BHP Billiton CEO ANDREW MACKENZIE – SPEECH TO THE MELBOURNE MINING CLUB

Above video from the Brisbane Times website: http://www.brisbanetimes.com.au/

BHP Billiton CEO ANDREW MACKENZIE – SPEECH TO THE MELBOURNE MINING CLUB

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London – 6 June 2013

Tonight I amhere to talk about our global industry: where we have come from; where we are today; and where we are going.

Mining was a low-growth businessfor much of the 20th century so we were caught off-guard by the pace of China’s early-21st century urbanisation and industrialisation. It has changed our industry:

• We have become larger, more profitable and much more visible.
• We wentfrom 3 per cent of the FTSE in 2001 to 13 per cent today.
• Demand was met in part by higher cost -much higher cost – operations.
• And many invested poorly to the detriment of their owners.

Finding five dollars of savings per tonne did not seem as pressing when prices were skyrocketing. But it really matters now.

High prices also affected the waymany governments viewed ourindustry. Somemisjudged the value of their resources and lost out by squeezing project economics. So, after a decade of growth, low-cost production is still dominated by the traditionalmining countries.

Today our industry is changing again. The rebalancing of supply and demand has led to more sustainable
prices for our customers. But investors are concerned that we cannot deliverreturns in the absence of the
higher prices of the past. And governments and communities still want a larger slice of the pie.
But If I sound pessimistic I amnot.

P.G. Wodehouse once said that it is never difficult to distinguish between a Scotsman with a grievance and a
ray of sunshine. I am not such a Scotsman. I am an optimist.

Whenmy daughter told one of her friends at Oxford that I worked in mining, her friend replied:
Do we still need to do that?

Well… some estimate that about half of the world’s GDP is directly underpinned by the resources we produce.
Indirectly all of it is. We live in a material world and all materials start by being dug up or grown – often with
fertilizers added to make them grow, which are also dug up.

To lift a rising population out of poverty, economic growth is essential. The world’s population is expected to
rise by as much as a third by 2050 to more than 9 billion. And only if we deliversteady, sustainable growth in
commodities-from steelmaking,through to metals, energy and energy transfer, to food – can we be sure that
by 2030 the global middle class could grow to 5 billion, up from 2 billion today.

That is the noble purpose of our trade:to supply the resources that enable economic growth and lift several
billion people out of poverty.

To follow this growth we will need to adjust our portfolios to more consumption-based commodities. A more
straightforward task for BHP Billiton given our diversified portfolio.

My other reason for optimism is on the supply side. But there is a contradiction here. Investors are concerned
about oversupply, yet customers, policymakers, and NGOs fear scarcity.

Popular opinion has itthat our industry is fundamentally unsustainable because the world, they believe, is
running out ofresources. Popular opinion is wrong.

As our understanding of the Earth’s crust improves,so has our confidence in its abundance. A basic
assessment of the world’s geology suggeststhat hundreds of years of supply are available to us. In 1900, the
world’s copper reserves were 25 million tonnes. Today they are over 500 million.

And yes, we face declining grades, longer haul distances and rising strip ratios; and therefore must target
deeper deposits. But history shows we will overcome those challenges, just as we have in the past. Over the
last century,the average run-of-mine grade for copper has fallen by three-quarters to less than one per cent.
Yet annual supply has increased from under onemillion tonnes to over 16 million.

Human ingenuity will always and quickly find new waysto discover, economically extract, efficiently use,
recycle, orsubstitute natural resourcesto meet growing demand. The US is now overtaking Saudi Arabia as
the world’s largest producer of hydrocarbons – something few would have anticipated ten years ago. Thisis
an example ofthe ingenuity that we can count on.

Such abundance does not lead to over-supply. We cannot repeal the cycle so supply will oscillate around
demand. And thankfully, withmost commodities now traded on transparent markets(in large part due to
reforms to the pricing model led by my predecessor, Marius Kloppers) we can now count on clear price signals
to induce the new production required.

So what does this all mean?

More balanced markets require us to get much sharper on operating and capital productivity to expand
margins and increase returns, no matter where prices go.

And as customers and consuming nations becomemore confident that they will receive the supply they
require, and policymakers understand that we are not about to run out of raw materials, then the
conversation will change for the better.

If resources are notscarce, society has a choice. We do not have to mine or drill everywhere. And we can be
more selective in the way we use the capitalthat is not returned to shareholders. Our industry will only invest
where we are welcome, and where we can generate the most value without adverse social and environmental
impact – or excessive shareholder risk given the returns on offer.

All things being equal, it is the large, higher-grade depositsthat ought to win. But it may be that smaller,
lower-grade resources are developed instead because geology is not the only consideration.

The supply to meet demand will come fromthose jurisdictions that do not have supply cartels nor political
arrangements which fail to direct the bulk of the benefits of mineral wealth to their people. The nations that
will successfully attract investment are those in which governments offer political and fiscal stability, and
where policymakers want to work with us to create conditions for industry to prosper.

We have the longest investment cycles in the world and we cannot move our ore bodies en masse to other
countries. So, when we invest, it isfor the very long term. But when we do invest, our presence will promote
broader economic development and a diverse land economy, where agriculture, tourism, recreation and
resources co-exist. Fully respecting the rights of indigenous peoples.

At BHP Billiton we produce at full capacity throughout the economic cycle. We can do this given the quality of
our resources and our positions on the cost curves. Because we believe itis best for our shareholders, our
customers and our host countries.

So for usimproving productivity is crucial to maintaining this capability. This productivity improvement has to
come from the bottom up, by getting the most out of every truck and every shovel and by making sure our
people have the right skills and approach to do their jobs better each day.

Solving problems is what inspired many of us, to get into this business in the first place. Get that right and the
jobs we all do can become more rewarding, more interesting, and above all more fulfilling.

Let me step outside the industry to give you an example fromone of my favorite sports- Formula One.
Overthe last three years we have seen something remarkable. The time taken to change the tires has fallen by
about half. In 2010, it took just under 4 seconds. By 2011, it was 2.92 seconds, in 2012, 2.31 seconds, and
earlier this year, 2.05 seconds. This season we are likely to see a sub-2 second pit stop.

Thisremarkable 50 per centimprovement has not come from new technology but by simply devising better
practices for the team of 20 who change the tires. As one commentator put it: ‘Itis about micro-analyzing all
aspects of the pit stop to deliver tiny improvements in as many areas as possible’.

We all want every member of oursports teams to succeed. To be disciplined, to train hard, to learn from
others and to be creative so we win.

So too with every member of our teams at work. The hard-working, disciplined and talented people at BHP
Billiton are, and will always be, central to our success. Our Charter says it well – we want our people to start
each day with a sense of purpose and end each day with a sense of accomplishment.

If we look at our industry, the prize is significant. For example, at BHP Billiton, half our operating costs are
labor and contractors. For us, every 1 per cent improvement in productivity translates to a $170 million saving.
We do not yet know where the limits of productivity lie but we can be sure that we are not close to them.
Let me end with this thought. Sustainability is a much abused word, but at its heart is a real and important
concept.

Gro Harlem Brundtland defined it well in herreport for the UN -‘Our Common Future’. ‘Sustainable
development is development that meets the needs of the present without compromising the ability of future
generations to meet their own needs’.

Abundance gives us choice. And if we choose well, we can build ourindustry in a way that is sustainable.
There is no inconsistency between sustainable business and shareholder value. We have a great responsibility
to our stakeholders. We must be better tomorrow than we were yesterday. And, I believe we will be.

Thank you

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