Thank you for uh you called me two weeks ago and said you're here for 4 days and thank you for taking the time off on a Sunday to come over here and to do this. Wanda is a high achiever but she's also one of us. So I think this is an IM chat that we'll keep reasonably informal and chatty. There are no Chatham House rules but please I mean like you know some of the things that she may say if they're meant to be in this room keep it in this room. I'm going to start off and I'm not prepared. I've not told her anything of what I'm going to ask so it's going to be fun. We'll kind of make this up as we go along. But one of the first of all a rapid fire round. Very simple questions just want sharp quick answers. You worked in multiple cities. Delhi, Lucknow I mean Delhi, London, Singapore, Japan, Melbourne. Favorite
For work? London. For enjoying where we were, Japan. And very special place is Singapore.
That's you chose three out of five. That's being a great diplomat here. Okay. The least favorite one because you haven't mentioned Melbourne yet.
I think it will be unkind to Melbourne if I said it's least favorite. It's a beautiful city. I don't think I've spent enough time in last one year in the city yet. But yes. And of all these jobs that you have done, which has been the most stressful? ABN, PHP, which is the most stressful job you've done? I think scale-wise what I'm doing today is complex but way back during GFC global financial crisis I became the head of global balance sheet and liquidity management for the investment bank which was combined combination of ABN AMRO and RBS in 2008 with a balance sheet of 1.2 trillion pounds and with off-balance sheet things added 1.6 trillion pounds and this role I took on of liquidity three and a half months before Lehman happened in 3 months I had no liquidity of which I was ahead of so it was I think whatever I will do and I am doing that kind of complexity and stress in the moment I think that's quite special what doesn't break you makes you stronger and all that.
Yeah, I don't think it's working.
Can people at the back hear?
Yeah. Now it's a lot better.
It's booming. And and and the and and the most favorite job that you've done out of all of these.
I think favorite job would be the one which I did here in Singapore as chief commercial officer for BHP. It's a very sprawling mandate which is being accountable for all sales and marketing of all global commodities that we sell around 60 to 70 billion dollars of revenue line and maritime which is like some 1200 ships in a year that we are accountable for procurement of around $25 billion a year and macroeconomic as well as commodity views for here and now but also into 30 to 40 years because that's how we put the project. So that mandate was interesting because I'm not a miner. I'm not grown in the industry. I was a banker for 20 years then became a treasurer for three and a half and was given the privilege of having this role. So I loved this role because I got to learn so much and then contribute back over those 4 and a half years. And 18 months ago, maybe it was 17 months ago in December 2023, you said your December 2024 resolution was to read 50 books. Did you achieve it? I didn't because in between it got announced that I'm going to become the CFO and for the first time in my life I said for 6 months I'm not going to read other stuff because I had to just take on so much which in hindsight was I think an okay decision not a great decision because my way of relaxing is to read stuff but now I'm back so this year I would have done probably around 15 odd already.
And a last question before we get to the serious stuff. It's Father's Day. Which city does your husband prefer out of all the ones that you've taken him to?
I have taken him to Japan. And now Melbourne, London, both of us went and from India. When we came to Singapore, he came with his company. I came with mine. So not all the time he's followed me. But I think he's enjoying Melbourne a lot. His wife is gallivanting all over the world. So I think he's left in peace and enjoying it a lot.
Thank you very much for that and I think just to try to give an insight on that. I mean the theme like we like to Hina mentioned that we've chosen is no way back right. We're talking about the fact there's a reversible world changes whether it's AI climate change tariffs and geopolitics. And I think if you really look at it from your professional perspective in BHP, BHP has for three or four decades been sourcing resources from the lowest cost base supplying it to the entire world but the world's completely changing. I mean no one could have imagined the US would be putting tariffs on Australia, China will retaliate when you're trying to do this whole global supply chain. So what's the kind of thing that you deal with when you look at this, how do you see BHP's role changing in this evolving world?
Yeah, I think like you said in the introduction, Hina said I think that the world is changing on almost, world is always changing so that's nothing new but I think world is changing on many dimensions together and as the change is happening in every dimension I think the orthodoxy is being challenged and I think that's important because our confirmation bias or given that it will go back to what it was is so strong that sometimes these structural changes which happen very slowly but they are structural changes can be missed as just an aberration and they may not be so. I think the noise to signal ratio is very high right now but that is not to say that at the end of the day there isn't something structurally which is changing and we need to see what is transitional change versus what is structural. In that sense, if I come back to BHP, mega trend of energy transition whatever the pace may be is here to stay. The mega trend around the development of the world which needs to continue. We know we all come from a country which is still being built, that will continue. The mega trend which is amplifying demand of our commodities through the AI route is just about starting. We were not even thinking about it. And then the mega trend of fracturing of the world potentially pulls and pushes the orthodoxy of free trade, competitive advantage of nations etc. That's being challenged. All that means that from where we are there are three things that I would think of: one, think of here and now but also medium-term and long-term resilience. Resilience has become my favorite word because business resilience, strategy resilience, financial resilience, operational resilience, and resilience to be able to have the setbacks and come back which is the definition of resilience is important not only at the institution level but at team level, at individual level. I think that's huge for us. That means that the commodity demands because we are in a commodity, we are the largest mining company in the world, that means that will continue. The fundamentals remain the same. If anything, they get even more amplified. However, the geostrategic considerations can mean that the flow of those commodities and trades will change and with that comes issues of mitigation, issues of positioning, issues of steering. Business of business is business. But now it comes with all this baggage and that was the reason that I've just flown in from DC. We obviously don't sell anything to DC but it's a very important place to go and make sense of the world and what's happening so that you can put that into your context.
And did any of the conversations you have in Washington make any sense?
I think if someone tells you other than one man that they know what's happening, I think they're lying. So that's one. I think the second issue is though, as I said, every noise is not just noise. Some of this will stick and the important issue is to know the difference of what is noise and theatrics and what will stick. From my perspective, what has been very clear in our industry is the race for critical minerals, copper, what it means, where the midstream of value chain does China have concentration in one part of the value chain etc. Those kinds of issues are pretty much center of the table whichever country you are in. In China, in US, in India, wherever you are, this is very much the topic. But what does that mean is that there is also a need to go and educate. Not everyone comes with the same background. Everyone comes with a blinkered view. So I think the role of people like me, which was never the case earlier, has become also to go and have a conversation and give a viewpoint. You cannot at the largest mining company say let them write the policy then we'll see what we do with it. You have to be able to at least give it a shot to be able to say your piece and give that perspective. I think that is very much welcomed whichever place you go to.
And you talked about distinguishing between what is transitionary and what is structural. So is this whole tariff thing just a transitional thing? Or is it marking a permanent thing where people will start having some level of tariffs on everybody else?
Yeah, I think the tariff, I have lots of views on tariffs but overall if I were to just take a step back, I think the industrial policy way of thinking, security of supply way of thinking is not unique to the US right now. If you see many many countries are looking at their way of thinking about what they want to do through the lens of security of supply for important issues. Secondly, looking at industrial policy in a way, there's a resurgence of industrial policy happening. Whether the world is going mercantile per se or not is a different issue but overall I think that is very much the case. So I think tariffs will stay in some form. We are even after reduction in tariffs right now, US tariffs have not been this high since 1930s. So this is going back way back to Smoot-Hawley days to look at these kind of level of tariffs but this is not unique to the US. Industrial policy is something China has done very well. They know how to do it. They've done it very well. Security of supply is a big consideration for them. Europe almost in reaction, though I would say it's existential for them, is starting to think about that issue for themselves and so are the others. India it's a big consideration and issue. So I think those things are changing. Just to say free trade should happen irrespective of what happens in the country, I think it's not the world we are living in. So when we look at long-term scenarios and flex what the world can turn into from an inward look into free trade on technology, you can have again the spectrum: the good part with the productivity increasing versus some of the darker elements of that, climate change gets solved versus there's a climate anarchy, there is a good world growth versus a stagnant world growth because of all this, blocks happening versus just this kind of muddling along continues. I think on all these dimensions you can construct very different scenarios of the world 30 years hence and work backwards and say which of these worlds work for my strategy and which ones definitely won't and am I comfortable with it.
And that's interesting because in this kind of environment you're sitting in Collins Street, Australia is not called down under for no reason, it's far away, and you're making investment decisions about literally a global company with complete global operations. How do you kind of make these things? What goes on in your mind when you're doing these things that are 5 to 10 years but you don't have any predictability about what's going to happen geopolitically or in terms of trade wars over the next two or three?
That's the beauty of it, isn't it? The traders will tell you it's very difficult to make money in three days horizon and I will tell you it's very difficult to make money and decision in three decades horizon. So it's difficult both ways. But that's right. Our mines that we set up, we are the largest copper producer in the world, the second largest iron ore producer in the world, the largest steel making coal producer for the most premium quality, and we'll be 10% of potash market when our projects come in by end of the decade. Each of those mines, you think about it then you FID it, that's already four five years. FID means you say I'm going for it. I'll give you an example: in our Escondida mine in Chile, we have a reinvestment program and people are talking about that will be 10 to 15 billion, one investment program. So five years of studying it then you said yes we are going after it, that's 10 to 15 billion of money, that's around five six years of execution and that's BHP standards who are really good at it. So let's say another six, that's when the first production starts. So we already decade plus and then that production, the life of mine is 45 years. So you have to have a view how do I look at the project economics in that sense. The only way to have that sense is to have some signposts and to have a range. Anything which is done on single view of the world of course is going to be wrong. So the range in terms of high low medium kind of a thing and some probabilistics on that, but equally signpost on all the other elements that I earlier mentioned of what will you need to watch to say this is not going to be the right thing to do and then look for it. Hence we have chosen commodities which are leveraged to the mega trends that I talked about: decarbonization, you need lots and lots of copper, the world runs out of copper otherwise; AI, you need lots and lots of copper. Right now almost no copper goes into data centers and data centers are growing so much, the cooling, the wiring, the transmission, the power line, etc. Between now and 2035, 3% of copper demand will come from data centers and by 2050 that could be around 7 to 8% of copper demand comes from data centers whereas two years back it was almost zero. So that's the kind of amplification happening. So choosing what we call future facing commodities is our way of navigating this.
And again coming to your role as CFO specifically on this. You got to make these long-term almost generational bets. You have no idea really. You know that it'll pay off in the really long term but you don't know when and what the risks are. And then you have presumably you have an investor meeting tomorrow or an analyst meeting day after or whatever else it is. And you have that short-term demand for why is your dividend only 51%, why are you making these bets and all of that, right? How do you actually reconcile these?
Yeah, I think that's a good point. The point is what is the value proposition? We have to be super clear. The value proposition for BHP is that we are long-term shareholder value generation company while having a good balance between shareholder returns which is dividends, investing in growth which is the capex that I'm talking about. We invest around 10 to 11 billion a year in capex which, as the chair of that investment committee, I have the accountability to approve and then how much we want in balance sheet because I was talking about resilience. We also known in our industry as having a rock solid balance sheet which is what is needed.
And you use an interesting phrase and was saying everything competes beyond that 51%. You only give the dividend everything else.
Yes. So what we have said to the shareholders is 50% of everything that we make, 50% of PAT just formalistically will come to you. So everything we generate, 50%. So the hierarchy of cash flow is what we call our cash allocation capital allocation framework which I wrote when I was the treasurer when I just joined the company around 10 years back in 2016 which was the last commodity crisis which happened. I joined the company and within 2 months the commodity prices were the trough it had ever seen and as a treasurer that was challenging but it also gave me an opportunity to really set the balance sheet and frameworks right. So all cash comes in, first thing is we put maintenance capital, asset integrity, compliance capital and all the equipment we have so that doesn't get bad. So that's done. Then we look at strong balance sheet which is okay. 50% of dividend comes. After that there is one pool of excess cash and after that all extra use competes: additional shareholder returns, capex, buybacks, balance sheet. In last 2016 since we put this framework in place, we have returned 96 billion US to our shareholders. For three years in a row they complain.
They still complain. Of course they do because we are into reinvestment phase now. So the super normal profit dividends that we were paying, we were not paying 50% of what we made. We were paying almost 100% of what we made because the kitty of capex was not that advanced. Now we have good suite of projects. So we'll start to reinvest. But that would mean that 50% is certain and rest will work that way. For three and a half years, three years in a row we were the second largest dividend paying company in the world after Microsoft in US dollar absolute terms.
And it's fascinating you said 10 years ago you created this capital allocation framework when you were treasurer. Now when you look back and you're actually sitting and making those investment decisions, how well has it stood up to the test of time, what have we changed?
I'm not scratching my signature from all those board papers I wrote many years back. Let me tell you that it is a bit surreal to think that it has lasted through COVID which was a really strange period for the company. I was doing my commercial job here and Australia and China at one point in time were at loggerheads and I had our steel making coal. China was the biggest customer and 40% of our coal was going to China and 40 ships were lined up in various Chinese ports and they were just waiting and there were no custom clearance and nobody knew why. I'm like what's happening? Why? And this is because Australian prime minister and Chinese are just going at it. Overnight we had to take care of 40 ships and bring them back and send them somewhere. Another story, but they all went to India. Because just before that quarter, I'm digressing but it's an India story and everyone knows here was that horrid quarter of COVID in India. You'll remember and none of our steel customers in India could take our product at that time because of all the issues going on etc. And as per contracts, they couldn't have done anything. They should have accepted it. We could have sued them. We could have asked for penalties. I said, 'We are not going to use any contractual remedies. Zero. We'll see how we can manage our product.'
Did that make you popular with the legal team?
They didn't. It didn't make me popular with the legal team, with my board, with anyone. But I said this is what we are going to do. One quarter. We did not send any products to India. Tried to do something. Next quarter this China issue happened and you would not believe it. Every Indian customer of mine who had come back from the lull at that time said send whatever you want. We'll stockpile it here. Because of that one decision taken in one quarter, those 40 ships got diverted to India. Each of them got paid. Each of them worked. And now instead of China, India has 40% of our product. 2% of steel making coal of BHP goes to China now. And we supply 40% of our coal goes to India. But interesting part is 40% of all steel making coal requirement of all Indian industry comes from just BHP.
