BHP Billiton
Industry Trends - Consolidation & Diversification
Chip Goodyear - Executive Director and Chief Development Officer
Morgan Stanley Basic Materials ConferenceLondonSeptember 2002
Industry Consolidation
M&A Deals in 1997-2001:Oil & Gas ~US$600 billionMining and Metals ~US$100 billion
PETROLEUM M&A(Deals above US$5B)
Source: John S Herold M&A Database (Petroleum), Goldman Sachs (Minerals) , RMG Database, Bloomberg
Anglo acquires Minorco
Anglo acquires Shell coal assets
MINERALS M&A (Deals above US$1B)
BP & Amoco
Exxon & Mobil
Billiton increases stake in Worsley 86%
Billiton acquires Rio Algom
Alcan merger with Alusuisse
Anadarko & Union Pacific Resources
BHP merges with Billiton
BP & Arco
Repsol & YPF
Total SA& FINA
Total FINA& ELF
Chevron &
TexacoPhillips & ARCO’s Alaskan interests (from BP/Amoco)
Agip & LASMO Conoco &
Gulf Canada
Phelps Dodge acquires Cyprus Amax
Phillips &Tosco D/S
Newmont acquires Santa Fe
Billiton IPOGold Fields-Driefontein restructure Placer Dome -
GetchellBarrick-Homestake merger
1998 1999 2000 20011997
Grupo Mexico acquires Asarco
Alcoa Acquires AlumaxValepar acquires CVRD (42%) Alcoa merger with Reynolds
Rio acquires North Ltd.
1990 – Industry Structure
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990
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B)
In 1990 the top five companies accounted for less than 25% of total resource equity market value
Market value of minerals industry US$150 bnValue of Top Five US$36 bn
Top five companies account for around 50% of resource equity market value – double their share of 10 years ago
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02 (U
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2002 - Industry Structure
Market value of minerals industry US$235 bnValue of Top Five US$110 bn
Consolidation driving better share growth return for Top Four
Source: Datastream
Mining Industry Return Analysis
95%
115%
135%
155%
175%
195%
01/04/99 21/10/99 11/05/00 30/11/00 21/06/01 10/01/02 01/08/02
Top Four share movement
Mid & Small Cap Minerals Index (excl. Gold/PGMs)
A Global Footprint
Energy Coal
Stainless Steel
Base Metals
Aluminium
Petroleum Diamonds
Carbon Steel
Outstanding Diversification
Data for FY2002 (continuing operations)
Europe
Other Asia
North America
Japan
Rest of World
Australia
By MarketSales:
Carbon Steel Materials
Petroleum
Energy Coal
Aluminium
Diamonds & Spec. Prod.
Base Metals
Stainless Steel Materials
By CommodityCustomer Sector Group EBIT:
30%
29%15%
13%7% 6%
By GeographyNet Operating Assets:
15%
28%
14%
13%11%
19%
South America
Australia
Southern Africa
North America
Rest of World
34%
33%
20%
8% 5%
Diversified Portfolio Reduces Overall Cash Flow at Risk
Interest Rates
Energy Coal - RBM
Ris
k F
acto
r
Undiversified Cash Flow at Risk
Ferro Manganese
Metallurgical Coal
AluminaLead
Manganese OreZinc
Silver
LNGDiamonds
HBILPG
Henry Hub GasEnergy Coal
Iron OreFerro Chrome
FuelFreight Rates
ZAR:USD
Nickel
AUD:USDAluminium
CopperWTI
BHP Billiton
Diversified Portfolio Reduces Overall Cash Flow at Risk
Q4 FY02 Cashflow Applying Historical Price Changes
0
500
1000
1500
Aug-87 Aug-89 Aug-91 Aug-93 Aug-95 Aug-97 Aug-99 Aug-01
Cas
hfl
ow
(U
S$
mill
ion
s)
Applying historical price changes Q4 FY02 Actuals
Aftermath of Gulf War, Global recession
Hamanaka induced fall in copper prices
Asia Crisis, Russian debt default, $10 oil
US and Japanese recession, September 11
Lead up to Gulf War Cyclical peak in GDP & Industrial Production
Opec dominance
Diversified Stocks Perform Better
Indices comprise: (1) BHP Billiton, Rio Tinto and Anglo American; (2) Alcoa, Alcan and Pechiney; (3) Phelps Dodge, Grupo Mexico, and KGHM; (4) Inco, Falconbridge and Eramet. All indices adjusted for market cap weightsSource: Bloomberg
30
50
70
90
110
130
150
Sep-99
Dec-99
Mar-00
Jun-00
Sep-00
Jan-01
Apr-01
Jul-01
Oct-01
Feb-02
May-02
Aug-02
Diversifieds index (1)Aluminium Index (2)Copper Index (3)Nickel Index (4)
Incremental ValueAdded
Pyramid Of Opportunity
M&A
Bolt-on Acq.
Growth Pipeline
Cost Savings
Low Cost, High Quality Assets
“Secular v Cyclical”
“Mining has been amongst the best industries in terms of earnings reliability… Market EPS growth has averaged 6% pa over the last 10 years. We expect that BHP Billiton can deliver above market long run
EPS growth on flat commodity prices… Oddly, in our opinion, thediversified miners trade at a PER discount to the UK market.”
Morgan Stanley - 27 May 2002
“The much anticipated commodity price recovery continues to be delayed… We believe that companies with diverse earnings will be
relatively better placed.”Morgan Stanley - 25 July 2002
The Case For Re-rating?
Total Shareholder Returns – 1999-2002
Source: Datastream
0
50
100
150
200
250
300
01/04/99 28/10/99 25/05/00 21/12/00 19/07/01 14/02/02
BHP BillitonRio TintoAngloFTSE 100S&P IndustrialsDow Jones Industrials
Shareholder Returns Not Reflected In The Market Rating
Price-Earnings Ratios – 1999-2002
Source: Datastream
0
5
10
15
20
25
30
35
40
45
50
01/04/99 28/10/99 25/05/00 21/12/00 19/07/01 14/02/02
BHP BillitonRio TintoAngloFTSE 100S&P IndustrialsDow Jones Industrials
