BILLITON’S JUNIOR EXPLORATION STRATEGY IN

AUSTRALIA

www.billiton.com

BILLITON

• UK based, LSE listed diversified mining company (floated July 1997)

• Roots in Gencor (South Africa) and the metals assets of Shell

• Number 39 in the Footsie 100• Market capitalisation A$23 Bn

(Rio Tinto A$41 Bn BHP A$38 Bn)

Summary of Investment Programme

Investment breakdown since LSE listing (US$ millions)

Source: Annual reports; Group Finance records; Note: Values include expansion capex & acquisition enterprise values

Commodity 1998 1999 2000 2001 YTD Total

Aluminium 105 390 400 1,558 2,453

Base Metals 1,644 1,644

Coal 208 761 152 386 1,507

Nickel 32 340 309 102 783

Steel & Ferroalloys 128 416 64 29 637

Iron Ore 327 327

E&D 63 51 45 18 177

Other 65 14 11 27 117

Less: SustainingCapex

-110 -180 -209 -131 - 630

Total 491 1,792 772 3,960 7,015

Scope of Business in Australia

Net Operating Assets: US$3.2B (approx 1/3 of group total)

Alumina: Worsley Joint Venture (86% interest)Nickel: QNI (100% owned)

Yabulu refineryManganese: GEMCO & TEMCO (60% owned)

Samancor joint ventureCoal: COAL (100% owned)

Hunter Valley operations

Base Metals: New Business Division Initiatives

E & D Locations

Johannesburg

Melbourne

Beijing

Kunming

Santiago

Lima

Vancouver

The Hague

London

CentralWestEastChina

Grand Falls

Distribution of Exploration Spend

US$ M 1999 / 2000 1998 / 1999

• Latin America 6 14• Africa 3 10• Australasia 5 6• China 4 3• Other 8 3

• TOTAL 26 36(excl. Rio Algom)

0%

2%

4%

6%

8%

10%

Exploration Expenditure/Revenue

Discovery Track Record

0

5

10

15

20

25

30

35

40

45

50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 310

200

400

600

800

1000

1200

DISCOVERIES PER

5 YEAR PERIODSENIOR COMPANY

EXPLORATION

EXPENDITURES

DIS

CO

VE

RIE

S

EX

PL

OR

AT

ION

, US

DO

LL

AR

S

1971 2000Sources: CRU, Gamah, 2000

Business Environment Drivers, 1998/99

MAJORS• Poor industry performance - imperative to cut costs• Disillusionment with “big company” exploration• Impatience with long lead times• Questioning value of exploration

JUNIORS• Many well managed, with attractive property portfolios• Venture capital drying up (post BreX, falling gold price)• Even in a tight market funding 50% of global exploration

-100000

-50000

0

50000

100000

150000

200000

250000

A$ 0

00

0

50

100

150

200

250

300

350

Nu

mb

er

of

Co

mp

an

ies

Exploration Expenditure Net Cash: Increase / Decrease No of Companies

Junior Explorer’s Cash Flow

Our Hypothesis

• The exploration business needs to address: – Discovery costs/rates

• A route forward - Strategic alliances with quality junior companies

• Groups establishing strategic alliances now will dominate the marketplace in a few years - look at the pharmaceuticals

Discovery Big Pharma & Biotech

• Junior sector developed in 1973– Response to high discovery costs and low

success rate– Trade-off some discovery value for external

R&D investment• Sector valued at $US 200 billion today • Dominant supplier of new products to Big

Pharma

US Biotech Performance

100 TOP BIOTECHS MERCK

SALES $6.6 BILLION $26.9 BILLION

MARKET CAP $100 BILLION $168 BILLION

PHASE III TESTS 145 5

Source: BioVenture Consultants Stock Report 6/25/99

US Biotech Acquisitions

By Producers

0

1000

2000

3000

4000

5000

6000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42

US

$M

ILL

ION

S

Source: BioVenture Consultants, BioWorld

PIERINA

INDIVIDUAL ACQUISITIONS (Names not shown)

VOISEYS BAY

Biotechnology vs Exploration

1400 companies Can. $10 billion

expenditure 5000 new compounds 5 Stage III tests One FDA approved

drug $250 million per

discovery

1500 companies Can $800 million

expenditure 1000 new projects 5 discoveries 1 new mine $100-200 million per

discoverySource: Discovery data Fenton Scott

Source: Robbins Roth

BIOTECHNOLOGY

JUNIOR EXPLORATION

Fully supported by Big Pharma

Partial support from majors

Implications for Exploration

• R&D success rates are improved in small entrepreneurial firms

• Cost per discovery also reduced• Exploration is comparative with biotech R&D from

an investing perspective• Senior companies must play a lead role in

changing market perceptions of junior exploration

Deal Structures

COMPANY PROJECTEQUITY+JV INTEREST

COMPANY PROJECTEQUITY INTEREST

MiningCo.

MiningCo..

COMPANY PROJECTJV INTEREST

MiningCo.

The Billiton Australia Generic Deal

• Billiton subscribes for shares in “A”

• Billiton subscription funds spent on project “1”

• Billiton has option to own 70% in “1” by disproportionate funding after expenditure of subscription

• “A” is manager and charges fee

• “A” spends other treasury funds at its discretion on “2” etc

Billiton Investors

Junior“A”

Junior Project“2” etc

Junior Project“1”

Right to J.V.

The Australian Generic Deal

SubscriptionPhase

UJV : 51% Earn-in

UJV :70% Earn-in

UJV :Pre-FS to production

Billiton projectequity

Partner projectequity

0 % 51% at vesting 51% to 70%

100 % 49% at vesting 49% to 30%

Billiton: enter UJVor ‘walk’

Billiton: earn more, ‘sit’ or sell

Partner: opt for royalty or abate

Jointly 70 : 30,fund to 90%,

or 100%

Jointly 30 : 70,abate to 10% & loan carry,or royalty (COPI or NSR)

The Alliance Strategy

Billiton Partner

Financial strength Fast acting

Technology Risk seeking

Project management Low cost

Innovative Venture capital oriented

Respective strengths of large & small companies allied for mutual benefit

Due Diligence Criteria

• Management and Technical Teams - capabilities, history, performance, skills, experience, ethics (business, safety, environmental), personal references, previous jobs

• Quality of Drill Targets - remodel selected data, field visit, check assays, maps and sections

• Corporate - ASX compliance, filings, financial status and history, previous deals, liabilities, housekeeping

• Legal - validity of mineral title, outstanding litigation

What’s in it for Billiton

• Immediate access to capabilities and projects

• Exploration better valued

• Possibility to leverage exploration dollars

• Participation in market response to “bonanza” discovery

What’s in it for our Partner

• Technology - geophysics (covered areas)

• Billiton’s name, reputation and expertise

• Equity subscribed at more than current market

• Ability to leverage the Billiton subscription

• Pre-agreed terms for funding to commercial production

• Alliance partnership

Existing Deals

• Minotaur Resources Ltd– Project generation -> Bonython Hill, Mabel Ck.,

Andamooka, Lake Eyre, Mt Woods JV’s

• Malachite Resources NL– Project generation -> Dalmuir,

• Giants Reef Mining Ltd– Bluebush, Barkly, Alexander, Rosella

• Gunson Resources Ltd– Mt Gunson tenements

• Pegmont Mines NL– Pegmont Deeps, May Downs, Gun Ck.

• Equinox Resources Ltd– Norbotten (Sweden), Ethiudna

Yabulu

Bayswater

Worsley

TEMCO

GEMCO

Malachite

Minotaur

Gunson

Ravensthorpe Ni (QNI)

Equinox(Sweden)

NiS JV’s (QNI)

Giants Reef

Pegmont

Equinox

Australia – Operations & Exploration Venture Locations

Some Issues

• Deal Stream for large base metal targets limited

• Future generative activities?

• Integrating the Rio Algom philosophy

• The scale trap

• Last but not least, merge with BHP

The Scale Trap

• $500 Million MiningCo.– $50 million project is 10%- many to be found

• $5 Billion MiningCo.– $500 million project is 10%- very rare

• Future $50 Billion MiningCo.– $5 billion project is 10%- non existent– Exploration becomes irrelevant to growth