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BHP OUTLOOK BHP Adjusts Outlook with Transitions in Demand Kloppers talks simplicity, focusing more attention on fewer things, while scaling back future capital investments By Steve Fiscor, Editor-in-Chief Speaking at the Bank of America Merrill Lynch 2012 Global Metals, Mining and Steel Conference, which was held at the Loews in Miami Beach, Florida, USA, during May, Marius Kloppers, CEO, BHP Billiton, explained the transitions he sees taking place with future demand fundamentals. He talked at length about how BHP would evaluate future investment decisions against a changing demand backdrop. Throughout the recent bull market in mining (2002-present), BHP has expressed a confident outlook. It was one of the few com- panies bold enough and with deep enough pockets to continue to invest in mining operations during the global financial crisis. Going forward, however, Kloppers believes the industry now faces an evolving set of challenges. With a value-focused strategy, sig- nificant flexibility in the portfolio, and strong momentum, he remains confident with a bit more pragmatism. BHP is a leader in iron ore and base metal production. Demand for those commodities is driven by urbanization. The world's population has grown steadily at an average rate of 1.5% per year for the last 50 years. The accelerating rate of urbaniza- tion, however, has had a more profound impact on demand. In 1960, 34% of the world was considered urban dwellers. That fig- ure grew to 52% in 2010. In China alone about 200 million peo- ple migrated to urban centers from 2000-2010, which is equiv- alent to about two thirds the current U.S. population. When peo- ple move to cities, they consume more materials and energy. Urbanization will continue with 250 million more Chinese and a total of 1 billion people worldwide migrating to cities in the next 15 years. The mining companies that are well-positioned for the chang- ing patterns in demand will benefit the most, Kloppers explained. "Commodity demand patterns in the developing economies change as the GDP growth trajectory transitions from being invest- ment to consumption led," Kloppers said. "History tells us that steel consumption peaks first, while copper reaches a plateau later in the GDP growth cycle. Food and energy show a more linear growth pattern over a longer period of the cycle." Those patterns are evident in the statistics for China's share of global consumption of key commodities. Among steel products (coking coal and iron ore), the Chinese are consuming 50% or more. For aluminum and copper, their share of demand hovers around 40%. This contrasts with uranium, crude oil and potash, which varies between 5% and 20% of global demand. The industry faces a different set of challenges Source: Global Insight; McKinsey Basic Materials Institute. 1. Excluding exploration. 100 E&MJ; • JUNE 2012 www.e-mj.com