzie, Chief Executive Officer
BMO Conference, Hollywood Florida, 27 February 2017

Good morning ladies and gentlemen. It’s a great pleasure to be back in Florida at BMO’s 26th Global Metals and Mining conference. Several years of considered and deliberate effort to improve productivity and redesign our portfolio and operating model have positioned us to take full advantage of this period of higher prices.

Our suite of tier 1 assets strong culture of safety and productivity and disciplined capital allocation framework give us confidence that we are well placed to substantially grow shareholder value.

Last week we released our interim results for the 2017 financial year and so today I will provide an update on our performance over the last half and our plans for the future.

Before I begin please note the disclaimer and its importance to this presentation.

Let me start with safety.

Our goal is zero fatalities and the tragic loss of a colleague Rudy Ortiz Martinez at Escondida is a terrible reminder to us all of why health and safety must come first in everything we do.

We have renewed efforts to help our people understand our risks and the critical controls that have to be in place to protect everyone who enters one of our sites. In this regard I’m pleased that total Recordable Injury Frequency fell to the lowest on record.

In Brazil we are committed to the long-term rehabilitation of the communities and environment affected by the Samarco tragedy. While the impacts continue to weigh heavily I am heartened by the ongoing effort and almost 16 months on I am pleased by the significant progress made across many fronts.

The Renova Foundation established by Samarco, Vale and BHP Billiton in June last year has assembled a specialised team to deliver social and environmental remediation programs. Their approach is well planned and executed and focused on engagement. Each of the communities most severely affected by the dam failure have now voted on their preferred relocation sites and the residents of Bento Rodrigues have recently approved the design of their new town.

The legal claims are ongoing and will take years to fully resolve, however we are encouraged by recent developments. In January this year Samarco, Vale and BHP Billiton entered into a Preliminary Agreement to a process to negotiate the Civil Claims raised by the Federal Prosecutors by the end of June. This constructive involvement of the Federal Prosecutors gives us an opportunity to secure further legal certainty.

We, Vale and the Brazilian community aim to restart Samarco’s operations. But (as we have said previously) it will only occur if it is safe and makes economic sense to do so.
Restart also requires

• The restructure of Samarco’s debt
• Completion of commercial arrangements with Vale (for the use of its infrastructure)
• And all licences and approvals.

There are many steps to complete and while technically possible this calendar year restart will require a coordinated effort from all parties.

Now to our financial performance.

Strong contributions from all four major commodities raised EBITDA by 65 per cent to US$9.9 billion. We delivered an EBITDA margin of 54 per cent, our strongest since 2011 when commodity prices were on average 50 per cent higher. We efficiently converted high commodity prices into cash to deliver free cash flow of US$5.8 billion. Importantly Onshore US was also free cash flow positive.

Significant improvements in capital productivity and efforts to release low-cost latent capacity reduced capital and exploration expenditure by 38 per cent in the period to US$2.7 billion.
And, we have strengthened the balance sheet.

• Net debt was reduced by US$6 billion down to US$20.1 billion
• The range of internal credit metrics we use to measure the strength of our balance sheet, all moved in the right direction
• Our gearing ratio is 24 per cent
• And, we have a solid A rating.

After careful consideration the Board announced an interim dividend of 40 cents per share. That includes 30 cents per share under our dividend payout policy and an additional payment of 10 cents per share or US$532 million.

Since the 2012 peak unit costs have now fallen over 40 per cent. This has preserved our margins as prices have fallen and without these gains our EBITDA margin this period would have been below 30 per cent compared with the 54 per cent I mentioned earlier. This is evidence that our simplified operating model delivers results. The changes to the way we operate have built a solid foundation but we have much more to do.

We have a leaner management structure, integrated global functions, and our culture stimulates our people to work smarter, to share best practice, and replicate it more quickly across all our assets. Our Centres of Excellence in Maintenance, Projects and Geoscience have huge value potential and combined with the application of new technology will drive costs down even further.

This time last year we first presented our enhanced capital allocation framework. One year on it’s embedded in every investment decision we make. It drives discipline in how we allocate capital and it links shareholder returns to business performance. This slide shows the outcome of our capital allocation. Over the last six months we generated net operating cash flow of US$7.7 billion. We maintained the safe integrity of the business.

Our balance sheet remains strong (in a broad range of potential future conditions) and we paid the dividend (determined by our pay-out ratio policy). This resulted in excess cash of US$6.4 billion, or US$7.1 billion when we include divestment proceeds, as we continue to further simplify the portfolio.

From this US$7 billion we paid an additional dividend of US$300 million. We then allocated two thirds of the remaining surplus to the balance sheet, and one third to high returning growth projects. That bias reflects our desire to have a strong balance sheet to capitalise on opportunities that appear more frequently at the bottom of the cycle.

The growth projects must always compete, are tested against additional cash returns to shareholders, to make sure we optimise the use of every dollar of excess cash. We recognise the importance of cash returns to our shareholders; and at the right time, and in accordance with our capital allocation framework, we will consider additional dividends and buy backs.

Our long-term views on commodity markets are largely unchanged. Population growth and better standards of living are expected to drive increased demand for our commodities. The urbanisation of the next generation of emerging markets, such as India, will build new demand centres, and the global transition to lower emissions energy in response to climate change presents both risks and opportunities.

In the near-term however, challenges remain. After a period of weak prices several of our commodities currently trade above long-term forecasts. In addition, there has been a marked rise in geopolitical uncertainty and protectionism which has the potential to:

• Inhibit international trade (the lifeblood of the global economy)
• Weigh on business confidence
• And restrain job creation and investment.

The changes we have worked tirelessly to implement allow us to navigate these uncertainties with both strength and agility.

The demerger of South32 and over US$7 billion of asset sales have shaped a portfolio that is now true to our strategy. Our assets are large long-life low-cost and provide diverse exposure to a mix of commodities with attractive fundamentals. The improvements in productivity we have locked in preserve margins and allow us to fully benefit from higher prices.

A strong balance sheet reinforced by a disciplined capital allocation framework insulates operations and allows us to invest through the cycle and with vast improvements in capital productivity our growth options (that span time horizons and commodities) are now more competitive than ever.

As outlined in May last year we have a unique set of opportunities and a clear roadmap to improve returns and grow value by 70 per cent, and since my last update we have made significant progress. Our productivity momentum is still strong. We have embedded US$11 billion of annualised gains over the last four years, and this year expect to deliver a further US$1.8 billion. And as I mentioned earlier there still much more to come.

We have released low-cost latent capacity across the portfolio.

At Spence, the Recovery Optimisation project has already ramped up, Escondida’s Los Colorados Extension will be commissioned in June, and the Caval Ridge Southern Circuit is expected to be approved shortly.

In Onshore US, after the success of our gas hedging pilot in the Haynesville we have expanded the program, and across all our shale acreage we continue to lower development costs and consolidate our position to profitably unlock the value of these world-class resources.

Our major growth options have progressed: Mad Dog 2 was approved earlier this month, Board review of the Spence Growth Option will take place later this calendar year, Brownfield expansion studies progress well at Olympic Dam. We continue to sink the shafts at Jansen to progress this world-class potash option and in December we were the successful bidder for the Trion discovered resource in Mexico.

In exploration Positive results at Caicos in the Gulf of Mexico give us confidence to accelerate the Wildling appraisal well to establish the scale of this resource, and in Trinidad and Tobago where we had success at LeClerc, we are now assessing commerciality.

Finally, our Technology function is focused on the identification and execution of a range of integrated programs to unlock resource and lower costs even further.

While we have already achieved much across each of these value drivers, this is just the beginning.

The past several years have presented many challenges for the industry and for ourselves. However, we have remained steadfast in our plans and used the opportunity to implement and accelerate significant change. Change that would have been far more difficult, if not impossible, to make at the top of the cycle.

We have a strong foundation, and while we have substantial work ahead we are now a far more agile company and I am confident that we have everything in place to build significant value well into the future. We have the right assets in the right commodities with the capability and culture to prosper.

Our strong balance sheet provides stability, disciplined investment in our rich pipeline of options will grow value and deliver returns for our shareholders. We are on track, resolute in our focus and see enormous potential ahead.

Thank you.