24 October 2013 Asia Pacific/Australia Equity Research CREDIT SUISSE Diversified Metals & Mining (Diversified Resources (AU))
BHP Billiton (BLT.L) Rating NEUTRAL* ... -::-. ,,-:.!'..· ~ J • • • >-...... • ·- - -· ~ • - -, ~ • ' :,COMMENT . Price (22 Oct 13, p) 1,950.50 -•~-- ...-=--- -~~"!:._·!!..._ - --~ ' - -- :!..__ - Target price (p) 2,250.00' Market cap. (£mn) 112,765.23 Leader or laggard? Yr avg. mthly trading (pmn) 262,366 Last month's trading (pmn) 212,922 Projected return: • Event: Sector heavyweight BHP exhibited strong share price strength post Capital gain (%) 15.4 its production report this week but with the shares clearly lagging peers over Dividend yield (net%) 4.1 the past 3 months we think an element of catch up was due. Part of the Total return(%) 19.5 lagging share price performance can be explained by recently approved 52-week rice ran e 2,236.0 - 1,666.5 • Stock ratings are relativeto the relevantcountry benchmark. (potash, copper) and on-going capital projects (coking coal, shale) that have 'Targetprice is for 12 months very long dated returns, much longer than the market is willing to pay for near term. Despite this, we anticipate further iron ore, copper and petroleum Research Analysts project approvals over the next 12 months but contained within a solidly James Gurry 44 20 7883 7083 declining capex trend. These projects in favoured commodities will have a [email protected] quicker payback period so should be more easily taken by the market. Paul McTaggart 61 2 8205 4698 • Valuation: While BHP trades on 12x forward PE and 4% div yield, breaking [email protected] the valuation between petroleum and mining we find oil trading on PE of Michael Shlllaker 10.6x, EV/EBITDA of 5.2x (similar to peer averages) mining trades on 15x 44 20 7888 1344 [email protected] PE and EV/EBITDA of 9.8x for 2014, the latter above mining peers. However Liam Fitzpatrick the market has been prepared to pay for BHP's diversification in the past 44 20 7883 8350 and the ability of the company to convince investors that its significant shale, [email protected] potash and other through cycle investments are worth paying (a premium) Martin Kronberg for is key to restoring the its market multiple leadership. 61 2 8205 4369 [email protected] • Catalysts: 9-December: Petroleum briefing and site tour of US shale Justin Teo operations. We anticipate further iron ore (WA), copper (Spence) and 61 2 8205 4426 [email protected] petroleum (GoM) project approvals over the next 12 months but contained Specialist Sales: James Brady within a solidly declining capex trend. Further non-core asset sales 44 20 7888 4267 (including the less economic parts of BHP's Permian acreage) should also james.brady@credit -suisse.com be anticipated. Neutral rating maintained with 15% upside to target price. Share price performance Financial and valuation metrics Year 06/13A 06/14E 06/15E 06/16E Revenue (US$mn) 65,968.0 71,963.1 72,752.9 75,468.0 2051~ EBITDA (US$mn) 28,383.0 31,976.2 32,661.4 34,588.1 1851 1651 EBIT (US$mn) 21,127.0 23,960.3 24,077.6 25,360.0 1451 ~ Net income (US$mn) 12,778.0 13,752.1 13,621.9 14,455.6 Oc\.11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 EPS (CS adj.) (USc) 239.29 252.52 250.13 265.44 -Pnce -Price relative Change from previous EPS (%) n.a. The pricerelative chart measurespetformance against the Consensus EPS (USc) n.a. 257.50 277.40 284.90 FTSE ALL SHARE INDEXwhich dosed at 3554.84 on EPS growth (%) -32.7 5.5 -0.9 6.1 22/10/13 PIE (x) 13.2 12.5 12.6 11.9 On 22/10/13the spot exchangerate was£ 85/Eu 1 - Eu 731US$1 Dividend (USc) 11,600.00 12,699.75 14,001.47 15,436.63 Dividend yield(%) 3.7 4.0 4.4 4.9 Performance Over 1 M 3M 12M P/B (x) 2.4 2.2 2.0 1.9 Absolute(%) 4.0 3.9 -1.6 Net debt/equity(%) 40.4 31.5 26.3 19.3 Relative (%) 2.1 2.0 -18.9 Soun:,, Companydata ASX Credit Swsse estimates,• Adj. for goodwill,notional interest and unusualff ems. RelativePIE against ASX1/S&P200based on pre GW ,n AUD CompanyPE calculationis based on displayedEPS Currency DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683 US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE 24 October 2013
Many winners in this competition for capital ... BHP's basin strategy requires significant amounts of capital. The company continues to espouse the internal competition for capital between its many growth project options but we find the current project spent has left investors questioning the long dated project returns on offer, especially in potash, shale and coking coal. Despite this, we anticipate further iron ore, copper and petroleum project approvals over the next 12 months but contained within a solidly declining capex trend but these projects are in favoured commodities with a quicker payback period - so should be more easily taken by the market.
Figure 1: BHP capex forecasts ($mn) 25,000
20,000
15,000
10,000
5,000
FY13A FY14F FY15F FY16F
• Pelroleum II Potash • BaseMetals II IronOre a MetallurgicalCoal • EnergyCoal • Other
Source: Company data, Credit Suisse estimates How does BHP compare to its sector peers? With plenty of emphasis on lowering CAPEX, FCF yield is fast becoming a preferred measure of value within the sector. On this basis BLT is second only to Rio Tinto on both base case and spot commodity prices.
Figure 2: 2014E FCF yield base and spot Figure 3: 2015E FCF yield base and spot 12% 18.00%
10% 16.00%
8% 14.00% 6% 12.00% 4% 10.00% 2% 8.00% 0% 6.00% -2%
-4% 4.00% -6% 2.00% -8% 0.00% RIO BHP GLEN ANTO ML RIO GLEN BHP ANTO ML
Base • Spotl Base • Spotl
Source: Company data, Credit Suisse estimates, (RIO, BHP FCF after Source: Company data, Credit Suisse estimates (RIO, BHP FCF after all capex including exploration, Anto FCF on an attributable basis, all capex including exploration, Anto FCF on an attributable basis, AAL FCF after minority dividends, GLEN FCF adjusted down for $5bn AAL FCF after minority dividends) asset sales)
BHP Billiton (BL T.L) 2 CREDIT SUISSE 24 October 2013
At 12x earnings the stock is certainly less expensive than ML and Glencore but not Rio Tinto (20% cheaper and weighed down by iron ore price expectations).
Figure 4: Sector Summary COMPANY PRICE CHANGE VALUATION (Calendar Vear) Mi
Figure 5: 12month forward PE (consensus) Figure 6: Summary valuation Valuationsummary NPV(US$m} USS/share ASishare GBE/share Petroleum 57,230 t0,6 12.4 6.5 29% Alurrinium/ alumina 2,772 0.5 09 0.3 1% BaseMetals 32,383 6.0 7 t 37 !6% Ironore 74,923 13,9 !6.3 86 37% Manganese 3,546 0.7 0.8 04 2% MetallurgicalCoal 1!,763 2.2 2.6 t.3 6% Potash 2,001 0.4 0.5 0.2 1% EnergyCoal 10,!39 1.9 2.1 t.2 5% StainlessSleel Materials 3,456 0.6 0.8 0.4 2% Group& una locateditems 1990.5 04 0.3 02 1% Total 200,202 37,1 43.8 22.9 100% NetdelHPro'l1SIOflS 27,754 5 I 6.0 32
C C C C C C N N N N ,., ,., ,., ,., BHPDCF valuation 172,448 31.9 37.7 19,7 ',;, ',;, ~ : al i ~ ii- ~ j i ~ : ~ ~ ~ Pnce/ NPV 1.07x 0.99x 0.98x i :> :> .ll z i :> :> z i :> :> 1 ~ :> .ll -ll.T(PEF012) -RIO(PEFD1 2) -GlEN(PEF012) -Ml(PEF012)
Source: Company data, Credit Suisse estimates Source Company data, Credit Suisse estimates (see back of report for our detailed asset by asset valuation)
BHP BIiiiton (BL T.L) 3 CREDIT SUISSE 24 October 2013
Positive Q1 production ... or just catch up? BHP's recent production report was taken well by the market as iron ore managed to exceed expectations with the new Jimblebar mine making first production 2 Qtrs ahead of the original schedule (1 Qtr ahead of revised schedule). However elsewhere it was not such a pretty story with copper down 13% Qtr on Qtr (up 6% compared to same qtr last year). Had iron ore not delivered as strongly as it did we fear BHP would still be lagging its peers in recent share price performance. While it is only Q1 and there is plenty of time to make back the lost copper production through the year, we do sense risk to guidance and management needs to reassure the market that Escondida (down by 8% QoQ), Pampa Norte (including Spence down 33% Qtr on Qtr) and Olympic Dam (down 42% qtr on qtr) can all overcome their specific issues (Escondida: maintenance, strikes and grades I Spence: low grades and recoveries I Olympic Dam: smelter reliability that will be addressed in the March-Qtr). The strong share price reaction on the day (BLT up nearly 5%) was in our view partially due to the solid production report and partially in response to a laggard share price over the past 3 months v peers. Key take-outs from production:
• Further upside to iron ore guidance of 207Mt from Western Australia;
• Downside risk to copper guidance (noted above);
• Coking coal now operating at full capacity.
Iron Ore - now for the less expensive growth phase ... Rio Tinto's 360 mines may not be the only near term Western Australia capex approval ... With the new Jimblebar mine now 96% complete and already producing we see no iron ore growth capex approved beyond calendar year end for BHP in Western Australia. If this were to persist into 2014 this would be a highly unusual given that iron ore prices remain strong ($133/t spot price and BHP's mining cost ~$34/t pre royalties) and it is not since 2004 since BHP had no growth capex spend in the iron ore division. Recent presentations by BHP clearly path the way for further iron ore increase to lift production capacity from the current 220Mtpa to 260-270Mtpa over the medium term. The expensive infrastructure spend has taken place at BHP and so we expect the next 50Mtpa phase of growth to be far less capital intensive at around $100-120/t (<$6bn over 4-5 years). Infrastructure done ... rail and port capacity is already well above this (rail 300Mtpa+, car dumpers 275-300Mtpa, shiploaders 280-320Mtpa). Mine capacity progression ...
• 220Mtpa - current Western Australia Iron Ore mine capacity after Jimblebar completed this qtr.
• 240Mtpa - capacity expansion possible with the next phase of development of Jimblebar mine from 35Mtpa to 55Mtpa.
• 260-270Mtpa - capacity possible after debottlenecking initiatives and mobile crusher installation that could add another 20Mtpa+ in mining production capacity.
BHP Billiton (BL T.L) 4 CREDIT SUISSE 24 October 2013
When? Next 6-12 months ... With Jimblebar development about to complete now seem the ideal time to approve its immediate expansion to 55Mtpa as the iron ore price (for now) remains elevated and there would be little point demobilising the development/construction workforce to only reengage them later. However we do not Jimblebar will take 18 months to ramp up to full production capacity. How much will it cost? $2bn+ ... A Jimblebar brownfield expansion by 20Mtpa should be quite low capex intensity compared to the $150/t for the initial Jimblebar expansion. At $120/tonne of capacity the expansion will cost over $2.4bn but we could even see a lower cost than this.
What is the bug bear? Harbour Capacity ... The authorities so far have limited BHP's Port Headland Inner Harbour capacity to 240Mtpa for Class A tonnes. This is enough for an initial capex push past the current capacity but to push beyond 240Mtpa a Class D tonne allocation will be need to be utilized. Class D shipments are opportunistic shipments that utilise additional spare capacity and from we understand will be allocated with short notice (month by month with no permanent allocation). The uncertainty over its Port allocation may mean that it would be more prudent for BHP to focus on the 20-30Mtpa of debottleneck potential first rather than commit larger funds to the next phase at Jimblebar that is not due to ramp up to full production until June-2015.
Figure 7: Iron Ore Production (BHP share, MT) Figure 8: Met Coal Production (mt) so~------12 ~------
50 10 ------•------o >-• •---•
40 +------=-1,__ ...... __.._... .._.._.. 8 ------•- ...... -~ ..... ,__ ...... ____.....
30 --~~-_ ,....._...... ,,_...... ,___...... -..... ,_.._...... 6 ....-- •--•-- •-- •-- -- ...... _. 20 ...... ,______,___...... ,___...... _. __ ,.... 4 +• ·-• - • .... ---- •1- • ---- •------•1-11--• --1- • ----- •-- ---• --- -• - -- -- 10 _____ ,_____ ,___.....,,_...... ,___......
.,.,. ·r ~,....,. .· ··,- r 'r"/''T T T 'TT "!''' T TT '-r T T "'r -r--r· r j ~~~~~~~~oooo~~~~NNNNMMMM~~~~ §~~~~~g~§~~§§~~§§~~§§~~§§~~§
• WesternAustralia iron ore a Samarco • BMA a BHPMitsui Coal • lllawarra
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
BHP BIiiiton (BL T.L) 5 CREDIT SUISSE 24 October 2013
Petroleum ...
Gulf of Mexico total 28.6 32.7 35.5 Onshore (shale) 91.6 96.8 109.0 Total Americas 120.2 129.4 144.5 Bass Strait 36.0 39.9 39.5 North West Shelf 30.1 29.6 29.4 Stybarrow 1.7 1.3 1.2 Pyrenees 8.5 6.1 6.1 Other Australia 3.6 9.8 11.9 Total Australia 79.9 86.7 88.0 Other 35.7 39.2 44.9 TOTALMBOE 235.8 255.3 277.4 Source: Company data, Credit Suisse estimates Permian acreage for sale? Not surprising ... While the Eagle Ford acreage has been the clear focus for BHP since the PetroHawk acquisition, the Permian acreage was also touted to be a significant part of the value proposition despite it only being as exploration stage. However BHP has been extremely tight-lipped on its production expectations for the Permian while conducting test drilling for the past 12-24 months. The Permian is a vast area with variable field structures and the BHP as recently as August put distance on the potential timeframe for development. Despite our best efforts we have found it difficult to extrapolate other producers experience in the Permian to BHP's position. This week well placed reports (Reuters and Dow-Jones quote a BHP Spokesperson on 23-October-2013) suggest BHP has now put in place plans to now sell up to half its Permian acreage, 165,000 net acres in the Delaware Basin and 85,000 net acres in the Midland Basin, from its total of 440,000 net acres. BHP recently split its Permian assets into two units (AKA CGUs for impairment testing), North (Reeves/Pecos -Delaware) and South Permian (South Midland Basin). This was due to the separate and distinct nature of each area including the vast geographic distance between the two and no sharing of infrastructure. Noticeably BHP took a small $266m impairment on the Southern Permian unit in the June full year accounts and therefore we would think this is an indicator that it is the Southern block that will be up for sale. To us it appears BHP has now come to the end of its testing period and have nominated the less economic areas for sale to focus on the more lucrative assets - and selling the less economic parts means we would not get too excited about price expectations ($1 bn?). BHP has certainly bitten off as much as it is probably willing to support with its shale position given that it has been spending ~25% of its annual capex budget on these assets ($4.Bbn in FY12 and guiding to $3.9bn in FY13). Lightening the load by selling some of the asset base would therefore be prudent. We still think meaningful production from the Permian is likely to be an end of decade story for BHP and while we have modelling the potential from the Permian we do not yet include this in our forecasting. BHP is hosting an asset briefing and site tour for its shale assets on 9-December when we will learn far more on the future plans for the shale and conventional oil/gas business.
BHP BIiiiton (BL T.L) 6 CREDIT SUISS~ 24 October 2013
In the last half we calculate BHP has a cash cost of shale production $2.77/McF and another $2.64/McF after non-cash amortization. The liquids component is growing but on our forecasts the shale business is not FCF position until 1H FY15.
Figure 10: BHP Onshore production profile Figure 11: BHP Onshore net cash flow generation 300 2,000
250 1,000 300 ai 200 "C 0 ;1so 200 ~ E -..c -11\, -1,000 ::!!:100 ::!!: 100 so -2,000
-3,000
- Eagle Ford - Haynesville EagleFord - Haynesville - Fayetteville -Eagle Ford, Mboe/d (RHS) - Fayetteville Other (explo, infra) -NetFCF Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Will selling some Permian acreage give rise to a write-down? We carry the non-producing Permian at $3bn or £0.3 per share or 2% of total valuation. However if we used $1Ok/acre for its 440k acres the asset would have a total value of $4bn+. In the scheme of things at BHP this is not huge and selling the less economic half of the position would likely result in only $1 bn of proceeds. What the sale may do is crystallise a write-down of some of the vast $25bn book value the shale assets carry in BHP's books (iron ore which generates half the profit is second at $24bn). We value the total shale business as $18bn indicating a potential for a $7bn write down on our estimates. These assets have been tested in each half year reporting period and in the last test exceeded carrying value by $4bn. With this 16% above book, it does appear to create some comfort room that even the valuation is revised down somewhat. The most vulnerable part of the valuation is the $3.6bn of goodwill attached to the assets (total acquisition cost was $12bn, book value now after capex and including Fayetville is $25bn). Indicators that may give rise to a small write-down:
• BHP has been test drilling for the past 12-24 months but the rig count in the Permian recently reduced from 8 to 2;
• Management putting distance on timeframe for development;
• A small write-down of $266m for the Southern acreage;
• Reports suggest half the acreage is up for sale and such assets need to be marketed to "realisable value". Although despite the above, we do note the key indicator to trigger a write-down is oil/gas prices which have not significantly declined over the past year. If the assets for sale are marked to market a write-down only in the hundreds of millions. May be needed.
BHP BIiiiton (BLT.L) 7 CREDIT SUISSE 24 October 2013
Previously BHP wrote down 60% of its original shale acquisition, the Fayetteville assets purchased for $4.Bbn (write-down FY12 $2.Bbn), after natural gas prices turned down significantly. Gulf of Mexico approvals are not far away
Figure 12: BHP's GoM position ... Production Mboe (BHP share) Asset BHP share Operator FY13A FY14F FY15F Atlantis 44% BP 8.5 13.6 16.1 Mad Dog 23.9% BP 2.7 2.4 3.2 Shenzi 44% BHP 15.5 14.9 14.6 Neptune + Other Americas 35% BHP 1.8 1.7 1.6 Stampede 20% Hess na na na Raptor 50% Anadarko na na na Total GoM 28.6 32.7 35.5 Source: Company data, Credit Suisse estimates While on the oil/gas division it would be imprudent to remind ourselves that capex approvals are not too far away in the Gulf of Mexico:
• Stampede, BHP share of capex ~$2bn: BHP has a 20% share in this Hess operated project and this is expected to be sanctioned in the next 12 months for first oil in 2017- 18 timeframe. Stampede comprises the fields formerly known as Pony and Knotty Head and it is likely that it will be developed via a new-build TLP according to Wood Mackenzie. Peak production rates of +70kbbls/day should be achievable from what is expected to be ~$10bn development (IRR of ~19%). Wood Mackenzie believes that water injection will be required and that a high number of development wells will also be required given the oil resides in multiple sands (indicative also of higher decline rates).
• Mad Dog Phase 2, BHP share of capex ~$2bn: Production from the postponed Mad Dog Phase 2 (BHP share 23.9%) is now expected to begin in 2019 with oil from Mad Dog South and West flanks. Field production at Mad Dog only averaged ~26kbbls/day in FY13 and we expect that Mad Dog production will likely be lower in FY14 before recovery in FY15-16 to around ~50kbbls/day. With Mad Dog Phase 2 we look for production to be over 100kbbls/day.
• Raptor, BHP share of capex? Anadarko Petroleum in its 2Q-2013 report announced the discovery of oil at the Raptor prospect, in deep-water GoM. Anadarko encountered a net oil pay of ~150 ft in the Raptor well. Raptor is located in Desoto Canyon Block 535 at a water depth of 8,200 ft and is 50% owned by BHP. The discovery is on trend with recent industry discoveries at Appomattox and Vicksburg in the Eastern GoM. We do not anticipate capex approval near term but flag it as a longer term prospect.
Potash ... looking for a Canadian dance partner? As the winner of the mega project review last year Jansen potash project is proceeding but at a fairly slow and steady pace. After approving another $2.6bn of capex in August for Jansen, total commitment (excluding acquisition costs) is now $3.Bbn. The approved capex should not see BHP's work at Jansen through to 2016 when the two service shafts are to be complete and BHP will have an economic asset that can be developed and/or sold. To proceed with full development of a 10Mtpa mine would cost another $10bn+ using our estimate of $1,450 per tonne of intensity. However it is far more likely BHP proceeds in Phases and we assume 4Mtpa for Phase 1, expanding to 8Mtpa for Phase 2 before
BHP BIiiiton (BL T.L) 8 CREDIT SUISSE 24 October 2013 building out to the shaft capacity of 1 0Mtpa in Phase 3. The initial 4Mtpa operation would require at least another $2bn capex approval. This is many years away and in the meantime BHP has suggested that may introduce a JV partner into the project. We find it unusual for BHP to look for a JV partner ... Previous policies have been for BHP to own and operate 100% of its assets where possible. To openly speak of a JV partner for this questionable project may help indicate to the market what the asset value truly is but more likely we think it indicates BHP sees the project and its own position enhanced by brining on board a partner that brings something specific to the project. BHP has plenty of capital but perhaps not the expertise in operating / developing a potash mine so an existing potash partner may help. However what we do see is that BHP perhaps lacks strength and stakeholder favour within Canada, especially after the rebuff with the attempted Potash Corp takeover, and a locally domiciled partner, not necessarily an existing potash company but a general Canadian resources company, may provide a boost to BHP's credentials and help the project progress more smoothly as it deals with its various stakeholders at each stage of development (unions, regulators, local communities etc). Do the numbers work? Only at $400/t+ with immediate tax deductability ... As we highlighted in our note of 26-August, Jansen only works (NPV above zero) with the accelerated tax deductions for capital investment and with a potash price of $400/tonne. Our assumptions are:
• WACC: 8.5%
• Capital intensity $1,450/t of annual capacity
• Long term potash price: $450/t FOB Vancouver.
• Opex of $125/t at full production
• Royalties: 5.5% and other taxes at 35%.
• Immediate tax deductibility of capital spending as soon as the project turns a cashflow profit. On our forecasts of a continued ramp-up to 10mtpa, no tax will be paid until late 2020'5. (see our Jansen model at end of this note).
BHP BIiiiton (BL T.L) 9 m ::c Jansen model n "D Figure 13: -;,:, l"T'I ~ C, if =l :l C/l 'iii R8SOOICII(mealed only)- ore tonnes(mt) 3,319.5 3,319.5 3,315.6 3,315.6 3,307.8 3,307.8 3,296.2 3,296.2 3,280.1 C !:j G,ade K20 {'II) 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 V, Containedpotash (ml) 853.1 853.1 852.1 852.1 850.1 850.1 8471 8471 843.0 V, l"T'I .t: I Ore mined(ml) 2.9 6.8 10.7 14.6 20.4 20 28.2 311 33.1 37.9 38.9 Satublo Pai.h production(mt) a.a u 2.8 3.8 5.3 &.3 7.3 8.0 8.5 9.8 10.0 P-ola1a0 fil'I.M1d14 Flnanclals Revenue 338 788 1,238 1,688 2,363 2,813 3,263 3,600 3,825 4,388 4,500 Operatingcosts (USSm)(ea-rvyaltln) 90 210 330 450 616 719 815 880 913 975 1,000 Crownroyally (USSm) 8 20 31 42 59 70 82 90 96 110 113 Reso CAPEX-suslarn 8 18 28 38 48 58 68 78 88 98 100 100 CAPEX·!l!!wih 192 350 658 800 800 800 488 789 1,000 1,000 1,000 1.000 1,000 1,000 1.000 1,000 1,000 1,000 1.000 500 Total CAPEX 192 350 658 800 800 800 489 789 1008 1,018 1,028 1,038 1,048 1,058 1,068 1,078 1,088 1,0911 1,100 600 CAPEX- suun rate (US$.'I) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Operalngassets IIDIVAl' IIDIVll)I 1,681 2,308 3,068 3,828 4,488 4,981 4,981 5,837 5,837 6,779 6,779 7,626 7,626 8,368 8,368 9,005 9,005 9,531 Opox Operabngcosts (US$.'I)- ex-royalties 120.0 120.0 120.0 120.0 120.0 120.0 120.0 120.0 120.0 120.0 117.5 Operabngcosts (US$.'I)- ind. royalties 146.7 1467 146.7 146.7 1467 146.7 146.7 146.7 144.2 Roy1ltyrata1 Crownroyally ('II) 2.5'11 25'11 2.5'11 2.5'11 2.5'11 2.5'11 2.5'11 2.5'11 25'11 25'11 2.5'11 R8SOOICIISSU'dlarge ('II) 3.0'11 3.0'II 3.0'II 3.0'11 3.0'II 3.0'11 3.0'11 3.0'II 3.0'11 3.0'11 3.0'II M1.1110pallaxes (US$.'I) 190 190 1.90 190 190 190 190 190 1.90 1.90 190 _,h,CAPEX C•p•x. growth (Includesmint, port •nd r•II) lniial 1.2bncapex,penllo FY13 192 350 658 2 6on cape,< annoucedal FY13rosuils 800 800 800 200 Stage 1 {assune 4m1pa) 289 789 1,000 1,000 1,000 1,000 Stage 2 {assune Bmlpa) 1,000 1,000 1,000 1,000 500 Stage 3 (awane 10mtpe) 500 1,000 1,000 500 Depreaalionper k>oneol producion(US$.'I) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 ...N 0 Source: Company data, Credit Suisse estimates n 0 { ~ 0 ... CREDIT SUISSE 24 October 2013 Iron Ore, Samarco Brazil • The Samarco iron ore expansion in Brazil (50% BHP, operated by Vale) to 30.5Mtpa from 22.5Mtpa is now 95% done and scheduled to complete 1H CY2014 (BHP capex cost $1.75bn). The 50/50 JV company recently raised $700m of debt finance following another debt issue in late 2012 for $1bn. The funds were raised to expand the company's processing, logistics and production facilities but in the immediate term, in our view,' should facilitate cash withdrawals via dividends to the JV partners. The asset generated $750m of EBIT for BHP in FY13 for a return on assets of over 30%. Revenue $m 2,149 1,996 1,622 1,666 1,700 1,744 1,782 Costs Sm 906 890 811 849 1,023 1,044 1,044 EBITDA Sm 1,243 1,106 811 817 677 700 738 D+A $m 40 55 61 93 100 111 111 EBIT Sm 1,203 1,051 750 724 576 589 627 CAPEX-sustain $m 72.0 52.0 172.0 93.5 100.2 111.4 1114 CAPEX-arowth Sm 100.0 550.0 600.0 250.0 TotalCAPEX Sm 172.0 602.0 772.0 343.5 100.2 111.4 111.4 Per TonneAnalysis Revenueper 1onne sn 188.0 179.5 147.3 143.3 1172 116.3 118.8 Costse!!r 1onne sn 79.3 80.1 73.6 73.0 70 6 69.6 69.6 EBITDAper tonne $It 108.8 99.5 73.6 70.3 46.7 46.7 49.2 D+Ae!!rtonne Sn 3.5 4.9 5.5 8.0 6.9 7.4 7.4 EBITeer tonne $It 105.3 94.5 68.1 62.3 39.7 39.3 41.8 Source: Company data, Credit Suisse estimates BHP BIiiiton (BL T.L) 11 CREDIT SUISSE 24 October 2013 Detailed valuation Below we include the detailed valuation for BHP. Of particular note is our valuation for Permian Shale assets ($3bn of the total $18bn On Shore portfolio) and Potash ($2bn). Figure 15: BHP detailed valuation Valuation NPV USS/sh NPV A$/sh GBP/sh % (USSmn) (ASmn) BassStrait 9,314 1.72 11,030 2.04 1.06 5% NorthWest Shelf 7,915 1.47 9,358 1.73 0.90 4% Macedon 770 0.14 920 0.17 0.09 0% Atlantis 6,189 1.15 7,311 1.35 0.71 3% Shenzi 4,680 0.87 5,537 1.02 0.53 2% MadDog 2,850 0.53 3,350 0.62 0.33 1% ROD& Ohanet 1,267 0.23 1,497 0.28 0.14 1% LiverpoolBay & Bruce/Keith 292 0.05 347 0.06 0.03 0% Stampede 653 0.12 749 0.14 0.07 0% EisOnshore 18,258 3.38 21,022 3.89 2.08 9% Other 5,039 0.93 5,993 1.11 0.58 3% PETROLEUM 57,230 10.6 67,114 12.4 6.5 28% ALUMINIUM 2,772 0.5 4,832 0.9 0.3 2% WesternAustralia Iron Ore 69,810 12.9 82,211 15.2 8.0 35% Samarco 5,112 0.9 6,033 1.1 0.6 3% IRONORE 74,923 13.9 88,244 16.3 8.6 37% Escondida 10,303 1.9 12,198 2.3 1.2 5% PampaNorte (Spence & CerroColorado) 4,612 0.9 5,458 1.0 0.5 2% Antamina 5,794 1.1 6,835 1.3 0.7 3% Cannington 7,140 1.3 8,430 1.6 0.8 4% OlympicDam 4,534 0.8 5,355 1.0 0.5 2% COPPER 32,383 6.0 38,274 7.1 3.7 16% SouthAfrica Coal 1,494 0.3 1,782 0.3 0.2 1% NewMexico 139 0.0 165 0.0 0.0 0% HunterValley 3,687 0.7 4,362 0.8 0.4 2% Colombia 4,819 0.9 5,169 1.0 0.6 2% ENERGYCOAL 10,139 1.9 11,478 2.1 1.2 5% Potash 2,001 0.4 2,607 0.5 0.2 1% MANGANESE 3,546 0.7 4,183 0.8 0.4 2% QueenslandCoal 7,978 1.5 9,485 1.8 0.9 4% lllawarraCoal 3,784 0.7 4,470 0.8 0.4 2% METALLURGICALCOAL 11,763 2.2 13,955 2.6 1.3 6% NickelWest 624 0.1 731 0.1 0.1 0% CerroMatoso 2,832 0.5 3,335 0.6 0.3 1% STAINLESSSTEEL MATERIALS 3,456 0.6 4,065 0.8 0.4 2% Exploration/DevelopmentProjects 3,893 0.7 4,041 0.7 0.4 2% Other(ind. exeloration/OEI) -1,903 -0.4 -2,244 -0.4 -0.2 -1% Totaloperations 200,202 37.1 236,549 43.8 22.9 100% Netdebt (adjusted for PintoValley) 26,955 5.0 31,712 5.9 3.1 Provisions 799 0.1 940 0.2 0.1 Equityvalue 172,448 31.9 203,897 37.7 19.7 Source: Company data, Credit Suisse estimates BHP BIiiiton (BLT.L) 12 CREDIT SUISSE 24 October 2013 ~;¢€if16: BHP financial summazkri Mt! l®HEihll,ii'luin#lk ~,:1,ur1w••ti-½lbi1iM·OO,!N3:jffl,FU Ticker BHP.AX BLT.L Petroleum 57,230 10.8 12.4 8.8 29% Share prices (locaQ (AS/GB£) 37.05 1,874 Aluminium/ alumina 2,772 0 .5 0.9 0.3 1% Share price SUS equivalent 35.75 30.21 Base Metals 32,383 8.0 7.1 3.7 18% Pie I Ltd Premium/(discount) 1tJ -18% Iron ore 74,923 13.9 18.3 8.8 37% Marl BHP BIiiiton (BL T.L) 13 CREDIT SUISSE 24 October 2013 Fi ure 17: BHP financial summa continued Operatingcashflows 31,061 24,384 18,252 24,935 23,472 25,397 27,143 27,492 27,450 27,713 caeex - sustaining -2,244 -2,588 -2,481 -2,955 -3,154 -3,258 -3,273 -3,259 -3,221 -3,151 Free cash flow (sustaining) 28,817 21,796 15,771 21,980 20,318 22,138 23,870 24,233 24,229 24,562 FCF per share 5.23 4.09 2.96 4.05 3.74 406 4.40 4.46 4.46 453 Capex - exploration -1,240 -2,452 -1,326 -1,055 -1,161 -1,277 -1,405 -1,545 -1,700 -1,870 Capex - growth projects -9,366 -17,735 -18,401 -12,662 -9,656 -8,188 -7,251 -7,039 -5,614 -5,448 Free cash flow (all capex( 18,216 1,613 -3,953 8,266 9,505 12,677 15,219 15,653 16,919 17,249 FCF per share 3.31 0.30 -0.74 1.52 1.75 234 2.80 2.88 312 3.18 OtherInvesting cashnows -5,835 -11,713 3,011 1,095 -1,161 -1,277 -1,405 -1,545 -1,700 -1,870 Dividendpayments -5,054 -5,877 -6,167 -6,535 -7,205 -7,943 -8,629 -8,932 -9,042 -9,081 Otherfinancing cashnows -9,733 10,834 8.313 550 1,055 -1,129 298 1,438 -208 1,012 Net Increase In cash -2,402 -5,143 1,203 3,378 2,197 2,330 5,485 6,616 5,973 7,313 Cash at end of the year 10,060 4,881 6,050 9,438 11,634 13,965 19,450 26,066 32,039 39,353 Total capex spend -12,850 -22,775 -22,208 -16,672 -13,970 -12,723 -11,929 -11,843 -10,536 -10,469 Balanct! Sheet (SUS'm) FYi1 FY12 FY13 FY14F FY15F FYlSF FY17F FY18F FY19F FY20F Cash 10,08<4 4,781 6,060 9,438 11,634 13,965 19,450 26,066 32,039 39,353 Receivables 8,197 7,704 6,728 6,728 6,728 6,728 6,728 6,728 6,728 6,728 Inventories 6,154 6,233 5,822 5,822 5,822 5,822 5,822 5,822 5,822 5,822 Plant & aqulpmenl 68,468 95,247 102,927 109,593 114,980 118,475 120,843 122,997 123,758 124,383 Deferredtax assets 3,993 4,525 6,138 6,136 6,136 6,136 6,136 6,136 6,136 6,136 Intangibles 534 4,742 5,226 5,226 5,226 5,226 5,226 5,226 5,226 5,226 Otherassets 5.461 6,041 5,210 5,210 5,210 5,210 5.210 5,210 5,210 5,210 Assets 102,891 129,273 138,109 148,153 155,736 161,562 169,415 178,185 184,919 192,857 Payables 9,718 12,024 10,881 10,881 10,881 10,881 10,881 10,881 10,881 10,881 Provisions 2,256 2,784 2,395 2,395 2,395 2,395 2,395 2,395 2,395 2,395 Tax ilabilttles 3,693 2,811 1,148 3,230 3,230 3,607 3,943 3,901 3,827 3,876 LT Borrowings 12,388 24,799 29,862 29,462 29,462 27,162 26,162 26,162 24,362 23,612 Other llabllttles 17,081 19,770 21,788 21,788 21,788 21,788 21,788 21,788 21,788 21,788 Llabllltles 45,136 62,188 66,074 67,756 67,756 65,833 65,169 65,127 63,253 62,552 Nat Assets 57,755 67,085 72,035 80,397 87,980 95,729 104,246 113,058 121,666 130,305 OEI 993 1,215 1,371 2,355 3,521 4,758 6,108 7,377 8,484 9,350 V;:iluauonmetncs fY11 FY12 FVO FV14F FY15f FY16F FY17F FY18F FY19F FY20F Underlyingearnings (USSbn) 23,812 19,003 12,778 13,752 13,622 14,456 15,798 16,473 16,543 16,854 Averageshares on Issue(basic , millions) 5,511 5,323 5,322 5,428 5,428 5,428 5,428 5,428 5,428 5,428 ReportedEPS - diluted (US cents) 427 288 204 255 250 265 290 302 304 309 UnderlyingEPS (diluted) (US cents) 391 320 221 253 250 265 290 302 304 309 EPS growth 76% -18% -31% 14% -1% 6% 9% 4% 0% 2% Cash EPS (diluted) 484 440 357 400 408 435 466 480 483 490 PE Ltd 9.1x 11.2x 16,2x 14.2x 14.3x 13.5x 12.3x 11,Bx 11.Bx 11.&x PE Pie 7.7x 9.4x 13.7x 12.0x 12.1x 11,4x 10,4x 10.0x 9.9x 9.Bx PE Ltd (CS FX forward curve) 9.4x 11.9x 17.1x 13.4x 12.9x 11.9x 10.9x 10.4x 10.4x 10.2x PE Pie (CS FX forward curve) 7.4x 9.1x 13.2x 11 5x 11.6x 10.9x 10.0x 9.6x 9.6x 9.4x Price/cashearnings - Ltd 7.4x 8.1x 10.0x a.9x a.ax B.2x 7.7x 7.4x 7.4x 7.3x Price/cashearnings - Pie 6.2x 6.9x 10.0x 7.Bx 7.4x 6.9x 6.Sx 6.3x 6.3x 6.2x Book value (USS/share) 10.3 12.4 13.3 14,4 15.6 16.8 18.1 19.5 20,9 22.3 P / NAV (P/8) - Ltd 3.Sx 2.9x 2.7x 2.5x 2.3x 2.1x 2.0x 1.Bx 1.7x 1.6x P / NAV (PIB) - Pie 2.9x 2 4x 2.3x 2.1x 1.9x 1.Bx 1.7x 1.6x 1.4x 1.4x DPS, ordinary(USO) 101.0 112.0 116.0 127.0 140.0 154.4 162.9 166.4 167.1 170.2 DPS, ordinary(AUD spot) 104.7 116.1 120.2 131.6 145.1 160.0 166.8 172.4 173.1 176.4 Payoutratio, ordinary 26% 35% 53% 50% 56% 58% 56% 55% 55% 55% Div Yield Ltd 2.8% 31% 3.2% 3.6% 3.9% 4.3% 4.6% 4.7% 4.7% 4.8% Franking 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Dividendyield (gross) (Ltd) 4.0% 45% 4.6% 5.1% 5.6% 6.2% 6.5% 6.6% 6.7% 6.8% EV (f,xed) I EBITDA 5.7x 6.2x 7.5x 7.0x 6.9x 6.6x 6.1x 6.0x 6.0x 5.9x EVIEBITDA 5.1x 6.1x 7.5x 6.9x 6.8x 6.3x 5.7x 5.4x 5.2x 4.9x EBIT/TotalAssets 33.4% 23.6% 15.8% 16.7% 15.8% 160% 166% 16.2% 15.2% 14.5% ROIC(%) 34% 19% 13% 13% 12% 13% 13% 14% 13% 13% ROE - undam NPAT (%) 46% 31% 19% 20% 18% 18% 18% 18% 16% 15% 1m1m iii iif ii! iiti il~i iiid 410 pj:j iifi iE•li Net Debt (net cash) 5,823 23,549 29,105 25,327 23,131 18,500 12,015 5,399 -2,374 -10,438 Net Debt I (Nat Debt+ Equity) (%) 9% 26% 29% 24% 21% 16% 10% 5% -2% -9% Not Debt I Equity(%) 10% 35% 40% 32% 26% 19% 12% 5% -2% -8% lnteres1cover (x) (EBITDA) 66 46 21 28 28 32 42 60 109 1,696 WW,? iii ilf iii ilGI i •M did 116 111:1 ii€1 ifJui EBITDA margin 51% 46% 40% 44% 44% 45% 47% 47% 47% 47% EBIT margin 44% 37% 30% 33% 33% 33% 34% 35% 34% 34% NPAT margin 33% 26% 18% 19% 18% 19% 20% 20% 21% 21% Tax rate 21% 31% 34% 35% 35% 35% 35% 35% 35% 35% Source: Company data, Credit Suisse estimates BHP Billiton (BLT.L) 14 24 October 2013 CREDIT SUISSE CompaniesMentioned (Price as of22-Oct-2013) African minerals (AMlq L. 206 5p) Anadarko Petroleum Corp. (APC.N, $95.36) Anglo American Pie (AAL.L, 1556.0p) Antofagasta (ANTO.L, 904.0p) Aquarius Platinum Ltd (AQP.L, 48 25p) BHP Billiton (BLT L, 1950.5p, NEUTRAL, TP 2250 Op) BHP Billiton (BHP.AX, AS37.05, NEUTRAL, TP A$38.0) BP (BP.L, 448.0p) First Quantum Minerals Ltd. (FM TO. C$19 35) Glencore Xstrata PLC (GLEN.L, 341.SSp) Hess Corporation (HES.N, $83 56) Kazakhmys Pie (KAZ L, 262.0p) London Mining Pie (LOND.L, 137.5p) Lonmin Pie (LMI L, 331.7p) Rio Tinto (RIO.L, 3261.Sp) Rio Tinto (RIO AX, A$63.97) Disclosure Appendix ImportantGlobal Disclosures PaulMc Taggart, Michael Shillaker, James Gurry and Liam Fitzpatrick each certify, with respect to thecompanies or securitiesthat the individual analyzes,that (1) the views expressed in this reportaccurately reflect his or herpersonal views about all of thesubject companies and securities and (2) no partof hisor hercompensation was, is or will bedirectly or indirectlyrelated to thespecific recommendations or views expressed in thisreport. 3-Year Price and Rating History for BHP Billiton (BLT.L) BLT.L ClosingPrice TargetPrice -Target Price -Closing Price BLT.L Date (p) (p) Rating 3,500 07-Jan-11 2492.50 3000.00 N 10-Mar-11 2300.00 3150.00 3,000 11-Apr-11 2631.50 3300.00 0 02-Aug-11 2214.50 3160.00 N 2,500 04-Oct-11 1667.00 2800.00 0 \tyi,/· 13-Apr-12 1889.00 2460.00 2,000 11-Jul-12 1811.00 2100.00 N "'1v,,,/'v1/''"-"1.,wl"I"',,""¼"v 07-Jan-13 2169.00 2400.00 1.500 .,. ' ' ' ' ' 03-Apr-13 1900.00 2250.00 1- .an- 11 1-J.Jl-11 1- J:in-12 1-J.Jl-12 1- J:in-13 1- J.Jl-13 25-Jun-13 1689.50 2100.00 NEUTRAL 17-Jul-13 1868.00 2250.00 OUTPERFORM 18-Jul-13 1881.00 2100.00 30-Jul-13 1880.00 2250.00 • Asterisksignifies 111it1at1on or assumption of coverage. 3-Year Price and Rating History for BHP Billiton (BHP.AX) BHP.AX ClosingPrice TargetPrice - Target Price Closing Price BHP.AX Date (AS} (AS) Rabng 60 11-Jan-11 44.61 52.50 N 10-Mar-11 44.63 55.00 13-Apr-11 48.58 58.0Q 0 50 03-Aug-11 40.15 47.00 N 04-Oct-11 33.86 45.00 0 40 11-Jul-12 31.05 35.00 N 01-Nov-12 33.82 36.00 07-Jan-13 37.81 30 , 40.00 ' ' ' ' 03-Apr-13 32.23 35.00 1- .an- 11 1-J.Jl-11 1- J:in-12 1- J.Jl-12 1- J:in-13 1- J.Jl-13 25-Jun-13 30.81 34.00 NEUTRAL 26-Aug-13 35.58 38.00 OUTPERFORM • Asterisksignifies initiation or assumptionof coverage Theanalyst(s) responsible for preparingthis research report received Compensation that is basedupon various factors including Credit Suisse's totalrevenues, a portionof whichare generated by CreditSuisse's investment banking activities BHP Billiton (BL T.L) 15 24 October 2013 CREDIT SUISSE As of December10, 2012Analysts' stock rating are definedas follows: Outperform(0) : Thestock's total return is expectedto outperformthe relevantbenchmark*over the next12 months. Neutral(N) : Thestock's total return is expectedto be in linewith the relevantbenchmark* over the next12 months. Underperform(U) : Thestock's total return is expectedto underperformthe relevantbenchmark* over the next12 months. *Relevantbenchmark by region As of 10thDecember 2012, Japanese ratings are basedon a stock'stotal return relative to the analyst'scoverage universe which consistsof all compamescovered by the analystwithin the relevantsector, with Outperforms representing the most attractive, Neutrals the lessattractive, and Underperformsthe leastattractive investment opportunities. As of 2nd October2012, U.S. and Canadian as wellas Europeanratings are basedon a stock'stotal retumrelative to the analyst'scoverage universe which consists of all companiescovered by the analystwithin the relevant sector, with Outperformsrepresenting the mostattractive, Neutrals the lessattractive, and Underperformsthe leastattractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are basedon a stock'stotal retum relative to the averagetotal return of the relevantcountry or regionalbenchmark: Australia, New Zealand are. and priorto 2nd October2012 US and Canadianratmgs were based on /1) a stock'sabsolute total re/um potential to its currentshare price and (2/ the relativeattractiveness of a stock'stotal return potential withm an analyst'scoverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporatedin the absolutetotal returncalculation and a 15%and a 7 5% thresholdreplace the 10-15%level in the Outperformand Underperformstock rating definitions, respectively. The 15% and 7.5%thresholds replace the +10-15%and -10-15% levels in the Neutralstock rating definition, respectively. Prior to 10thDecember 2012, Japanese ratings were basedon a stock'stotal retum relative to the averagetotal retum of the relevantcountry or regionalbenchmark. Restricted(R) : In certaincircumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, includingan investmentrecommendation, during the course of CreditSuisse's engagement in an investmentbanking transaction and in certainother circumstances. VolatilityIndicator [V] : A stockis definedas volatileif thestock price has moved up or downby 20%or morein a monthin at least8 of the past24 monthsor the analystexpects significant volatility going forward. Analysts'sector weightings are distinct from analysts' stock ratings and are basedon the analyst'sexpectations for the fundamentalsand/or valuationof the sector*relative to thegroup's historic fundamentals and/or valuation: Overweight:The analyst's expectation for thesector's fundamentals and/or valuation is favorableover the next12 months. MarketWeight: The analyst's expectation for thesector's fundamentals and/or valuation is neutralover the next12 months. Underweight:The analyst's expectation for thesector's fundamentals and/or valuation is cautiousover the next12 months. 'An analystscoverage sector consists of all companiescovered by theanalyst w1/hm the relevantsector. An analystmay cover multiple sectors CreditSuisse's distribution of stockratings (and banking clients) is: Global Ratings Distribution Rating Versusuniverse(%) Of whichbanking clients(%) Outperform/Buy* 42% (55%banking clients) NeutraUHold* 41% (49%banking clients) Underperform/Sell* 15% (39%banking clients) Restricted 3% 'For purposesof the NYSEand NASD ratmgs distribution disclosure requirements, our stockratmgs of Outperform,Neutral. and Underperformmost closely correspondto Buy, Hold,and Sell.respectively, however, the meaningsare not the same. as our stockratings are determmedon a relativebasis (Pleaserefer to definitionsabove / An mvestor'sdecision to buy or sella securityshould be basedon mvestmentobjectives . currentholdmgs, and other individual factors CreditSuisse's policy is to updateresearch reports as it deemsappropriate, based on developmentswith the subjectcompany, the sectoror the marketthat may have a materialimpact on theresearch views or opinionsstated herein. CreditSuisse's policy is onlyto publishinvestment research that is impartial,independent, clear, fair andnot misleading. For moredetail please refer to CreditSuisse's Policies for ManagingConflicts of Interestin connectionwith Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html CreditSuisse does not provide any tax advice.Any statement herein regarding any US federal tax is notintended or writtento be used,and cannot be used,by anytaxpayer for the purposesof avoidingany penalties. PriceTarget: (12 months)for BHPBilliton (BLT.L) Method: Weset our target price of A$38/GBp2,250in line with our discountedcash flow ( •CF)sum-of-parts (SOP) valuation. Weighted average costof capital(WACC) of 9%.We model(principally) in USOand over life-of-mine for BHP'slong life operations. Valuation includes our assessmentof theAustralian Government's proposed new mining taxes. Risk: Risksto our BHPprice targets of A$38/ GBp2250include commodity price risk (especially Chinese growth expectations), mining operationalrisk and regulatory risk (taxes and royalty rates, and possible future carbon taxes). BHP BIiiiton (BL T.L) 16