UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED 30 JUNE 2019.2020.
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-09526 | Commission file number: 001-31714 | |
BHP GROUP LIMITED | BHP GROUP PLC | |
(ABN 49 004 028 077) | (REG. NO. 3196209) | |
(Exact name of Registrant as specified in its charter) | (Exact name of Registrant as specified in its charter) | |
VICTORIA, AUSTRALIA | ENGLAND AND WALES | |
(Jurisdiction of incorporation or organisation) | (Jurisdiction of incorporation or organisation) | |
171 COLLINS STREET, MELBOURNE, VICTORIA 3000 AUSTRALIA (Address of principal executive offices) | NOVA SOUTH, 160 VICTORIA STREET LONDON, SW1E 5LB UNITED KINGDOM | |
(Address of principal executive offices) |
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each which registered | Title of each class | Trading Symbol(s) | Name of each which registered | |||||
American Depositary Shares* | BHP | New York Stock Exchange | American Depositary Shares* | BBL | New York Stock Exchange | |||||
Ordinary Shares** | BHP | New York Stock Exchange | Ordinary Shares, nominal value US$0.50 each** | BBL | New York Stock Exchange |
* | Evidenced by American Depositary Receipts. Each American Depositary Receipt represents two ordinary shares of BHP Group Limited or BHP Group Plc, as the case may be. |
** | Not for trading, but only in connection with the listing of the applicable American Depositary Shares. |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
BHP Group Limited | BHP Group Plc | |||
Fully Paid Ordinary Shares | 2,945,851,394 | 2,112,071,796 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ||||
Non-accelerated filer | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP | International Financial Reporting Standards as issued by the International Accounting International Accounting Standards Board ☒ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
BHP
Our Charter
We are BHP,
a leading global resources company.
Our Purpose | Our Values | |||
To bring people and resources together to build a better world.
Our Strategy
Our strategy is to have the best capabilities, best commodities and best assets, to create long-term value and high returns. |
Sustainability Putting health and safety first, being environmentally responsible and supporting our communities. | |||
Integrity Doing what is right and doing what we say we will do. | ||||
Respect Embracing openness, trust, teamwork, diversity and relationships that are mutually beneficial. | ||||
Performance Achieving superior business results by stretching our capabilities. | ||||
Simplicity Focusing our efforts on the things that matter most. | ||||
Accountability Defining and accepting responsibility and delivering on our commitments. | ||||
We are successful when: | ||||
Our people start each day with a sense of purpose and end the day with a sense of accomplishment. | ||||
Our teams are inclusive and diverse. | ||||
Our communities, customers and suppliers value their relationships with us. | ||||
Our asset portfolio is world-class and sustainably developed. | ||||
Our operational discipline and financial strength enables our future growth. | ||||
Our shareholders receive a superior return on their investment. | ||||
Chief Executive Officer |
|
i
BHP Group Limited. ABN 49 004 028 077. Registered in Australia. Registered office: 171 Collins Street, Melbourne, Victoria 3000, Australia. BHP Group Plc. Registration number 3196209. Registered in England and Wales. Registered office: Nova South, 160 Victoria Street London SW1E 5LB United Kingdom. Each of BHP Group Limited and BHP Group Plc is a member of the Group, which has its headquarters in Australia. BHP is a Dual Listed Company structure comprising BHP Group Limited and BHP Group Plc. The two entities continue to exist as separate companies but operate as a combined group known as BHP.
The headquarters of BHP Group Limited and the global headquarters of the combined Group are located in Melbourne, Australia. The headquarters of BHP Group Plc are located in London, United Kingdom. Both companies have identical Boards of Directors and are run by a unified management team. Throughout this publication, the Boards are referred to collectively as the Board. Shareholders in each company have equivalent economic and voting rights in the Group as a whole.
In this Annual Report, the terms ‘BHP’, the ‘Company’, the ‘Group’, ‘our business’, ‘organisation’, ‘we’, ‘us’, ‘our’ and ‘ourselves’ refer to BHP Group Limited, BHP Group Plc and, except where the context otherwise requires, their respective subsidiaries as definedincluded in note 13 ‘Related undertaking of the Group’29 ‘Subsidiaries’ in section 5.25.1 and in Exhibit 8.1 – List of this Report.Subsidiaries. Those terms do not includenon-operated assets.
This Annual Report covers BHP’s assets (including those under exploration, projects in development or execution phases, sites and closed operations) that have been wholly owned and/or operated by BHP and that have been owned as a joint venture(1) operated by BHP (referred to in this Report as ‘assets’, ‘operated assets’ or ‘operations’) during the period from 1 July 20182019 to 30 June 2019.2020. Our functions are also included.
BHP also holds interests in assets that are owned as a joint venture but not operated by BHP (referred to in this Annual Report as‘non-operated joint ventures’ or‘non-operated assets’). Notwithstanding that this Annual Report may include production, financial and other information fromnon-operated assets,non-operated assets are not included in the BHP Group and, as a result, statements regarding our operations, assets and values apply only to our operated assets unless stated otherwise.
All references to websites in this Annual Report are intended to be inactive textual references for information only and any information contained in or accessible through any such website does not form a part of this Annual Report.
(1) | References in this Annual Report to a ‘joint venture’ are used for convenience to collectively describe assets that are not wholly owned by BHP. Such references are not intended to characterise the legal relationship between the owners of the asset. |
ii
iii
iv
6.7 | Glossary | 279 | ||||
7 | Shareholder information | 293 | ||||
7.1 | History and development | 294 | ||||
7.2 | Markets | 295 | ||||
7.3 | Organisational structure | 296 | ||||
7.4 | Material contracts | 299 | ||||
7.5 | Constitution | 300 | ||||
7.6 | Share ownership | 305 | ||||
7.7 | Dividends | 309 | ||||
7.8 | American Depositary Receipts fees and charges | 310 | ||||
7.9 | Taxation | 311 | ||||
7.10 | Government regulations | 318 | ||||
7.11 | Ancillary information for our shareholders | 321 | ||||
8 | Exhibits | 326 |
v
Forward looking statements
This Annual Report contains forward looking statements, includingincluding: statements regarding trends in commodity prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; closure or divestment of certain assets, operations or facilities (including associated costs); anticipated production or construction commencement dates; capital costs and scheduling; operating costs;costs and supply of materials and skilled employees; anticipated productive lives of projects, mines and facilities; provisions and contingent liabilities; and tax and regulatory developments.
Forward looking statements may be identified by the use of terminology including, but not limited to, ‘intend’, ‘aim’, ‘project’, ‘see’, ‘anticipate’, ‘estimate’, ‘plan’, ‘objective’, ‘believe’, ‘expect’, ‘may’, ‘should’, ‘will’, ‘would’ ‘continue’ or similar words. These statements discuss future expectations concerning the results of assets or financial conditions, or provide other forward looking information.
These forward looking statements are based on the information available as at the date of this Annual Report and are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and which may cause actual results to differ materially from those expressed in the statements contained in this Annual Report. Readers are cautioned not to put undueBHP cautions against reliance on any forward looking statements.statements or guidance, particularly in light of the current economic climate and the significant volatility, uncertainty and disruption arising in connection with COVID-19.
For example, our future revenues from our assets, projects or mines described in this Annual Report will be based, in part, on the market price of the minerals, metals or petroleum products produced, which may vary significantly from current levels. These variations, if materially adverse, may affect the timing or the feasibility of the development of a particular project, the expansion of certain facilities or mines, or the continuation of existing assets.
Other factors that may affect the actual construction or production commencement dates, costs or production output and anticipated lives of assets, mines or facilities include: our ability to profitably produce and transport the minerals, petroleum and/or metals extracted to applicable markets; the impact of foreign currency exchange rates on the market prices of the minerals, petroleum or metals we produce; activities of government authorities in the countries where we sell our products and in the countries where we are exploring or developing projects, facilities or mines, including increases in taxes,taxes; changes in environmental and other regulationsregulations; the duration and severity of the COVID-19 pandemic and its impact on our business; political uncertainty; labour unrest; and other factors identified in the risk factors set out in section 1.6.4.1.5.4.
Except as required by applicable regulations or by law, BHP does not undertake to publicly update or review any forward looking statements, whether as a result of new information or future events.
Past performance cannot be relied on as a guide to future performance.
Agreements for sale
v
Sale of Onshore US
On 28 September 2018, BHP completed the sale of 100 per cent of the issued share capital of BHP Billiton Petroleum (Arkansas) Inc. and 100 per cent of the membership interests in BHP Billiton Petroleum (Fayetteville) LLC, which held the Fayetteville assets, for a gross cash consideration of US$0.3 billion.
On 31 October 2018, BHP completed the sale of 100 per cent of the issued share capital of Petrohawk Energy Corporation, the BHP subsidiary whichthat held the Eagle Ford (being Black Hawk and Hawkville), Haynesville and Permian assets, for a gross cash consideration of US$10.3 billion (net of preliminary customary completion adjustments of US$0.2 billion).
While the effective date at which the right to economic profits transferred to the purchasers was 1 July 2018, the Group continued to control the Onshore US assets until the completion dates of their respective transactions. In addition, the Group provided transitional services to the buyer, which ceased in July 2019.
For IFRS accounting purposes, Onshore US is treated as Discontinued operations in BHP’s Financial Statements. Unless otherwise stated, information in section 5 has been presented on a Continuing operations basis to exclude the contribution from Onshore US assets. Details of the contribution of Onshore US assets to the Group’s results are disclosed in note 2728 ‘Discontinued operations’ in section 5. All other information in this Annual Report (other than FY2019 safety performance data) relating to the Group has been presented on a Continuing and Discontinued operations basis to include the contribution from Onshore US assets prior to completion of their sale, unless otherwise stated. FY2019 safety performance data in this Annual Report has been presented on a Continuing and Discontinued operations basis to include the contribution from Onshore US assets to 28 February 2019.
Unless otherwise stated, comparative financial information for FY2017 FY2016 and FY2015FY2016 has been restated to reflect the sale of the Onshore US assets, as required by IFRS 5/AASB 5‘Non-current Assets Held for Sale and Discontinued Operations’. Consolidated Balance Sheet information for these periods has not been restated as accounting standards do not require it.
vi
Form20-F Cross Reference Table
|
|
| ||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
vii
Item Number | Description | Report section reference | ||
10. | Additional Information | |||
A | Share capital | Not applicable | ||
B | Memorandum and articles of association | 7.3, 7.5 | ||
C | Material contracts | 7.4 | ||
D | Exchange controls | 7.10 | ||
E | Taxation | 7.9 | ||
F | Dividends and paying agents | Not applicable | ||
G | Statement by experts | Not applicable | ||
H | Documents on display | 7.5 | ||
I | Subsidiary information | Note 28 to the Financial Statements | ||
11. | Quantitative and Qualitative Disclosures About Market Risk | 1.6, Note 21 to the Financial Statements | ||
12. | Description of Securities Other than Equity Securities | |||
A | Debt securities | Not applicable | ||
B | Warrants and rights | Not applicable | ||
C | Other securities | Not applicable | ||
D | American Depositary Shares | 7.8 | ||
13. | Defaults, Dividend arrearages and Delinquencies | There have been no defaults, dividend arrearages or delinquencies | ||
14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | There have been no material modifications to the rights of security holders and use of proceeds since our last Annual Report | ||
15. | Controls and Procedures | 2.13.1, 5.2A | ||
16A. | Audit committee financial expert | 2.8, 2.13.1 | ||
16B. | Code of Ethics | 2.16 | ||
16C. | Principal Accountant Fees and Services | 2.13.1, Note 35 to the Financial Statements | ||
16D. | Exemptions from the Listing Standards for Audit Committees | Not applicable | ||
16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 4.2 | ||
16F. | Change in Registrant’s Certifying Accountant | 2.13.1 | ||
16G. | Corporate Governance | 2 | ||
16H. | Mine Safety Disclosure | Not applicable | ||
17. | Financial Statements | Not applicable as Item 18 complied with | ||
18. | Financial Statements | The pages beginning on pageF-1 in this Annual Report | ||
19. | Exhibits | 8 |
viii
About this Strategic Report
ThisThe FY2020 Strategic Report in section 1 provides insight into BHP’s strategy, operating and business model, and objectives. It describes the principal risks BHP faces and how these risks might affect our future prospects. It also gives our perspective on our recent operational, financial and financialnon-financial performance.
BHP performed strongly in FY2020 with zero fatalities and record production performance in a number of operations.
A summary of our performance covering financial, operational and social value is set out in section 1.3. We also set out why what we do is integral to modern life in sections 1.4 and 1.5.
This disclosureyear, we have further integrated our sustainability reporting into the Annual Report to help stakeholders understand the most material topics, for example climate change (section 1.7.8), tailings dams (section 1.7.10), Indigenous peoples (section 1.7.9) and Samarco (section 1.8). Non-operated joint ventures and their performance are covered in section 1.9.3 (Cerrejón and Antamina).
More information is also available at bhp.com. This includes case studies, our new Climate Change Report 2020, and our Environmental, Social and Governance (ESG) databook, which provides sustainability performance data and is targeted at both investors and ESG data providers.
Finally, the Strategic Report is intended to assist shareholders and other stakeholders to understand and interpret the Consolidated Financial Statements prepared in accordance with the International Financial Reporting Standards (IFRS) included in this Annual Report. The basis of preparation of the Consolidated Financial Statements is set out in section 5.1. We also use alternative performance measures to explain our underlying performance; however, these measures should not be considered as an indication of, or as a substitute for, statutory measures as an indicator of actual operating performance, position or as a substitute for cash flow as a measure of liquidity. To obtain full details of the financial and operational performance of BHP, this Strategic Report should be read in conjunction with the Consolidated Financial Statements and accompanying notes. Underlying EBITDA is the key measure that management uses internally to assess the performance of the Group’s segments and make decisions on the allocation of resources. Unless otherwise stated, data in section 1 is presented on a Continuing operations and Discontinued operations basis.
This Strategic Report in section 1 meets the requirements of the UK Companies Act 2006 and the Operating and Financial Review required by the Australian Corporations Act 2001.
References to sections beyond section 1 are references to other sections in this Annual Report 2019. Shareholders may obtain a hard copy of the Annual Report free of charge by contacting our Share Registrars, whose details are set out in our Corporate directory onat the inside back coverend of this Annual Report.
1vi
Form 20-F Cross Reference Table
Item Number | Description | Report section reference | ||||
1. | Identity of Directors, Senior Management and Advisors | Not applicable | ||||
2. | Offer Statistics and Expected Timetable | Not applicable | ||||
3. | Key Information | |||||
A | Selected financial data | 1.10 | ||||
B | Capitalization and indebtedness | Not applicable | ||||
C | Reasons for the offer and use of proceeds | Not applicable | ||||
D | Risk factors | 1.5.4 | ||||
4. | Information on the Company | |||||
A | History and development of the company | 1.1, 1.2, 1.4, 1.5.3, 1.6 to 1.12, 5.7, 6.2 to 6.7, 7.1 to 7.4 and 7.5.14 | ||||
B | Business overview | 1.4 to 1.5, 1.9 to 1.11, 7.3, 7.4, 7.9 and Note 1 to the Financial Statements | ||||
C | Organizational structure | 7.3 and Note 29 to the Financial Statements | ||||
D | Property, plant and equipment | 1.5.3, 1.5.4, 1.7.6, 1.7.8, 1.7.10, 1.9.1 to 1.9.4, 1.11, 5.7, 6.2 to 6.5 and Notes 11, 14 and 20 to the Financial Statements | ||||
4A. | Unresolved Staff Comments | None | ||||
5. | Operating and Financial Review and Prospects | |||||
A | Operating results | 1.4, 1.5, 1.10 to 1.11 and 7.9 | ||||
B | Liquidity and capital resources | 1.4, 1.10.3, 5.1.4, Notes 19 to 22 and 38 to the Financial Statements | ||||
C | Research and development, patents and licenses, etc. | 1.4.1, 1.5.3, 1.6.1, 1.6.3, 1.7.1, 1.7.6. to 1.7.8, 1.9 to 1.11, 4.14, 6.5 and Notes 11 and 14 to the Financial Statements | ||||
D | Trend information | 1.1, 1.2, 1.4.1, 1.5.1, 1.5.2, 1.5.4, 1.7.1, 1.7.6. to 1.7.8, 1.9.2 to 1.9.4 and 1.11 | ||||
E | Off-balance sheet arrangements | 1.12 and Notes 11, 20 and 33 to the Financial Statements | ||||
F | Tabular disclosure of contractual obligations | 1.12 and Notes 19, 20 and 38 to the Financial Statements | ||||
G | Safe harbor | Page v | ||||
6. | Directors, Senior Management and Employees | |||||
A | Directors and senior management | 1.1, 2.1, 2.2, 2.5 and Exhibit 15.3 | ||||
B | Compensation | 3 | ||||
C | Board practices | 2.2, 2.9, 2.10, 2.12, 3.2.5, 3.2.6, 3.3.13 | ||||
D | Employees | 1.4.6, 1.6.1, 1.6.2, 6.6.1 and Note 27 to the Financial Statements | ||||
E | Share ownership | 3.3.19, 3.3.21, 3.3.23, 4.2, 4.5, 4.18 and Notes 15, 16 and 24 to the Financial Statements | ||||
7. | Major Shareholders and Related Party Transactions | |||||
A | Major shareholders | 7.6 | ||||
B | Related party transactions | 3.3.26 and Notes 23 and 32 to the Financial Statements | ||||
C | Interests of experts and counsel | Not applicable | ||||
8. | Financial Information | |||||
A | Consolidated statements and other financial information | 1.8, 4.10, 5.1, 5.2A, 6.7, 7.7 and the pages beginning on F-1 in this Annual Report | ||||
B | Significant changes | Note 34 to the Financial Statements | ||||
9. | The Offer and Listing | |||||
A | Offer and listing details | 7.2 | ||||
B | Plan of distribution | Not applicable | ||||
C | Markets | 7.2 | ||||
D | Selling shareholders | Not applicable | ||||
E | Dilution | Not applicable | ||||
F | Expenses of the issue | Not applicable | ||||
10. | Additional Information | |||||
A | Share capital | Not applicable | ||||
B | Memorandum and articles of association | 7.3 and 7.5 | ||||
C | Material contracts | 7.4 | ||||
D | Exchange controls | 7.9 | ||||
E | Taxation | 7.10 | ||||
F | Dividends and paying agents | Not applicable | ||||
G | Statement by experts | Not applicable | ||||
H | Documents on display | 7.5 | ||||
I | Subsidiary information | Note 29 to the Financial Statements and Exhibit 8.1 | ||||
11. | Quantitative and Qualitative Disclosures About Market Risk | 1.5 and Note 22 to the Financial Statements | ||||
12. | Description of Securities Other than Equity Securities | |||||
A | Debt securities | Not applicable | ||||
B | Warrants and rights | Not applicable | ||||
C | Other securities | Not applicable | ||||
D | American Depositary Shares | 7.8 | ||||
13. | Defaults, Dividend arrearages and Delinquencies | There have been no defaults, dividend arrearages or delinquencies | ||||
14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | There have been no material modifications to the rights of security holders and use of proceeds since our last Annual Report | ||||
15. | Controls and Procedures | 2.10 and 5.2A | ||||
16A. | Audit committee financial expert | 2.2, 2.7 and 2.10 | ||||
16B. | Code of Ethics | 2.15 | ||||
16C. | Principal Accountant Fees and Services | 2.10 and Note 35 to the Financial Statements | ||||
16D. | Exemptions from the Listing Standards for Audit Committees | Not applicable | ||||
16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 4.2 | ||||
16F. | Change in Registrant’s Certifying Accountant | Not applicable | ||||
16G. | Corporate Governance | 2 | ||||
16H. | Mine Safety Disclosure | Not applicable | ||||
17. | Financial Statements | Not applicable as Item 18 complied with | ||||
18. | Financial Statements | The pages beginning on page F-1 in this Annual Report | ||||
19. | Exhibits | 8 |
vii
Section 1
Dear Shareholder,
I am pleased to provide our Annual Report for FY2019.FY2020.
DuringThe COVID-19 pandemic continues to have a profound impact in our host nations and markets around the year,world. It has tested the resilience of millions of lives and livelihoods, as well as healthcare systems and economies in ways we could never have imagined.
Despite the unpredictable nature of the pandemic, BHP’s response has remained strong. Our people stepped up and quickly adopted measures to keep themselves, their families and the communities where we operate, safe and well. Their steadfast commitment has meant we have been able to keep our operations running safely and continue to contribute to local economies, through the jobs we create and the taxes and royalties we pay.
BHP’s relentless focus on strengthening our portfolio,five priority areas – safety; portfolio; capital discipline,discipline; culture and productivity deliveredcapability; and social value – has enabled us to meet the global challenges of the crisis from a solidposition of strength and to deliver a strong set of financial results. Higher pricesresults in FY2020. The outstanding efforts of our teams, our high-quality portfolio and record production fromdisciplined approach to capital allocation enabled the Board to declare US$1.20 per share in dividends for the year.
The health and safety of our people remains the highest priority. We recorded no fatalities at our operations during the year and have had fewer frequent safety events with the potential to cause a number of operations contributedfatality. However, there is no room for complacency and we must continue to strong operating cash flows and enabled BHP to announce a record final dividend of 78 US cents per share.push for exceptional safety performance every day.
We completedcontinue to invest and plan for the sale of our Onshore US oil and gas business in October 2018. Net proceeds of US$10.4 billion were returned to shareholders through a combination of anoff-marketbuy-back in December 2018, and a special dividend in January 2019. These returns, when added to dividends announced in respect of FY2019, delivered record annualfuture while at the same time delivering strong cash returns to our shareholders. Similarly, our commodity portfolio has remained resilient throughout FY2020. We believe our products will play an essential role in a decarbonising world and will help us grow value for many decades to come.
The Board appointed Mike Henry as BHP’s new Chief Executive Officer (CEO) in January, replacing Andrew Mackenzie. Mike has long been a strong advocate for the resources industry, driving higher standards of safety and contributing to our local communities and global stakeholders. He is committed to unlocking and accelerating greater value in our assets and operations. In doing so he will make BHP safer, leaner, high performing and future fit. Andrew was instrumental in turning BHP into a simpler and more productive company, and one that is financially stronger and sharply focused on value for shareholders and society. I would like to thank Andrew for his outstanding contribution as CEO.
We also continued to investtake a rigorous and structured approach to our Board renewal process. Gary Goldberg joined the Board in February, and Dion Weisler joined the Board in June. As announced in May, we also look forward to Xiaoqun Clever joining the Board in October.
Lindsay Maxsted will retire from the Board on 4 September 2020, and Shriti Vadera will be retiring from the Board following the 2020 Annual General Meetings. Shriti and Lindsay have been highly regarded members of the Board since 2011, with Shriti serving as the Senior Independent Director since 2015, and Lindsay serving as Chair of the Risk and Audit Committee. We have benefited greatly from Shriti’s and Lindsay’s extensive experience and I would like to thank them for their invaluable contribution and commitment to BHP.
FY2020 was a year where we worked hard to integrate social value into every decision we make. BHP’s immediate response to the pandemic, under decisive direction from Mike and his leadership team, has been clear from day one. From creating hundreds of operational jobs across our futureMinerals Australia business, to providing funding that has directly benefited communities where we have a presence around the world, and accelerating payments for our small, local and Indigenous suppliers, BHP has continued to step up and play our part.
Taking actions that make a difference also extends to BHP’s commitment to address climate change and progress made through our Climate Investment Program, as outlined in the BHP Climate Change Report 2020. We have set a medium-term target to reduce our Scope 1 and Scope 2 operational emissions by at least 30 per cent by FY2030 (from FY2020 levels (1)). We also have set clearly defined Scope 3 emissions goals for 2030 to support industry to develop technologies and pathways capable of 30 per cent emissions intensity reduction in integrated steelmaking, with widespread adoption expected post-2030, and to support 40 per cent emissions intensity reduction of BHP-chartered shipping of our products.
While the challenges of the pandemic are likely to remain for some time to come, I am confident our disciplined and transparent application of our Capital Allocation Framework. BHP currently has six major projects under development in petroleum, copper, iron ore and potash. All of them are on schedule and budget.
While we made strong progress in FY2019, we achieve nothing if it is not done safely. Tragically, in December last year, our colleague Allan Houston died at BMA’s Saraji Mine in Queensland. I offer my condolences to Allan’s family, friends and colleagues. We have shared the findings of the fatality investigation across the organisation and we will continue our work to improve safety tools and behaviours.
The collapse earlier this year of the Brumadinho tailings dam, owned by Brazilian company Vale, was a tragic event for the industry. Unfortunately, we know too well the toll these events take on communities. We have responded to a Church of England Pensions Board request for information on our own tailings facilities – a request sent to around 700 mining companies. We held investor briefings in Sydney and London to talk openly about how we manage our tailings storage facilities. We are working closely with industry and other stakeholders to achieve more consistent disclosure. We will also participate in setting new international and independent tailings management standards to improve transparency and accountability across the industry.
Throughout FY2019, I met with many of our shareholders and stakeholders. These discussions have renewed our commitment to deliver on the five key priorities for BHP – safety, portfolio, capital discipline, culture and capability, and social value. I strongly believe our focus on these key areasfocused approach will create value for shareholders and make a positive contribution to society.
To strengthen our operating performance, this year we established a dedicated Transformation Officesociety for many years to focus on workforce capability and technology deployment. Our transformation efforts will make BHP safer and our operations more efficient and reliable. These efforts will develop workforce capability so that our people are equipped for the rapid pace of change that lies ahead. Coupled with a lean and agile management culture, transformation has the potential to unlock significant value in the short and medium term.
We also take a structured and rigorous approach to Board succession. In FY2019, we welcomed two new Board members, Ian Cockerill and Susan Kilsby, who joined us in April 2019. Ian and Susan are both excellent additions to the Board and will help ensure we have the right balance of attributes, skills, experience and diversity necessary for the Board to govern BHP effectively.
Carolyn Hewson, a Board member for over nine years, will be retiring from the Board, as planned, at this year’s Annual General Meeting. On behalf of her colleagues on the Board, and the many employees she has closely interacted with over this term, I thank Carolyn for her counsel on the Board and as Chairman of the Remuneration Committee. Carolyn has made an outstanding contribution to BHP and we wish her the very best for the future.
The progress our people have made to our five focus areas has positioned us well for the future. I am confident that BHP, led by Andrew Mackenzie and the leadership team, has the right assets and capability to deliver strong shareholder value and returns.come.
Thank you for your continued support of BHP.
Ken MacKenzie
ChairmanChair
2
(1) | FY2020 baseline will be adjusted for any material acquisitions and divestments based on greenhouse gas emissions at the time of the transaction. Carbon offsets will be used as required. |
1.2 Chief Executive Officer’s Report
Dear Shareholder,
BHP’s commitmentThank you for your continued support and investment in BHP through what has been an extraordinary 12 months. We have a resilient portfolio, great people and strong relationships. These contributed to simplification, capital discipline and culture laid the groundwork for a solid performance in FY2019. From these strong foundations, we are confidentset of results, safely achieved in the long-term outlook,face of some significant challenges in our markets and in our operating regions.
It is my privilege to have been selected by your Board to lead BHP. I want to thank my predecessor, Andrew Mackenzie, for his leadership in creating a simpler, more focused company, setting up BHP for the future.
Performing in extraordinary times
The COVID-19 pandemic is having a devastating effect on lives, society and the global economy. BHP supports communities, customers and countries around the world with significant opportunities ahead to further transform ourthe jobs, business and delivermaterials that will help the world navigate through the pandemic, and then rebuild. We have prioritised keeping our people and communities safe, supporting those who rely on BHP, and keeping our operations running reliably.
We have taken action to protect our workforce against COVID-19 by investing in more transportation capacity, restricting travel to our operations and protecting at-risk workers. We have shortened payment terms for small, local and Indigenous suppliers to help address the financial pressures they are otherwise facing as a result of the pandemic. We have funded social and health programs in our communities globally, have hired 1,500 more people temporarily, and the BHP Foundation is funding vaccine research. In the face of this crisis, people across BHP have rallied in line with our purpose and values in a way that has seen them stay safe while keeping the business running and performing strongly.
We had no fatalities during the year and our total recordable injury frequency fell 11 per cent to 4.2 per million hours worked. A number of our operations achieved production or throughput records and unit costs were lower across all of our major assets. Our major capital projects are tracking well.
Our continued focus on disciplined allocation of capital saw us invest US$7.6 billion in our assets while maintaining net debt at the lower end of our target range, ensuring a strong balance sheet in these volatile times. We declared a final dividend to shareholders of US$0.55 per share, taking our annual dividend distribution to US$1.20 per share. This is the third year in a row we have returned more than US$6 billion to shareholders, highlighting the resilience of our portfolio and our people.
Growing value and returns for
We create value through our shareholders.
While our performance is a key indicator of success, how we operate is equally critical.
This year, we changedOur Charter to revise our company purpose. Our purpose is: topurpose: ‘To bring people and resources together to build a better world’. Just prior to starting in the CEO role, I spent six weeks engaging with people in BHP’s operations and offices around the world.We also added I came away energised by what I heard and confident in the potential for BHP to create even greater value for shareholders and society – an even safer, more reliable, and lower cost BHP, with social value as one of our five company priorities. These changes recognise thatcore to everything we work withdo. We will grow value and returns for all those who have a range of stakeholders to makestake in a positive contribution to the world. We know we must build trustsuccessful BHP.
Value and forge mutually beneficial partnerships for the long term, because thereturns will be underpinned by embedding social value, we create together is central to shareholder value.
As alwaysbeing excellent at BHP, the health, safetyoperations and wellbeing of our people remains our highest priority.
In December 2018, our colleague Allan Houston died at BMA’s Saraji Mine in Queensland. He remains in our thoughts as do his colleagues, familyallocating capital, and friends. After a lengthy and thorough investigation, we could not determine the direct cause of the incident but the investigation identified several areas for improvement, which we shared across the organisation.
There was a slight rise in total recordable injury frequency to 4.7 per million hours worked. However, we reduced the number of events with the potential to cause a fatality by 7 per cent, which is a critical indicator of our future safety performance across our business. This result is positive, but there is more we can and will do.
Our FY2019 financial performance from continuing operations was strong. Higher prices and solid underlying performance contributed to EBITDA of US$23 billion at a margin of 53 per cent. Underlying attributable profit was US$9.5 billion.
We have generated consistently strong operating cash flows over the past few years and delivered a further US$17 billion in FY2019. We used this cash to progress attractive growth projects, pay down debt and deliver record cash returns to shareholders.
The final dividend declared for FY2019 was a record 78 US cents per share – or US$3.9 billion in total. This is in addition to the $US17 billion we already returned to shareholders during the year.
With the approval of the Ruby oil and gas development in August 2019, we now have six major projects under development. All of these are on schedule and budget. We also had further exploration success in copper and oil and are confidentensuring we have a richportfolio with options that allow us to invest in meeting society’s needs in the short, medium and long term.
In this regard, we recently announced further steps in the continued optimisation of our portfolio, including the intended divestment of some of our coal assets whose value will be best realised outside BHP, and our non-operated interest in the Bass Strait joint venture. We will create and secure more options in future-facing commodities through innovation, exploration, early stage entry and well-timed acquisitions of attractive resources and assets. We have also announced new roles on the Executive Leadership Team. These changes will help ensure operational and technical excellence are front and centre for the company and that we are successful in creating and securing more options in future facing commodities, which will benefit successive generations of shareholders.
Sustainability and resilience
BHP’s commitment to sustainability is important and enduring. We have refreshed our approach to sustainability reporting. Key information and performance data is included in this Report and we have significantly expanded our sustainability content on our website, including the provision of a databook to make core information more accessible.
The BHP Climate Change Report 2020 details our approach to climate change and the role we will play in addressing it. We have committed to reducing our operational greenhouse gas emissions (Scope 1 and Scope 2) by at least 30 per cent from FY2020 levels (1) by FY2030. For Scope 3 emissions, we have set goals for 2030. We will support industry to develop technologies and pathways capable of options30 per cent emissions intensity reduction in integrated steel-making, with widespread adoption expected post 2030. We will also support 40 per cent emissions intensity reduction of BHP-chartered shipping of our products.
Conclusion
We are proud of our operational and financial performance in FY2020, which was achieved safely and in the face of some extraordinary challenges.
We expect that the global economy will take some time to stabilise and recover from the ongoing COVID-19 pandemic. Commodity markets will likely remain volatile. The trailing consequences of high unemployment and spiralling debt are likely to reinforce global concern about inequality and systemic disadvantage. Environmental sustainability will remain a global priority.
BHP’s values, strategy and actions position us well to navigate the period ahead and to play a role in the recovery process. We remain committed to addressing climate change, creating social value and to an inclusive workforce. We have structured our business to thrive through changing times, and we are set up well to deal with near-term market uncertainty and to prosper as the world returns to its trajectory of long-term growth.
BHP’s performance in the past year illustrates this resilience and our potential to continue to grow value in the future.and returns for shareholders and society.
In July 2019, we announced a five-year US$400 million Climate Investment Program to find the best technologies, investments and solutions to reduce greenhouse gas emissions across our value chain.
We are well positioned for future success. We have plans to maximise the value of our assets through our transformation programs and disciplined investment. We will invest in our culture and capabilities so our workforce is more inclusive and diverse and ready for the challenges of tomorrow. Their hard work has secured a strong outcome for BHP this year and I thank them for their energy and commitment.
Thank you also toTo all our shareholders, suppliers, customers and the communities in which we operate. We are a better company because ofthank you for your trustongoing commitment and support.
Andrew MackenzieMike Henry
Chief Executive Officer
3
(1) | FY2020 baseline will be adjusted for any material acquisitions and divestments based on greenhouse gas emissions at the time of the transaction. Carbon offsets will be used as required. |
1.3 BHP at a glance: What we do
|
5
At BHP, ourBHP’s strategy is to have the best capabilities, best commodities and best assets, to create long-term value and high returns. Our strategy is underpinned by our disciplined approach to capital allocation and risk management and our overriding commitment to generating social value for our stakeholders.
Social value is at the core of our approach and purpose – to bring people and resources together to build a better world. It underpins our decisions and actions, from the positive contribution we make to the environment and society, to supporting the needs of our workforce, partners, customers, economies and communities.
The longevity of BHP’s assets means we must think and plan in decades. The long-term health of our business is dependent on the long-term health of our society and a sustainable natural environment.
As we look to the future, BHP and our products will play an essential role as the world’s population continues to grow, improved living standards are pursued and momentum towards decarbonisation increases.
Driven by a commitment to transformation, capital discipline and social value
Our strategy maximises value and returns
We have secured and will continue to grow options in copper and nickel, where increasing demand and our capability give us competitive opportunities. We are moving to concentrate our coal portfolio on higher-quality coking coals, with greatest potential upside for quality premiums as steelmakers seek to improve blast furnace utilisation and reduce emissions intensity, and will pursue options to divest our interests in BMC, New South Wales Energy Coal (NSWEC) and Cerrejón.
In oil and gas, we will continue to invest in opportunities that are resilient under a simplerange of price scenarios, and diversewhich are aligned to our strengths. We will seek to divest oil and gas assets that are mature or which are likely to realise greater value under different ownership.
This approach to actively managing our portfolio for value, risk and returns over multiple time horizons will yield superior returns for our investors and greater value for our partners and communities.
We have some of tier onethe world’s best assets. They are long life, low costThis is backed up by the discipline and expandable. competition stimulated through our Capital Allocation Framework, which has driven better transparent decision-making and capital efficiency.
To extract the most value and the highest returns from our assets we apply ourOur Charter values and culture of care to operate them safely and productively, and deploysupported by technology.
This has worked for shareholders. Since 2016We want BHP to be recognised as the resources industry’s best operator. To do this we have:must:
strengthenedhave a relentless focus on the elimination of fatalities and achieving our balance sheet through a US$17 billion reduction in net debt;climate change, water and social value commitments
reinvested US$27 billion in development options;be leaner and higher performing – lower cost, more reliable and productive
importantly, returned more than US$29 billioncreate and secure options in future-facing commodities to shareholders.continue to grow value
To maintain this track record,
Social value is the positive contribution we must make the most of our portfolio and develop options that secure success. Future success depends not only on our commitment to capital discipline but also social value, which is our contribution to our people, the environment and communities. It informssociety through considering the way in which we provide resources, achieve commercial successneeds of and maintaining respectful and mutually beneficial relationships with our workforce, partners, customers, economies and communities.
Consideration of social value helps us create new business opportunities and make better-informed business decisions.
Social value is a BHP priority and is embedded in our workplace safe. We havewhole-of-business five-year planning process. When business planning occurs each year, each operated asset must consider local and global issues that are important to its stakeholders, assess its performance on those issues and develop a responsibilityplan for how to produce strong commercial, sustainableproactively contribute social value in these areas, in partnership with our global functions and local stakeholders.
In FY2020, we completed the first social outcomesvalue assessments across our operated assets in Minerals Australia and Minerals Americas. These assessments identify social value priorities for our shareholders, communitieseach asset and society. This inspired us to refresh our purpose to acknowledge people asare a key input into the driving force behind our achievementsasset’s five-year plan. The benefit of this approach is that community and reflect our broader contribution.sustainability initiatives are fully integrated into core business planning activities. For more detailinformation on BHP’s purpose,many of these initiatives, refer to section 1.10.1.1.7.
Transformation
Our Transformation program will continue to simplify the way we work, increase our workforce capability, establish innovative partnershipsMore information on social value and create more stable and predictable operations, with the aim of unlocking more value. The Transformation program includes:
theits importance at BHP Operating System, which will change the way we work;
World Class Functions, designed to simplify and remove bureaucracy;
Centres of Excellence that help us beis available at the forefront of change;
Value Chain Automation, which will change the way we operate.
These will:
improve operational stability;
make a quantum shift in safety, performance and value;
continue to increase productivity;
6bhp.com.
Section 172 statement
How the Board complied with its section 172 duty The UK Companies Act 2006 (CA2006) sets out a number of general duties, which directors owe to the company. New legislation has been introduced to help shareholders better understand how directors have discharged their duty to promote the success of the company, while having regard to the matters set out in section 172(1)(a) to (f) of the CA2006 (s172 factors). The Board welcomes the new Section 172 reporting requirements. The Board considers the interests of a range of stakeholders in its discussions, decision-making and implementation of BHP’s strategy and purpose, which will have an impact on the long-term success of the Group. The Board does not typically engage with every stakeholder group every year; however, engagement does take place at management level and management discusses this with Directors during Board meetings. In addition, the Board considers the likely consequences of decisions in the long term, the impact of the Group’s operations on the community and the environment and the importance of maintaining a reputation for high standards of business conduct. More detail about our approach to these matters, along with other stakeholder considerations, is set out in the Strategic Report as detailed in this table - in particular the Board and Board Sustainability Committee’s approach to Sustainability, the environment, tailings storage facilities and Samarco. | ||||||||||||
S172 factor | Key examples | Section | ||||||||||
Workforce | — Approach to workforce in relation to COVID-19 — Culture and capabilities — Health and safety — Workforce engagement | 1.4.6 1.6.1 1.7.3 and 1.7.4 2.6.2 | ||||||||||
Community and government | — Local economic growth — Social investment — Indigenous peoples | 1.7.9 1.7.9 1.7.9 | ||||||||||
Investors | — Understanding the views of BHP shareholders | 2.6.1 | ||||||||||
Suppliers and customers | — Acceleration of supplier payment terms (case study) — Working with suppliers — Responsible sourcing — Commercial | 1.4.6 1.6.1 1.7.7 1.9.5 | ||||||||||
Environment | — Land and biodiversity — Rehabilitation and closure — Water — Climate change | 1.7.6 1.7.6 1.7.6 1.7.8 | ||||||||||
High standards of conduct | — Human rights — Tailings storage facilities — Samarco | 1.7.9 1.7.10 1.8 |
Workforce | ||||
The Board uses a range of formal and informal communication channels and reporting methods to understand the views of the workforce. This includes engaging with and hearing the perspectives of employees and contractors from all levels of the business. This includes discussions during site visits, informal events during Board meetings, pulse surveys, feedback through our 24-hour speak up helpline, EthicsPoint and regular updates from the CEO and management. The perspectives of our workforce are factored into the Board’s decision-making on a range of topics, from health and safety to risk management and workforce planning. For more examples, refer to section 2.6.2. | ||||
COVID-19 response The Board and the Sustainability Committee received regular reporting on the controls in place to manage the health and wellbeing of our site and office-based workforce in the context of COVID-19, and the feedback from the workforce and from unions. This included steps taken to ensure social distancing, the approach to testing for COVID-19 and the decision to extend BHP’s Employee Assistance Program to family members. The Board also received reports on the results of a COVID-19 wellbeing survey and steps taken to monitor and address the wellbeing of our workforce, including those working from home. For more information, refer to section 1.4.6. | Health and safety The Sustainability Committee considers health and safety performance across our operations at every meeting and reports to the Board on its discussions. During the year, the Committee discussed a range of topics relevant to the health and safety of our people, including the mental health program, and the controls in place for workers in the vicinity of tailings dams. In addition, the Sustainability Committee endorsed Health, Safety, Environment and Community (HSEC) KPIs for FY2020 and recommended the HSEC outcomes for the Group and the Executive Leadership Team to the Remuneration Committee. | |||
Operations Services Operations Services provides maintenance and production services across Minerals Australia, supporting our people to build their skills through coaching and by performing in-field verification. The Board discussed Operations Services and its positive impact on safety, productivity and diversity outcomes as well as the training and benefits provided to the Operations Services team. The discussion included direct feedback from Operations Services team members at different sites on their experiences. | Aligning executive pension contribution rate to workforce At their August 2019 meetings, taking into account data on employee pension contribution levels across the BHP workforce reviewed by the Remuneration Committee earlier in 2019, the Remuneration Committee and Board discussed and endorsed a change to the pension contribution rate for senior executives to bring it lower than the employee average across the Group’s global locations. | |||
Ethics and compliance, and assurance The Risk and Audit Committee (RAC) received, at its request, increased regularity of reporting from the Chief Compliance Officer on trends in reporting to EthicsPoint and details on consistency in disciplinary outcomes for breaches of Our Code of Conduct (Our Code) which sets out standards of behaviour for our people. The RAC also discussed the introduction of assurance over risk culture by the Internal Audit and Advisory team. | Inclusion and diversity update In August 2019, the Board discussed progress against agreed FY2019 inclusion and diversity objectives and the proposed scorecard objectives for FY2020, noting that business data shows a more inclusive and diverse workforce has lower injury rates and absenteeism, along with higher scheduled work. The ongoing success of flexible working was also discussed. The Board also considered how capital projects such as South Flank and the Spence Growth Option have integrated inclusion and diversity into project planning, with positive results. |
CEO and ELT succession A major piece of work for the Board during the year was CEO succession. For BHP, succession of the CEO is an ongoing process, which continues to work well in developing internal candidates for this critical role. This year, Andrew Mackenzie retired as CEO and Mike Henry was appointed CEO from 1 January 2020. The Board took account of Mike’s 30 years’ experience in the global mining and petroleum industry, spanning operational, commercial, safety, technology and marketing roles. A critical component of succession at ELT level and below is the existence of a robust senior leadership program that operates across multiple organisational levels to build, develop, renew, recruit and promote our leaders. The Board is actively engaged and oversees the development of the senior team. See section 2.5 for additional information. | CEO-Elect – workforce engagement In the 45 days between being announced CEO-Elect and becoming CEO, Mike Henry spent time engaging with employees from every asset and almost all major offices. Employees said they were proud of the positive contribution BHP makes to the world through social value, safety and our inclusive and diverse culture. They also saw opportunity to further simplify processes and better align teams to work even faster and maximise value across the business. |
Community and government | ||||
We recognise that mutually beneficial relationships with communities and governments are crucial to our strategy. The Board takes a range of steps to understand the perspective of communities and governments in order to factor these into decisions as relevant. The Board receives insight into the views of community members and government stakeholders through site visits (e.g. the Group Chair met with the President of Chile and the Australian Ambassador to Chile as part of a visit to Escondida in September 2019 and Directors met with the Premier of Saskatchewan and Indigenous community members as part of a site visit to Jansen in September 2019); engagement with BHP’s Forum on Corporate Responsibility (FCR); management reports to the Board; and feedback received through letters to Directors, EthicsPoint reports and the media. | ||||
COVID-19 response During FY2020, BHP supported the communities where we have a presence in response to challenges posed by the COVID-19 pandemic. This included a broad range of targeted initiatives focused on prevention and support for health services in the regional communities where we have a presence. For example, a A$50 million Vital Resources Fund was established in Australia, with funds used to support hospitals, clinics and public health organisations serving the communities surrounding our Australian operations. For information of our approach to COVID-19 in Chile and elsewhere in the Group, refer to section 1.4.6. | Social value The Board discussed an update on the implementation of BHP’s approach to social value to support our business priorities, engage effectively with stakeholders and manage external risk. The discussion focused on two priority areas – continuing to integrate our approach to social value into the Group’s standard ways of working and measures to effectively communicate our contribution. The Sustainability Committee discussed an update on societal expectations of the resource industry, how the trends impact our ability to contribute to social value creation and the approach we are taking to respond effectively to these challenges. | |||
Forum on Corporate Responsibility (FCR) The Sustainability Committee met with members of the FCR, which comprises civil society leaders in various fields of sustainability, to discuss a range of social and environmental issues. The FCR provided the Sustainability Committee with their insights from their September 2019 trip to Chile, which focused on water stewardship and Minerals Americas’ approach to social value. The FCR noted BHP’s leadership in deciding to cease extraction from the Monturaqui aquifer in favour of sourcing water required for Escondida operations from its desalination plant, as well as its approach to renewable power contracts. |
Investors | ||||
Shareholder perspectives are taken into account by the Board and its Committees in its decision-making and long-term strategic planning. The Board uses formal and informal communication channels to understand the views of shareholders, in addition to Annual General Meetings (AGMs). This includes meetings and discussions between the Group Chair, the Senior Independent Director and the Remuneration Committee Chair and Institutional and Retail shareholders. A range of investors also presented directly to the Board. For more examples, refer to section 2.6.1. | ||||
Industry associations At a number of meetings in 2019 and 2020, the Board had in-depth discussion on the Group’s future approach to industry association membership. The Group Chair and CEO discussed the topic of industry associations with a range of investors, and discussed investors’ feedback with the Board. The Board also received reports on management meetings with a range of investors on industry associations. Investor feedback has been a key input to the Group’s future approach to industry associations, which has been reflected in supportive comments following publication. See bhp.com for our position on industry associations. | Remuneration policy Investors played an integral role in the development of the remuneration policy approved at the October and November 2019 AGMs. During meetings led by the Board Chair and the Remuneration Committee Chair in April and May 2019, investors provided feedback on what they saw as strengths and weaknesses of the existing policy, and potential means to strengthen it. The Remuneration Committee factored this feedback into a new policy proposal, which was the subject of an extensive further round of consultation. Investor comments in this second round led to refinements to the policy submitted for approval at the AGMs, including the three changes made to the policy as set out on page 139 of the 2019 Annual Report. | |||
Climate change Significant engagement was undertaken with investors on climate change issues during FY2020. This comprised engagements to review potential implementation approaches for the commitments announced in July 2019 as well as incorporation of climate change into the Group’s social value investor presentations, and engagement with key investor groups, including Climate Action 100+. See bhp.com for the BHP Climate Change Report 2020. | Governance The Group Chair and Senior Independent Director sought feedback from investors on governance practices as part of the annual cycle of meetings. This included the approach to the AGM and reporting practices. The Governance team, within management, seeks input from investors, including ESG investors, on BHP’s reporting on sustainability. This feedback has been incorporated into this year’s Annual Reporting documents. |
Suppliers and customers | ||||
The Board and its Committees take into account the perspective of customers and suppliers during their deliberations. In FY2020, this included reports from the CEO and the Chief Commercial Officer on discussions with customers and suppliers and particularly consideration of both regarding COVID-19. | ||||
COVID-19 response Suppliers – We accelerated payments and reduced payment terms to seven days (from 30 days) for small, local and Indigenous suppliers. In Chile, we offered voluntary financial assistance to cover a significant part of contractor companies’ costs to maintain the remuneration of workers demobilised at our operations because of the pandemic. Customers – The impact of COVID-19 disruptions on our customers’ operations and our engagements with them to mitigate these were captured in the regular COVID-19 updates from the CEO to the Directors. | Vendor rationalisation The Board discussed strategies to consolidate mining materials and consumables vendors for Minerals Australia, and the impact on other participants in the supply chain. Potential impacts on local and Indigenous suppliers were considered as well as ways to mitigate this risk, including KPIs for assets on local and Indigenous spend. | |||
Supply chain human rights and seafarer welfare The Sustainability Committee discussed BHP’s risk and controls relating to the potential for adverse human rights impacts in our supply chain, and had a specific deep dive into maritime seafarer welfare. Board and Sustainability Committee reviews were also undertaken of our approach to the supply chain through the discussion and approval of the Modern Slavery Statement FY2020. | Chile social issues The Board discussed the situation in Chile since October 2019, including the social crisis, the health and economic crisis caused by COVID-19, and the combined effects of the three, as well as the fact that the country will enter an intense electoral period, starting with the referendum for a new Constitution in October 2020, and ending with the Presidential election in November 2021. The Board reviewed the implementation of Social Value plans for the regions where we operate, as those continue to be the most important instrument for BHP to build trust and long-term relationships with our key stakeholders. | |||
Climate change Discussions related to how we will work with our customers and suppliers with respect to Scope 3 greenhouse gas emissions, including our FY2021 actions, CY2030 goals and long-term vision to support the economy-wide transitions necessary to meet the Paris Agreement goals by working with customers and suppliers to achieve sectoral decarbonisation. The Sustainability Committee reviewed proposed measures to deploy our US$400 million Climate Investment Program, which will include investment in emissions reduction projects across our operated assets and value chain and is part of our commitment to take a product stewardship role in relation to our full value chain. |
Environment | ||||
The Board and its Committees consider a range of environmental matters throughout the year including, detailed discussions relating to climate change, tailings storage facilities, rehabilitation and closure. | ||||
Renewable power agreements in Chile The Board approved four power purchase agreements (PPAs) that will meet the energy requirements for operations at Escondida and Spence from 100 per cent renewable sources by the mid-2020s. The contracts will effectively displace 3 million tonnes of CO2 per year from FY2022 compared to the fossil fuel based contracts they are replacing. | Climate change The Board and its Committees spent significant time considering climate change in relation to BHP’s business and strategy. These discussions considered a range of stakeholders, including investors, communities, governments, employees, customers and suppliers. These stakeholder views were taken into account in considering our updated climate change strategy. In particular, during FY2020 the Board and Sustainability Committee focused on the detailed development of the commitments set out in July 2019: publicly setting a medium-term target for operational emissions, the Climate Investment Program, Scope 3 emissions goals, the link between emissions performance and executive remuneration, and the work to release our new BHP Climate Change Report 2020. |
establish flexibility to rapidly capture opportunities.
For more information on these programs, refer to section 1.4.4.
Future options
We also have broad development options and exploration licences in many of the world’s premier basins, which could create significant shareholder value over the long term. These options cover a range of risk, return and optionality metrics and are diversified by commodity and geography.1.4.4 Our Operating Model
7
1.4.2 Our Operating Model
We have a simple and diverse portfolio of tier one assets around the world, withlow-cost options for future growth and value creation.
Our assets are high quality and largely located inlow-risk locations, with strong development potential.
Our Operating Model
Assets
In addition to having the right assets in the right commodities, we also create value in the way we operate our assets.
Our Operating Model allows us to leverage integrated systems and technology, replicate expertise and apply high standards of governance and transparency.
Our Operating Model It includes:
Assets: Assets are a set of one or more geographically proximate operations (includingopen-cut mines,and underground mines, and onshore and offshore oil and gas production and processing facilities). We produce a broad range of commodities through these assets. Our operated assets include assets that are wholly owned and operated by BHP and assets that areor owned as a joint venture and operated by BHP. We also hold interests in assets that are owned as a joint venture but are not operated by BHP.
Asset groups: We group most of our assets into geographic regions to provide effective governance(Minerals Australia and replicate best practice, technology and improvement initiatives in other parts of the business. OurMinerals Americas), while our oil and gas assets are grouped together asconsidered one global Petroleum asset group which allows us to share best practice and promote new technologies across our portfolio.(Petroleum).
Commercial: Our Commercial function optimises value creation and minimises costs across ourend-to-endsupply chain.chain costs. It is organised around our core value chain activities – Sales and Marketing; Maritime and Supply Chain Excellence; Procurement; and Warehousing Inventory and Logistics and Property – supported by short-Property; and long-term market insights, strategyMarket Analysis and planning activities, and close partnership with our assets.Economics.
Centres of Excellence:We have established Centres of Excellence in the disciplines of maintenance and engineering, resource engineering, projects and geoscience to develop organisational capability and best practice.
Functions: Functions operate along global reporting lines to support all areas of the organisation. FunctionsBHP and have specific accountabilities and expertise in areas such as finance, legal, governance, technology, human resources, corporate affairs, health, safety, environment and community.
Leadership: Our Executive Leadership Team (ELT) is responsible for theday-to-day management of the Group and leadingleads the delivery of our strategic objectives.
8
We disclose financial and other performance primarily by commodity. This gives an insight into the nature and financial outcomes of our business activities and allows us to compare our performance against industry peers.
1.4.31.4.5 Managing performance
Corporate planning
Our corporate planning process is designed to deliver on our strategy, which is to have the best capabilities applied to a portfolio of the best assets, in the best commodities, to create long-term value and high returns.
Informed by our strategy, our annual corporate planning process is critical to creating alignment across BHP.strategy. It guides the development of plans, targets and budgets to help us decide where to deploy our capital and resources.
Plans are assessed at the Group level to balance the goal of maximising the value of our individual assets with the goal of creating value and mitigating investment risks at the portfolio level. We evaluate the range of investment opportunities and aim to optimise the portfolio based on our assessment of risk, returns and future optionality. We then develop a long-term capital plan and guidance for the Group.
Assessment and monitoring
We review our portfolio against a constantly changing external environment, to capture and manage emerging opportunities and risks. Our strategy is cascaded through our planning processes. Long-term scenario planning is used to identify the strategic capabilities we need to be successful in our industry and to evaluate the selection of our preferred commodities and portfolio of assets. We seek to identify potential new business opportunities and to test the robustness of our portfolio over a range of possible outcomes. We use signals tracking to monitor key trends and events that inform our strategic choices and to identify actions to manage emerging risks.
Capital discipline
We use our Capital Allocation Framework (CAF) to assess the most effective and efficient way to deploy capital. This helps us:
maintain our plant and equipment to support safe and efficient operations over the long term;term
keep our balance sheet strong to give us stability and flexibility through the business cycle;cycle
reward our shareholders by paying out at least 50 per cent of our Underlying attributable profit in dividends.dividends
We then look at what would be the most valuable risk-adjusted use for any excess capital that remains after these three priorities are met and decide whether to:
further reduce our debt;debt
return more cash to shareholders through additional dividends or sharebuy-backs;buy-backs
invest in growth, either through projects within our asset portfolio or through exploration or acquisitions, provided the investment will create more value, based on our assessment of its return, risk and optionality, than a sharebuy-back.buy-back
Our Capital Allocation Framework
9
Case study:
Sale of Onshore US assets and shareholder return program
In November 2018, we committed to return the US$10.4 billion net proceeds from the sale of our Onshore US assets to our shareholders. This included the A$7.3 billion (US$5.2 billion)off-marketbuy-back of BHP Group Limited shares that was completed in December 2018(Off-MarketBuy-Back) and the payment of the US$5.2 billion special dividend in January 2019 (Special Dividend).
The Board carefully considered how best to return the net proceeds to our shareholders. In making this decision, we applied our Capital Allocation Framework. With net debt toward the lower end of our target range, we treated the net proceeds as excess capital to be returned to shareholders. The combination of theOff-MarketBuy-Back and Special Dividend took into account the large range of views expressed by our shareholders, returned significant value to all our shareholders and enabled the net proceeds to be returned in a timely manner.
TheOff-MarketBuy-Back enabled the Group to repurchase approximately 265.8 million BHP Group Limited shares at a 14 per cent discount to the Market Price (2). We believe all shareholders benefited from the positive impact on BHP’s return on equity, cash flow per share and earnings per share from the reduced number of shares on issue. The Special Dividend provided a significant cash distribution to all shareholders, irrespective of whether they participated in theOff-MarketBuy-Back. In addition, theOff-MarketBuy-Back and the Special Dividend efficiently released a significant amount of franking credits to BHP Group Limited’s shareholders.
The successful completion of the shareholder return program demonstrates our commitment to capital discipline and to transparently apply our Capital Allocation Framework for the benefit of all shareholders.
|
10
1.4.4 Transformation overview
In FY2019, we progressed our transformation agenda to build our culture, capability and technology. The program focuses on safety improvement, simplification and value creation and comprises four key components:
The BHP Operating System is a new framework that guides behaviour and practices, builds capability and promotes continuous improvement;
World Class Functions aims to make our functions more effective and efficient, through a comprehensive approach to business process reengineering;
Centres of Excellence for maintenance and engineering, projects and geoscience aim to develop organisational capability and best practice in these disciplines;
Value Chain Automation uses technology to automate equipment, processes and decision-making and includes our work relating to innovation at our first Innovation Centre in Newman, Western Australia, where we plan to trial new ideas to change how we operate.
Through these activities, we aim to build capability and a culture that empowers our frontline to act on their ideas and harness their ingenuity. Following are some highlights from FY2019.
BHP Operating System: Western Australia Iron Ore Port operations
The BHP Operating System is a new way of working that will align our teams to produce better safety and business performance. It is a company philosophy that guides leadership behaviours and practices to empower our teams, build capability and make problem solving and improvement part of what we do every day. Western Australia Iron Ore’s (WAIO) Port operations was the first BHP Operating System pilot site to go live in July 2018.
The deployment of the BHP Operating System program has focused on car dumper activities within production and maintenance and shutdown teams at the Nelson Point port operations, with an aim of promoting stable operations.
Throughout FY2019, the team at Nelson Point strengthened frontline safety, improved performance and introduced cultural improvements. Key achievements include:
improving the car dumper ramp-down process 15.75 hours on average ahead of schedule (compared to previously executed ramp-down activity), through engaging the frontline and introducing coordination measures to optimise activity time and improve predictability;
using standardised work principles for a car dumper’s ring rail replacement to safely complete the task in a record of 174 hours versus the previous execution of 225 hours. Key lessons will now be applied to future ring rail replacements that are scheduled at Nelson Point port;
implementing a workplace organisation method known as ‘5S’ across the Port’s key areas that encourages teams to take responsibility for workplace cleanliness, organisation and arrangement, and improve standards on safety, productivity and culture;
introducing a system in which problems are easily identified and people are given leadership support when required to solve the issue.
The BHP Operating System was also deployed at WAIO’s Perth repair centre, BHP Mitsubishi Alliance’s Caval Ridge and Peak Downs, Olympic Dam, Escondida and by our Petroleum asset group.
World Class Functions: Making our functions more effective and efficient
In response to BHP’s changing operating environment and drive to increase efficiency, in recent years our global and regional functions began undertaking large-scale change and improvement efforts.
World Class Functions aims to simplify functional activity and deliver sustainable first quartile performance benchmarked against our peer group, by reducing functional costs and increasing effectiveness both in terms of what our functional teams do and how they do it.
Initiatives include renewing operating models for functions, changing functional services, including how they are delivered, as well as improving processes, tools and systems.
Maintaining our focus on culture and people will ensure the outcomes delivered by World Class Functions are embedded sustainably.
Centres of Excellence: Maintenance and Engineering Centre of Excellence
We are developing Centres of Excellence for areas including maintenance and engineering, resource engineering, projects and geoscience.
11
The Maintenance and Engineering Centre of Excellence focuses on defect elimination, excellence in maintenance planning and scheduling, and embedding equipment strategies that improve the way people work.
The Maintenance Centre of Excellence was established in FY2017 in Minerals Australia and was expanded into Minerals Americas in FY2019. In August 2019, an engineering team was established within the Maintenance Centre of Excellence and the centre has since become the Maintenance and Engineering Centre of Excellence.
The centre plans and schedules all maintenance work and shutdowns across the business in a standardised way. It works in partnership with our assets and Supply and Technology functions to establish best practice equipment and supply chain strategies that use advanced analytical and risk-based processes.
Asset performance management systems have been established under the Maintenance and Engineering Centre of Excellence to detect and predict potential failures early. Practices to eliminate defects underpin our continuous improvement approach.
Maintenance costs across our fleets and fixed plant under the Maintenance and Engineering Centre of Excellence are being reduced over their lifecycle in Minerals Australia and Minerals Americas, while equipment reliability and availability have improved.
In FY2019, the Maintenance and Engineering Centre of Excellence saved over AUD$144 million in maintenance costs compared to maintenance costs in FY2018, increased availability across critical fleet by up to 5 per cent in some operations since its inception (in FY2019 compared to FY2018), and improved our prediction of a range of engine and brake system failures.
Value Chain Automation: Innovation Centre
Our first BHP Innovation Centre located at our Newman operations in Western Australia is an important part of our Value Chain Automation.
The Innovation Centre tests andde-risks new solutions and innovations developed in extraction and mine processes to allow technology to support continuous improvement across all aspects of the BHP value chain.
This unique testing ground allows emerging technologies to be proven in a controlled site-based environment, while new ways of working and capability are developed to allow for successful and rapid deployment and scaling of integrated automation solutions.
In FY2019, BHP’s Innovation Centre implemented several technology-based solutions, including:
Live mine scheduling – a new capability that enables mine schedulers to deliver faster and higher-quality schedules and decisions for mine load and haul operations by analysing disparate data sets consisting of real-time and contextualised information. The successful application of live mine scheduling at Eastern Ridge has led to scaling and deployment at Whaleback. In FY2020, live mine scheduling will be scaled across all iron ore operations, which is expected to result in better mining fleet utilisation and visibility throughout the BHP iron ore supply chain.
Real-time payload distribution display – a visual tool enabling our digger operators to precisely and efficiently distribute and deposit payload onto trucks. This technology is expected to improve operators’ ability to accurately deposit the target payload onto trucks, enabling lower equipment maintenance costs.
Pedestrian avoidance technology – a video and audio detection and alert system that provides forklift operators with360-degree detection of personnel near forklift machinery. This technology is expected to reduce safety incidents that have previously occurred due to poor visibility. Developed and tested at BHP Innovation Centre’s Welshpool facility, pedestrian avoidance technology was piloted at Eastern Ridge, Port and Nickel West in July 2019.
12
1.4.5 Operations Services
Operations Services is an industry first and has been established to create a stronger foundation from which to achieve high performance. It has rapidly unlocked improvements in safety, production and cost outcomes for Minerals Australia, while simultaneously providing stability for Operations Services employees and contributing to social value in the communities where we operate. Operations Services is an important element in transforming organisational capability and the way we work, along with the BHP Operating System, the Maintenance and Engineering Centre of Excellence, field leadership and technology.
The Australia-wide Operations Services workforce comprises permanent employees in production, maintenance, shut downs and some operational functions, with specific scopes of work and accountabilities. Sites request Operations Services to deploy teams to specific Operations Services for fixed terms to provide production or maintenance services.
Operations Services is recruiting and training employees from a range of backgrounds, including those who are new to the industry. Through its innovative approach to recruitment and onboarding, Operations Services has the highest proportion of female and Indigenous employees of any BHP production asset. This has contributed to the enhancement of organisational capability, with consequent improvements in safety and productivity. Operations Services offers job security, considerable skills training, flexible work options and wide-ranging career prospects, ultimately delivering more stability and higher performance than the contractors they displace. Over 50 per cent of Operations Services employees are from regional communities and the income security that Operations Services provides is helping to support greater local economic activity.
13
1.4.6 Locations
BHP locations (includesnon-operated operations)
14
(1) |
|
1.4.6 COVID-19: Our global response
COVID-19 key statistics and initiatives to 30 June 2020 | ||||
Total number of confirmed (1) cases in the BHP workforce (2) (potentially infectious while at work) (3) Figures for persons potentially infectious while at work are included irrespective of where infection may have occurred | Minerals Australia (4) | 4 (0) | ||
Minerals Americas (5) | 455 (135) | |||
Petroleum (6) | 27 (0) | |||
Asia/Europe | 0 (0) | |||
Global total | 486 (135) | |||
Established the Vital Resources Fund in Australia, providing a broad range of support for regional communities | Minerals Australia – community | A$50 million | ||
Provided support to labour hire for our Australian operations to help them continue to operate | Minerals Australia – workforce | 1,500 new positions created | ||
Accelerating payments and reducing payment terms to seven days (from 30 days) for small local and Indigenous businesses | Minerals Australia – suppliers | US$80 million | ||
Assistance program to increase testing capacity and medical treatment facilities in vulnerable areas of Santiago, Antofagasta and Tarapacá Northern regions | Minerals Americas – community | US$8 million | ||
Donations to the communities where we operate in Chile | Minerals Americas – community | US$3 million | ||
Supporting impacted contracting partners in Chile by voluntarily paying a proportion of their fixed remuneration and social security costs to 30 June 2020 | Minerals Americas – workforce | US$25 million | ||
Established a Community Relief Fund supporting local and regional health and wellness programs and essential community services in North America and Trinidad and Tobago | Petroleum – community | US$2 million | ||
Supporting the Chinese Red Cross Foundation in its response efforts | Global – customer community | RMB10 million | ||
Strong field leadership globally through the pandemic | Global – workforce | 27,401 critical control observations across the Group from 1 March 2020 to 30 June 2020, showing 92% compliance | ||
Employee wellbeing survey response | Global – workforce | 73% rated their wellbeing as good or very good 91% believed BHP was doing a good job responding to COVID-19 |
(1) | A person with a laboratory confirmation of COVID-19 infection, using polymerase chain reaction (PCR) test methodology, irrespective of clinical signs and symptoms. |
15
(2) | Employees and contractors engaged by BHP. |
(3) | Figures in brackets indicate the number of people within the confirmed cases in the BHP workforce who were potentially infectious while at work, defined as being in one of BHP’s managed locations (including camps and offices) within 48 hours before onset of symptoms and/or while symptomatic. Figures for persons potentially infectious while at work are included irrespective of where infection may have occurred. |
(4) | Includes BHP offices within Australia. |
(5) | Includes BHP offices within South America or Canada. |
(6) | Includes BHP offices within the United States. |
COVID-19 transformed the world earlier this year, touching every corner of society and shaking the global economy. BHP quickly recognised that our ability to continue to operate through the pandemic depended on the steps we took to keep our people safe and healthy, and to support the communities where we have a presence.
Our first priority throughout our COVID-19 response has been the health and safety of our people and communities, and to help support the health and safety of the workforce across our value chain. This guided us as we worked to prevent an outbreak in our operations and communities when a pandemic was declared in March. With strong engagement with and support from our workforce and union leaders within our workforce, we were able to take swift and decisive action, helping reduce the impact within and outside our operated assets.
When the pandemic hit, we had the financial strength and agility to implement our emergency plans and the rapid changes necessary to keep our people safe and healthy and our operations running. BHP’s strong balance sheet, disciplined approach and CAF, which is embedded throughout our business, positions us to weather downturns and unexpected issues such as the COVID-19 outbreak. The CAF informs the core financial decisions we make and meant we had already made the investments in our operated assets to continue to operate safely and reliably.
Employees and contractors
To facilitate social distancing and reduce infection risk, we reduced numbers of people at our work locations through split-shifts at our offices, requirements for business-critical workers only at our operated assets and flexible working from home arrangements. In addition, we supported our employees at greatest risk from COVID-19 to work from home and, where this was not possible, access special leave.
We implemented screening measures at entry to our operations and airport departure locations for our fly-in fly-out workforce, including app-based questionnaires and temperature screening, reduced capacity on flights and buses, in support of physical distancing and increased hygiene practices. When people displayed relevant symptoms, we implemented response plans and evacuated them for testing, isolation and, where required, medical care. In Chile and for our Petroleum operations in the United States, due to high levels of community transmission, the screening included testing for COVID-19 prior to travel to our remote sites and facilities. This enabled us to safely operate, support jobs and contribute to regional economic activity.
Our Technology team supported our response to COVID-19, aiding all Incident Management teams and Emergency Management teams globally and rapidly enabling 16,000 people to work remotely while ensuring the stability and security of enterprise and operations systems.
The Technology team also developed a BHP contact tracing app (C-19 Tracer) to provide digital personal protective equipment for our global staff. It helps our Health, Safety and Environment teams to trace those who had close contact with a COVID-19 positive member of our workforce. The app uses GPS and Bluetooth-based technologies and was deployed in May, with initial rollout to Western Australia Iron Ore and Minerals Americas test groups.
Across BHP, we increased the availability of support services for our people, including localised counselling services in addition to our Employee Assistance Program, a range of online campaigns and communication tools, and greater communication opportunities to keep our people and teams connected. We sought to identify and make safe and suitable arrangements for employees whose wellbeing was not best served by continuing to work from home. In Chile, which has had one of the highest rates of COVID-19 infection globally, a telemedicine service was established to support and monitor infected workers’ health.
Where local COVID-19 transmission was sufficiently low, work arrangement restrictions were lifted in some locations following targeted assessments of local risks, resources, needs and regulations, and the health and mental wellbeing of our people, their families and communities.
Community
The local communities where we have a presence and local businesses play a critical role in supporting our operated assets and we depend on their ongoing wellbeing, success and prosperity. BHP also operates in close proximity to several remote and regional Indigenous communities globally.
We engaged with the communities where we operate to identify where support was needed most, contributing to organisations to meet supply and service shortages, accelerating payments to our small, local and Indigenous suppliers and engaging additional people from local regions. We worked with governments, businesses and individuals to identify service and supply shortfalls and determine the best way to fill those gaps.
These steps helped to keep our operated assets running safely and supported communities and businesses that rely on our business.
We established social investment funds designed to help support the most vulnerable from infection and mitigate the broader impacts.
In Australia, this was through the A$50 million Vital Resources Fund, which provided a broad range of support programs, including additional GP support for remote Indigenous communities in Western Australia, the establishment of two fever clinics in Queensland, IT equipment for the Kokatha Aboriginal Corporation in South Australia and business mentoring in New South Wales.
In Chile, we contributed US$8 million to a program to increase the testing capacity and medical treatment facilities in vulnerable areas, including new sampling units in La Pintana and Puente Alto including an in-car unit and mobile electric bus, water distribution in Antofagasta and Pozo Almonte and sanitation campaigns for public places in Antofagasta, Coloso, Sierra Gorda and Mamiña. We also established an additional US$3 million fund for communities.
The US$2 million Community Relief Fund in North America, Trinidad and Tobago and Mexico supported local and regional health and wellness programs, such as through the donation of PPE for medical professionals, as well as essential community services, and we created a partnership with Project Dignity in Singapore to supply meals to frontline healthcare workers.
We limited access to Indigenous communities by our people and made sure vulnerable members had access to medical services and essential supplies. Expert advice early on told us that Indigenous peoples may have additional susceptibility to COVID-19 infection. Therefore, we ceased face-to-face meetings with Indigenous peoples very early in the pandemic, implemented strict social protocols for all BHP employees and contractors in regional communities, and in Australia, supported Indigenous peoples’ return to country and coordinated a national, multi-industry response to protect and support remote communities.
The Vital Resources Fund contributed more than A$3.3 million to peak Aboriginal and Torres Strait Islander health councils and medical services across the country to support their communities as they transition from lockdown to recovery.
The BHP Foundation committed A$3 million to the prevention and treatment of COVID-19 with two world-leading research institutions based in Australia. The Foundation provided A$2 million to support the University of Queensland to develop a potential vaccine and A$1 million to the Peter Doherty Institute for Infection and Immunity for its Australasian COVID-19 Trial (ASCOT).
Suppliers
We worked with our suppliers to help ensure they followed stringent health and safety standards among their own workforce. We also worked with them to source critical hygiene products, such as hand sanitiser, face masks and cleaning equipment to protect our workforce and the communities where we have a presence.
For example, our suppliers delivered hygiene products to a school in Moranbah, Queensland when they were running low, and our local procurement team filled a shortfall in masks for staff at the Andamooka branch of the Royal Flying Doctor Service in South Australia. Minerals Americas continues to engage closely with the communities associated with Escondida and Pampa Norte to identify opportunities to support the ongoing crisis and recovery phase, including supporting local suppliers.
Getting our people to and from sites safely around the world was also a logistical challenge that our suppliers helped us overcome. They provided people and equipment to conduct temperature screenings at airports and bus depots to ensure no one with a fever travelled to site. Our suppliers also expanded our bus fleets, increased the number of charter flights and supported new procedures in camps so we could maintain social distancing.
We also worked with our site-based suppliers to implement robust shared resilience plans and include social distancing measures in their on-site procedures to keep our people safe and our operations running.
Specific examples of our response can be found throughout this Report and at bhp.com/media-and-insights/covid-19/.
1.51.4.7 Our performanceperformance: Financial KPIs
Key performance indicators
Our key performance indicators (KPIs) enable us to measure our sustainable development and financial performance. These KPIs are used to assess performance of our people throughout the Group. For information on our approach to performance and reward, refer to section 1.9.3. For information on our overall approach to executive remuneration, including remuneration policies and remuneration outcomes, refer to section 3.
Following BHP’s sale of the Onshore US assets, the contribution of these assets to the Group’s results is presented in this Annual Report as Discontinued operations. To enable more meaningful comparisons with prior year disclosures and in some cases to comply with applicable statutory requirements, the data in section 1.51.4.7 has been presented to include Onshore US, except for Underlying EBITDA. Footnotes to tables and infographics indicate whether data presented in section 1.51.4.7 is inclusive or exclusive of Onshore US. For more information on the accounting treatment, refer to section 5.
1.5.1 Financial KPIs
(1) | Includes data for Continuing and Discontinued operations for the financial years being reported. |
(2) | Excludes data from Discontinued operations for the financial years being reported. |
(3) | For more information on alternative performance measures, refer to section |
In FY2019, higher pricesFY2020, record production at WAIO, Caval Ridge and Poitrel; record coal mined at Broadmeadow together with underlying improvements in productivityrecord throughput at Escondida and improved operational stability generated strongsolid cash flow despite field and grade declines at Petroleum and Copper, enabling us to reducemaintain net debt(3) at the low end of our target range and increase our dividends.ordinary dividend payments.
Profit and earnings
Attributable profit of US$8.38.0 billion in FY2019FY2020 includes an exceptional loss of US$0.81.1 billion (after tax), compared to an attributable profit of US$3.78.3 billion, including an exceptional loss of US$5.20.8 billion (after tax) in the prior period. The FY2019FY2020 exceptional loss is related to the impairment of Cerro Colorado, a provision for cancellation of power contracts as part of a shift towards 100 per cent renewable energy at Escondida and Spence, COVID-19 related costs and the current year impact of the Samarco dam failure, partially offset by the reversal of provisions for global taxation matters, which were resolved during the period.failure.
Our Underlying attributable profit was US$9.1 billion (FY2018:in FY2020 (FY2019: US$8.99.1 billion).
We reported Underlying EBITDA (continuing(Continuing operations) of US$23.222.1 billion (FY2018:in FY2020 (FY2019: US$23.2 billion), with higherlower prices favourable exchange rate movements and underlying improvements in productivity (in total US$3.2 billion) offset by the impacts of operational outages,(excluding iron ore), lower volumes (including copper grade and petroleum field decline, higher strip ratios,declines), inflation, an increase in the impact of weatherclosure and rehabilitation provision for closed mines, increased deferred stripping depletion in line with mine plan at Escondida and other net movements (in total US$3.26.1 billion), compared to the prior period. This decrease was, partially offset by record volumes at a number of our assets, improved operating stability, favourable impacts from exchange rate movements, the application of IFRS 16 Leases and other net movements (in total US$5.0 billion).
16
Cash flow and balance sheet
Our Net operating cash flows (continuing(Continuing operations) of US$17.415.7 billion in FY2019 (FY2018:FY2020 (FY2019: US$17.617.4 billion) reflects lower Underlying EBITDA results and higher Australian and Chilean incomealthough with tax payments in FY2019.line with FY2019 due to higher instalment rates.
Our balance sheet remains strong with net debt at US$9.212.0 billion at FY2019year-end (FY2018:FY2020 year end (FY2019: US$10.99.4 billion), a reductionwhich is at the low end of US$17 billion over three years. our target net debt range.
The reductionincrease of US$1.72.6 billion in FY2019 reflects strong free cash generation, which includes proceeds received fromnet debt in FY2020 is primarily related to the saleimpact of Onshore US, partially offset bythe application of IFRS 16 Leases, returns to shareholders of US$16.66.9 billion and dividends paid tonon-controlling interests of US$1.21.0 billion, and an unfavourablenon-cash fair value adjustmentbeing offset by free cash flow (3) generation of US$0.4 billion related to interest rate and exchange rate movements.8.1 billion.
Our gearing ratio(3) in FY2019at FY2020 year end was 15.118.7 per cent (FY2018: 15.3(FY2019: 15.4 per cent).
Our Underlying Return on Capital Employed was 16.9 per cent for FY2020 (FY2019: 15.9 per cent).
(3) | For more information on alternative performance measures, refer to section |
17
Reconciling our financial results to our key performance indicators
Profit | Earnings | Cash | Returns | |||||||||||||||||||||
US$M | US$M | US$M | US$M | |||||||||||||||||||||
Measure: | Profit after taxation from Continuing operations
| 8,736 | Profit after taxation from Continuing operations | 8,736 | Net operating cash flows from Continuing operations | 15,706 | Profit after taxation from Continuing operations | 8,736 | ||||||||||||||||
Made up of: | Profit after taxation | Profit after taxation |
Cash generated by the Group’s consolidated operations, after dividends received, interest, taxation and royalty-related taxation. It excludes cash flows relating to investing and financing activities
| Profit after taxation | ||||||||||||||||||||
Adjusted for: |
Exceptional items before taxation |
|
1,546 |
|
Exceptional items before taxation |
1,546 |
Exceptional items before taxation |
1,546 | ||||||||||||||||
Tax effect of exceptional items | (241) | |||||||||||||||||||||||
Tax effect of exceptional items |
| (241 | ) | Tax effect of exceptional items | (241) | Net finance costs excluding exceptional items | 818 | |||||||||||||||||
Exceptional items after tax attributable to non-controlling interests | (201 | ) | Depreciation and amortisation excluding exceptional items | 6,112 | Income tax expense on net finance costs | (267) | ||||||||||||||||||
Exceptional items attributable to BHP shareholders | 1,104 | Impairments of property, plant and equipment, financial assets and intangibles excluding exceptional items | 85 | Profit after taxation excluding net finance costs and exceptional items |
10,592 | |||||||||||||||||||
Profit after taxation attributable to non-controlling interests | (780) |
Net finance costs excluding exceptional items | 818 |
Net Assets at the beginning of period | 51,824 | |||||||||||||||||||
Taxation expense excluding exceptional items | 5,015 |
Net Debt at the beginning of period | 9,446 | |||||||||||||||||||||
Capital employed at the beginning of period | 61,270 | |||||||||||||||||||||||
Net Assets at the end of period | 52,246 | |||||||||||||||||||||||
Net Debt at the end of period | 12,044 | |||||||||||||||||||||||
Capital employed2 at the end of period | ||||||||||||||||||||||||
64,290 | ||||||||||||||||||||||||
Average capital employed
| 62,780
| |||||||||||||||||||||||
To reach our KPIs
|
Underlying attributable profit
|
9,060
|
Underlying EBITDA
|
22,071
|
Net operating cash flows
|
15,706
|
Underlying Return on Capital Employed
| 16.9%
| ||||||||||||||||
Why do we use it? |
Underlying attributable profit allows the comparability of underlying financial performance by excluding the impacts of exceptional items and is a performance indicator against which short-term incentive outcomes for our senior executives are measured. It is also the basis on which our dividend payout ratio policy is applied. |
Underlying EBITDA is the key Alternative Performance Measure that management uses internally to assess the performance of BHP’s segments and make decisions on the allocation of resources and, in our view, is more relevant to capital intensive industries with long-life assets. |
Net operating cash flows provide insights into how we are managing costs and increasing productivity across BHP. |
Underlying Return on Capital Employed is an indicator of the Group’s capital efficiency and is provided on an underlying basis to allow comparability of underlying financial performance by excluding the impacts of exceptional items. |
Capital management
Free cash flow (continuing(Continuing operations), which is net operating cash flows less net investing cash flows, was US$10.08.1 billion (FY2018:in FY2020 (FY2019: US$12.510.0 billion) reflecting a 12 per centUS$0.5 billion increase in total capital and exploration expenditure to US$7.6 billion in FY2019FY2020 in line with guidance. The increase in capital and exploration expenditure included continued investment in high-return latent capacity projects, and investment in South Flank, Spence Growth Option and Mad Dog Phase 2 and the Spence Growth Option in FY2019.FY2020. Capital and exploration expenditure guidance is unchangedtargeted at belowapproximately US$87 billion per annum for FY2020,FY2021, subject to exchange rate movements.
Our dividend policy provides for a minimum 50 per cent payout of Underlying attributable profit at every reporting period. The minimum dividend payment for the second half of FY2019 was 5338 US cents per share. Recognising the importance of cash returns to shareholders, the Board determined to pay an additional amount of 2517 US cents per share, taking the final dividend to a record 7855 US cents per share. In total, US$17.1 billion1.20 per share of returnsdividends to shareholders have been determined for FY2019 including dividends of US$11.9 billionFY2020 (FY2019: US$2.35 per share; FY2018:share made up of US$1.181.33 per share), which includes ashare ordinary dividends and US$1.02 per share special dividend relating to the disbursement of US$5.2 billion (US$1.02 per share) and a sharebuy-back of US$5.2 billion.Onshore US proceeds). These returns are covered by total free cash flows generated of US$20.58.1 billion including US$10.4 billionin FY2020.
Our Underlying Return on Capital Employed was 16.9 per cent for FY2020 (FY2019: 15.9 per cent) reflecting lower capital employed as a result of net proceeds from the sale of Onshore US.US disposal in FY2018.
1.4.8 Our performance: Non-financial KPIs
Capital management KPIs
18
Total shareholder return (TSR) shows the total return to shareholders during the financial year. It combines movements in share prices and dividends paid (which are assumed to be reinvested).
During FY2020, TSR decreased as a result of the BHP share price and dividends paid, resulting in a 15.7 percentage change from FY2019. From 1 July 2015 to 30 June 2020, BHP’s TSR performance was 29 per cent. This is above the sector Peer Group TSR by 19.4 per cent, and below the MSCI Index TSR by 9.5 per cent.
1.5.2 Non-financialLong-term credit rating
Credit ratings are forward-looking opinions on credit risk. Standard & Poor’s and Moody’s credit ratings express the opinion of each agency on the ability and willingness of BHP to meet its financial obligations in full and on time. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by an assigning rating agency. Any rating should be evaluated independently of any other information.
Standard & Poor’s and Moody’s credit ratings of BHP remained at the A and A2 level respectively throughout FY2020. Standard & Poor’s affirmed its rating on 14 July 2020 and Moody’s affirmed its rating on 1 May 2020.
For more information on our liquidity and capital resources, refer to section 1.10.3.
Sustainability KPIs
Our public sustainability five-year targets and longer-term goals set in FY2017 are designed to help us to operate safely, reduce our environmental impact, protect the health of our people and contribute to improved quality of life in the communities where we have a presence. These targets and various sustainability performance metrics (SPMs) disclosed in this Report encourage our continual improvement in our sustainability areas and enable us to manage and evaluate our performance against our commitments.
The targets were created in consultation with our operated assets and key internal and external stakeholders, to prioritise and measure our progress in our sustainability areas. The targets were approved by the Sustainability Committee, which oversees how we manage sustainability risks and evaluates overall sustainability performance. The targets are integrated into our business plans and they and other selected SPMs form part of Company scorecards. Each year the Sustainability Committee offers guidance to the Remuneration Committee in the evaluation of performance against these targets and selected SPMs.
For a description of why we believe our SPMs are useful and the calculation methodology by metric, refer to section 6.6.
For information on our approach to performance and reward, refer to section 3.
For information on our overall approach to executive remuneration, including remuneration policies and remuneration outcomes, refer to section 3.
Target | ||||||||||||
Year-on-year | ||||||||||||
| Zero work-related fatalities |
| FY2017 (1) 1 FY2018 2 FY2019 (2) 1 FY2020 0 | |||||||||
Year-on-year improvement of total recordable injury frequency (3) (TRIF) per million hours worked | Total recordable injury frequency | FY2018 (4) 4.4 FY2019 (5) 4.7 FY2020 4.2 | ||||||||||
50 per cent
|
|
19
Occupational exposures 60% reduction compared to FY2017 baseline | ||||||||||||||
Adjusted FY2017 baseline 4,266 FY2019 (8) 2,192 FY2020 1,744 | ||||||||||||||
| Zero significant community events (9) | FY2020 0 |
| |||||||||||
| Social investment spend US$149.6 million (11) | FY2017 (12) US$80.1 million
FY2020 US$149.6 million | ||||||||||||
By FY2022, implement our Indigenous Peoples Strategy across all our operated assets through the development of Regional Indigenous Peoples Plans | Regional Indigenous Peoples Plans being implemented across Australia (Reconciliation Action Plan (RAP)), North and South America |
Target | FY2020 result | Year-on-year | ||||
Climate change | By FY2022, maintain operational (Scope 1 and Scope 2) greenhouse gas emissions at or below FY2017 levels (14)(15) while we continue to grow our business | Greenhouse gas emissions 8% above FY2017 baseline. While our annual emissions are currently higher than FY2017 levels, our asset-level emissions forecast suggest we are on track to meet our | FY2018 (16) 17 million tonnes carbon dioxide equivalent (Mt CO2-e) FY2019 (17) 15.8 Mt CO2-e FY2020 15.8 Mt CO2-e | |||
Environment | Zero significant environmental events (9) | FY2020 0 | FY2017 0 FY2018 0 FY2019 0 FY2020 0 | |||
Reduce FY2022 withdrawal of fresh water by 15 per cent from FY2017 levels (19) | 19% freshwater withdrawal reduction from FY2017 baseline | Adjusted FY2017 baseline (18) 156,120 ML FY2019 freshwater withdrawal 155,570 ML FY2020 freshwater withdrawal 126,997 ML | ||||
By FY2022, improve marine and terrestrial biodiversity outcomes by developing a framework to | Progressed framework development in collaboration with others. Progress and pilot work presented in two external forums | Year-on-year progress on development of framework to evaluate and verify the benefits of our actions |
(1) |
|
(2) | FY2019 |
|
(3) |
|
(4) |
|
(5) |
|
(6) |
|
(7) | New FY2017 baseline |
(8) |
|
(9) | A significant event resulting from BHP operated activities is one with an actual severity rating of four and above, based on our internal severity rating scale (tiered from one to five by increasing severity) as defined in our mandatory minimum requirements for risk management. |
(10) | Our voluntary social investment is calculated as 1 per cent of the average of the previous three years’ pre-tax profit. |
(11) | Expenditure includes BHP’s equity share for operated and non-operated joint ventures, and comprises cash, administrative costs, including costs to facilitate the operation of the BHP Foundation. |
(12) | FY2017 and FY2018 social investment figures includes Discontinued operations (Onshore US assets). |
(13) | FY2019 social investment figure includes Discontinued operations (Onshore US assets) to 31 October 2018 and Continuing operations. |
(14) | Comparison calculated on a Continuing operations basis. The FY2017 baseline has been adjusted for the divestment of our Onshore US assets to ensure ongoing comparability of performance. |
|
(16) | FY2018 GHG data includes |
(17) | FY2019 |
(18) | The FY2017 baseline data has been adjusted to account for: the materiality of the strike affecting water withdrawals at Escondida in FY2017 and improvements to water balance methodologies at WAIO and Queensland Coal and exclusion of hypersaline, wastewater, entrainment, supplies from desalination and Discontinued operations (Onshore US assets) in FY2019 and FY2020. |
20
(19) | Where ‘withdrawal’ is defined as water withdrawn and intended for use (in accordance with ‘A Practical Guide to Consistent Water Reporting’, ICMM (2017)). ‘Fresh water’ is defined as waters other than seawater, wastewater from third parties and hypersaline groundwater. Freshwater withdrawal also excludes entrained water that would not be available for other uses. These exclusions have been made to align with the target’s intent to reduce the use of freshwater sources subject to competition from other users or the environment. |
1.5.31.4.9 Our contribution in FY2019FY2020
In FY2019,FY2020, our total direct economic contribution was US$46.237.2 billion, including payments to suppliers, wages and employee benefits, dividends and other payments to shareholders, taxes and royalties, as well as voluntary social investment across the communities where we operate. Of this, we paid US$9.1 billion globally in taxes, royalties and other payments to governments. Our global adjusted effective tax rate was 3633.2 per cent.cent(1). Including royalties, this increases to 44.742.2 per cent. This significant source of taxation revenue assists governments to provide essential services to their citizens and invest in their communities for the future.
During FY2019,FY2020, we paid US$188.6 billion to shareholders, lenders and investors.
As well as our direct economic contribution, we invested US$7.6 billion into our business through the purchase of property, plant and equipment and expenditure on exploration.
This investment typically has a multiplier effect by creating new jobs within our operations and also for the suppliers on whom they rely. For example, investments that were approved during FY2019 included: the investment of approximately A$200 million (BHP share) in the developmentconstruction of the West Barracouta gas fieldUS$3.6 billion South Flank project resulted in Bass Strait, Victoria, Australia,A$4.2 billion in contracts being awarded (including A$3.2 billion on Western Australian-based work). South Flank reached a construction workforce of around 3,000 people as the project moved into its second year of construction in FY2020 and is expected to create thousands of jobs over the life of the project.
In addition, we reduced our payment terms from 30 days to seven days for over 1,500 small, local and Indigenous businesses as part of a program to support communities and regional economies during the COVID-19 pandemic. The accelerated payment program delivered over US$69680 million (BHP share) in fundingmore quickly into the hands of our small business partners. BHP also hired approximately 1,500 contractors on six-month contracts to develop the Atlantis Phase 3 project in the US Gulf of Mexico and US$256 million in funding to drill an additional appraisal well (3DEL) and perform further studies in the Trion field in Mexico.support its Australian operations during this difficult time.
Figures are rounded to the nearest decimal point. All figures include Continuing and Discontinued operations.
(1) | For more information on Alternative Performance Measures, refer to section 6.1. |
(2) | Calculated on an accrual basis. |
Total social investment includes community contributions and associated administrative costs (including US$ |
21
1.61.5 Our operating environment
1.6.11.5.1 Market factors and trends
We produce raw materials that are essential to modern life. Our success is tied to the sustainable growth of emerging and developed economies and, at the same time, theeconomies. The commodities we produce are integral to driving that growth.
As a result, our performance is influenced by a wide range of factors that drive a complex relationship between supply and demand. Our diverse portfolio of long-life,low-cost assets allows us to adapt to the changing needs of our customers and bring people and resources together to build a better world.
Key trends
The global economy has been dramatically impacted by the COVID-19 pandemic. Our operating environment is complex with demand volatility and price uncertainty expected. While the outlook remains uncertain, within the scenarios that we consider, our base case has the world economy rebounding in CY2021. There will, however, be considerable variation at the national level. Even with this rebound, our base case is for the world economy to be 6 per cent smaller than it would have otherwise been in CY2021.
There remains a significant degree of uncertainty in terms of how the COVID-19 pandemic will progress and its longer-term effects. For the time being, we expect this uncertainty will constrain risk appetite of households and businesses. Even before the pandemic, action on climate change was expected to grow; new policies to ‘build back better’ could accelerate this trend in some regions.
Our long-term view forof our markets remains positive. Population growth and rising living standards are expected to continue to generatedrive demand for energy, metals and fertilisers for decades to come. New demand centres for our commodities will emerge where the twin levers of industrialisation and urbanisation are still immature today. Technology continues to advance with electrification of transport creating both opportunitiesrisks (both threats and threats. International responsesopportunities) for our portfolio. Demand for non-ferrous metals has potential upside, but oil demand could face headwinds. The decarbonisation of power is another major long-term trend. The move towards a low carbon economy has the potential to climate changedrive significant change. Environmental concerns will evolve.drive increasing diversification of national energy sources. Biosphere stewardship will be a key vehicle for creating social value as unsustainable land and water use and biodiversity loss are a danger to long-run living standards.
Against thata backdrop weof near-term uncertainty, with long-term strategic themes intact and accelerating, the value of optionality is clear. We are confident we have the right assets in the right commodities with demand diversified byend-use sector and geography. Our exploration and acquisition efforts are critical to maintaining that advantage, as they create a pipeline of products to meet future demand (see section 1.6.3)1.5.3). Exploration is inherently risky (see section 1.6.4),1.5.4) as the geoscience used for locating and accessing resources is complex and uncertain. Exploration and acquisition are also subject to political, infrastructure and other risks that can impact the accessibility of resources.
Short term
Policy uncertainty
Policy uncertainty heightened during FY2019. The escalation ofUS-China trade tensions and other trade and technology transfer inhibiting policies, along with an increasingly unpredictable policy formation process in some major economies, serve to reduce consumer confidence and business certainty. By extension, this affects investment and jobs.
Modest economic growth
While they remain in place, protectionism and political uncertainty lower the achievable ceiling for global economic growth.
Mixed sentiments
Business and investor confidence have been hit by policy uncertainty, feeding back into commodity markets.
Prudently cautious
The operating environment is complex, with uncertainty and volatility expected to be high.
Medium term
New supply
New supply, particularly of copper and petroleum, is expected to be required as demand grows and current resources are depleted.
Steeper cost curves
The marginal cost of producing some commodities is likely to rise, particularly for oil and copper, as existing resources deplete and new resources come from lower-quality deposits that are more costly to access.
Sustainable productivity rewarded
As industry-wide costs rise, disciplined producers are likely to see margin benefits from accumulated investment in sustainable productivity gains.
Emerging Asia
China still offers rich opportunities due to its large-scale, ongoing urbanisation and the Belt and Road Initiative, despite its ongoing structural shift away from manufacturing towards services. India has significant potential for sustained high growth, along with populous South East Asia.
22
Long term
Growth in population, wealth
Demand for metals, energy and fertiliser is expected to increase to meet the needs of the world’s growing population and rising living standards.
Electrification of transport
Electrification of transport creates both risks and opportunities for our portfolio. Demand fornon-ferrous metals has potential upside, but oil demand could face headwinds.
Decarbonisation of power
The move towards alow-carbon economy has the potential to drive significant change. Environmental and risk concerns will drive increasing diversification of national energy sources.
Biosphere stewardship
Unsustainable land and water use and biodiversity loss are a danger tolong-run living standards. Leading stewardship in these areas is a key vehicle for creating social value.
Key geographies
Our customers are geographically diverse. We have structured our business to meet changing demands as global market dynamics shift. Developments in a particular country can affect the demand for our products in that country and in anydirectly. It also indirectly affects us through countries that supply goods for import to that country.
China
Many major economies are expected to contract in CY2020, including the United States, Europe, Japan and India. In contrast, China ishas moved from intensive viral suppression to solid indications of economic recovery. As of August, much of the largest consumer of our commodities, accounting for roughly half of our sales. As the largest manufacturer and exporterdeveloping world was unfortunately still in the worldescalation phase of their initial COVID-19 outbreaks.
There remains a significant degree of uncertainty in terms of how the COVID-19 pandemic will progress, and its longer term effects. We believe that China and the second-largest importer, China’s performance isOECD are likely to return to their pre COVID-19 trend growth rates from around 2023. Developing economies outside East Asia may take longer. In our range analysis, we also a significant factor in the healthnegative impact on China from the downturn in the rest of the global economic system.
China’s GDP growth in the short term is expected to remain steady. Growth is expected to slow modestly in CY2019 and CY2020 to the range of 6 per cent to around 6 and a quarter per cent. This reflects the likely negative impact of US trade protection on the export sector as well as an appropriately calibrated countervailing domestic policy response.
In our view, China’s policymakers are likely to continue to seek a balance between pursuing reform and maintaining macroeconomic and financial stability. We expect a continuation of current efforts to reduce debt and deal with housing inflation.
In the long term, we expect China’s economic growth to slow progressively as the working age population falls and the capital stock matures, with productivity reforms offsetting these impacts to some degree.
China’s economic structure is expected to continue to move from industry to services, and growth drivers shift from investment and exports towards consumption. This structural change would likely produce a less volatile underlying growth rhythm in the long run.
United States
As both a major producer and consumer of our products, the United States is important to our performance. With most of our transactions denominated in US dollars, fluctuations in the dollar also influence our performance.
The US performed strongly in CY2018 with a significant boost from the passing of the Tax Cuts and Jobs Act reducing the corporate tax rate from 35 per cent to 21 per cent. However, near-term prospects are less certain as the expansionary impact of tax cuts will progressively fade and trade policies remain unpredictable.
With the rise ofUS-China trade tensions, protectionist policies could hurt consumer purchasing power and productivity growth. Purchasing power is reduced through higher prices for imported goods and domestic goods with imported components. Reduced competition and the unintended consequences of restrictive migration policies on the free flow of world-class talent could dent productivity growth. We note that the true costs of protectionism, particularly diminished consumer purchasing power, have not yet been fully felt by US households and businesses.
Japan
Japan’s demographics (ageing population and low birth rate) and its public debt burden are constraints on long-term growth. Without population, immigration and microeconomic reform, we expect that growth would likely stagnate.
23
The Japanese economy has slowed and we expect growth to be modest next year. Beyond the boost provided by the Tokyo Olympics, in the medium term, with monetary and fiscal policy proving ineffective at spurring domestic demand, any sustained lift in Japanese growth would likely come from external sources.
Eurozone
In Europe, economic conditions have softened. A material slowdown in the bellwether auto sector has weighed on the economy, and rising political and policy uncertainty, at both a national and regional level, have hurt business confidence.
Significant macroeconomic reform is required in Europe’s southern regions to preventlonger-run stagnation. In the more internationally competitive northern regions, lower savings rates would boost growth at home and help to rebalance demand within the common currency zone.
India
In India, we believe growth prospects are solid. India’s short-term outlook seems positive, driven by consumer demand. Economic reform that boosts the supply of basic infrastructure is critical to India’s ability to take advantage of its demographic profile and successfully urbanise.
Progress on key reforms, including GST, real estate regulation and insolvency resolution, has been encouraging. The strong performance of the incumbent government of Prime Minister Narendra Modi provides a basis for the pursuit of further economic reforms in his second term.
Signposts on India expanding its resource and energy footprint have been encouraging. It is now the world’s second-largest crude steel producer, the second-largest incremental contributor to global oil demand growth, a top five potash importer and an increasingly significant consumer of copper.world.
Exchange rates
We are exposed to exchange rate transaction risk on foreign currency sales and purchases. Operating costs and costs of locally sourced equipment are influenced by fluctuations in local currencies, primarily the Australian dollar and Chilean peso. The majority of our sales are denominated in US dollars and we borrow and hold surplus cash predominately in US dollars. Those transactions and balances provide no foreign exchange exposure relative to the US dollar presentation currency of the Group.
The US dollar broadly increased in value during FY2019FY2020 against our main local currencies.currencies, although volatility has been pronounced.
We are also exposed to exchange rate translation risk in relation to our foreign currency denominated monetaryfinancial assets and liabilities, including certain debt and other long-term liabilities.
Interest rates
We are exposed to interest rate risk on our outstanding borrowings and investments. Our policy on interest rate exposure is to pay on a US dollar floating interest rate basis.
Our earnings are sensitive to changes in interest rates on the floating component of BHP’s borrowings. Our main exposure is to the three-month US LIBOR benchmark, which decreased by two basis points from 2.34 per cent at 30 June 2018 to 2.32 per cent at 30 June 2019.2019 to 0.30 per cent at 30 June 2020.
24LIBOR and other benchmark interest rates are expected to be replaced by alternative risk-free rates by the end of CY2021 as part of inter-bank offer rate (IBOR) reform. We have established a project to assess the implications of IBOR reform across the Group, and to manage and execute the transition from current to alternative benchmark rates where applicable.
1.6.21.5.2 Commodity performance overview
Commodity prices
The following table shows the prices for our most significant commodities for the years ended 30 June 2020, 2019 2018 and 2017.2018. These prices represent selected quoted prices from the relevant sources as indicated and will differ from the realised prices due to differences in quotation periods, quality of products, delivery terms and the range of quoted prices that are used for contracting sales in different markets. For information on realised prices, refer to section 1.13.1.11.
Year ended 30 June | 2019 Closing | 2018 Closing | 2017 Closing | 2019 Average | 2018 Average | 2017 Average | 2019 vs 2018 Average (9) | 2020 Closing | 2019 Closing | 2018 Closing | 2020 Average | 2019 Average | 2018 Average | 2020 vs 2019 Average (9) | ||||||||||||||||||||||||||||||||||||||||||
Natural gas Asian Spot LNG (1) (US$/MMBtu) | 4.8 | 10.3 | 5.5 | 8.1 | 8.5 | 6.4 | -5% | |||||||||||||||||||||||||||||||||||||||||||||||||
Natural gas Asian spot LNG (1) (US$/MMBtu) | 2.2 | 4.8 | 10.3 | 4.1 | 8.1 | 8.5 | -50 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Crude oil (Brent) (2) (US$/bbl) | 66.1 | 77.9 | 47.4 | 69.0 | 63.6 | 49.6 | 9% | 41.8 | 66.1 | 77.9 | 51.5 | 69.0 | 63.6 | -25 | % | |||||||||||||||||||||||||||||||||||||||||
Ethane (3) (US$/bbl) | 7.1 | 14.7 | 10.3 | 13.4 | 11.0 | 9.5 | 21% | 8.0 | 7.1 | 14.7 | 7.2 | 13.4 | 11.0 | -46 | % | |||||||||||||||||||||||||||||||||||||||||
Propane (4) (US$/bbl) | 18.9 | 39.3 | 25.1 | 31.5 | 36.2 | 24.9 | -13% | 19.0 | 18.9 | 39.3 | 18.0 | 31.5 | 36.2 | -43 | % | |||||||||||||||||||||||||||||||||||||||||
Butane (5) (US$/bbl) | 20.6 | 45.9 | 30.8 | 37.4 | 41.0 | 33.3 | -9% | 19.1 | 20.6 | 45.9 | 22.8 | 37.4 | 41.0 | -39 | % | |||||||||||||||||||||||||||||||||||||||||
Copper (LME cash) (US$/lb) | 2.7 | 3.0 | 2.7 | 2.8 | 3.1 | 2.4 | -9% | 2.7 | 2.7 | 3.0 | 2.6 | 2.8 | 3.1 | -8 | % | |||||||||||||||||||||||||||||||||||||||||
Iron ore (6) (US$/dmt) | 118.0 | 64.5 | 63.0 | 80.1 | 69.0 | 69.5 | 16% | 101.1 | 118.0 | 64.5 | 93.2 | 80.1 | 69.0 | 16 | % | |||||||||||||||||||||||||||||||||||||||||
Metallurgical coal (7) (US$/t) | 193.5 | 199.0 | 148.5 | 204.7 | 203.0 | 190.4 | 1% | 116.0 | 193.5 | 199.0 | 143.9 | 204.7 | 203.0 | -30 | % | |||||||||||||||||||||||||||||||||||||||||
Energy coal (8) (US$/t) | 68.8 | 117.3 | 82.5 | 99.4 | 100.2 | 80.5 | -1% | 51.2 | 68.8 | 117.3 | 64.5 | 99.4 | 100.2 | -35 | % | |||||||||||||||||||||||||||||||||||||||||
Nickel (LME cash) (US$/lb) | 5.7 | 6.8 | 4.2 | 5.6 | 5.6 | 4.6 | -1% | 5.8 | 5.7 | 6.8 | 6.4 | 5.6 | 5.6 | 13 | % |
(1) | Platts Liquefied Natural Gas DeliveryEx-Ship (DES) Japan/Korea Marker – typically applies to Asian LNG spot sales. |
(2) | Platts Dated Brent – a benchmark price assessment of the spot market value of physical cargoes of North Sea light sweet crude oil. |
(3) | OPIS Mont Belvieunon-Tet Ethane – typically applies to ethane sales in the US Gulf Coast market. |
(4) | OPIS Mont Belvieunon-Tet Propane – typically applies to propane sales in the US Gulf Coast market. |
(5) | OPIS Mont Belvieunon-Tet Normal Butane – typically applies to butane sales in the US Gulf Coast market. |
(6) | Platts |
(7) | PlattsLow-Vol hard coking coal Index FOB Australia – representative of high-quality hard coking coals. |
(8) | GlobalCoal FOB Newcastle 6,000kcal/kg NCV – typically applies to coal sales in the Asia Pacific market. |
(9) | Due to rounding, immaterial differences in numbers may |
Impact of changes to commodity prices
The prices we obtain for our products are a key driver of value for BHP. Fluctuations in these commodity prices affect our results, including cash flows and asset values. The estimated impact of changes in commodity prices in FY2019FY2020 on our key financial measures is set out in the following table.below.
Impact on profit after taxation from Continuing operations (US$M) | Impact on Underlying EBITDA (US$M) | |||||||
US$1/bbl on oil price | 29 | 44 | ||||||
US¢1/lb on copper price | 21 | 30 | ||||||
US$1/t on iron ore price | 154 | 221 | ||||||
US$1/t on metallurgical coal price | 26 | 37 | ||||||
US$1/t on energy coal price | 12 | 18 | ||||||
US¢1/lb on nickel price | 1 | 2 |
25
Impact on profit after taxation from Continuing operations (US$M) | Impact on Underlying EBITDA (US$M) | |||||||
US$1/bbl on oil price | 24 | 37 | ||||||
US¢1/lb on copper price | 24 | 35 | ||||||
US$1/t on iron ore price | 163 | 233 | ||||||
US$1/t on metallurgical coal price | 24 | 35 | ||||||
US$1/t on energy coal price | 10 | 14 | ||||||
US¢1/lb on nickel price | 1 | 1 |
Our exploration program is focused on copper, nickel and conventional petroleum and copper in order to replenish our resource base and enhance our portfolio. The purpose is to generate attractive,low-cost, value-accretive options by leveraging our competitive strengths. The Petroleum and Metals teams are partnered together on a Joint Global Endowment study to explore future growth opportunities and global, yet-to-find volume through the use of data analytics and artificial intelligence. The study introduces new technology and innovation to create a competitive advantage and position BHP for future access.
During FY2019,FY2020, our conventional petroleumMetals Exploration team continued to explore the Oak Dam copper discovery of late 2018, while the remainder of our exploration program accessed a new acreage position in the Orphan Basin in Canada, opened a new gas province in northern offshore Trinidad and Tobago, drilled the first well in deepwater Mexico operated by an international oil company and completed the world’s first deepwater exploration ocean bottom node seismic survey in the western US Gulf of Mexico. BHP tested nine opportunities with the drill bit. We appraised Trion, and discovered gas offshore in both the north and south deepwater regions of Trinidad and Tobago.
Our copper exploration program iswas at an earlier stage where we continuecontinued to seek, secure and test concessions in regions such as Ecuador, Canada, southwesternsouth-western United States, South Australia, Chile and Peru. Greenfield nickel exploration activities were initiated in Western Australia and we started to look beyond Australia for new nickel opportunities.
Our conventional petroleum exploration program progressed exploration drilling activities in Trinidad and Tobago deepwater, adding one additional gas discovery in the north and continuing to progress the exploration potential for oil in the south. Our exploration portfolio continued to grow and mature through the addition of Gulf of Mexico leases, appraisal of Trion, issuance of offshore licences in Barbados and continued assessment of the Orphan Basin in Eastern Canada.
Exploration in FY2019
Conventional petroleum
In FY2019, we matured and expanded our exploration portfolio. We were successful in our bid to acquire a 100 per cent participating interest in, and operatorship of, two exploration licence agreements for blocks 8 and 12 in the Orphan Basin, offshore Eastern Canada. The drilling and seismic work required by the exploration work programs spans over asix-year term under the licence agreements.
In Trinidad and Tobago, BHP has northern and southern deepwater licences. In our northern licences,Bongos-2 spud in July 2018 and found gas, opening a new play. This was followed by three additional exploration wells,Bele-1,Tuk-1 andHi-Hat-1, in the first half of CY2019 that all successfully encountered gas. Technical work is underway to assess further exploration targets and commercial options for the northern gas play. In our southern licences, we drilledVictoria-1 andConcepcion-1 to further assess the commercial potential of the Magellan field play.Victoria-1 encountered gas whileConcepcion-1 did not encounter commercial hydrocarbons.
In Mexico, we became the first international operator to drill a well in the Mexican deepwater with the Trion-2DEL appraisal well, which was spud on 15 November 2018 and encountered oil in line with expectations. This was followed by a downdip sidetrack that encountered oil and water, as predicted, further appraising the field and delineating the resource. Following the recent results in the Trion block, an additional appraisal well (3DEL) was approved and spud on 9 July 2019. Based on preliminary results, the well encountered oil in the reservoir’sup-dip from all previous well intersections. Evaluation and analysis is ongoing.
26
During FY2019, we acquired the world’s first deepwater exploration ocean bottom node seismic survey in the western US Gulf of Mexico. The acquisition survey and node recovery have been completed and will be incorporated into our ongoing analysis, which we will continue to progress over the next 18 months. This will provide key information to inform the risk of prospects in the area.
For more information on conventional petroleum exploration, refer to section 1.13.1.FY2020
CopperMetals (copper, nickel)
Copper exploration isThe Metals Exploration teams are focused on identifying and gaining access to new search spaces to test the best targets capable of delivering tier onelarge, high-quality, Tier 1 deposits while we maintainmaintaining research and technology activities aligned with our exploration strategy. The field copper exploration activities are directed towards the discovery of large, high-quality copper deposits in Chile, Peru, Ecuador, North America and Australia. These activities encompass early stage reconnaissance work through to target definition and testing in every country where we have exploration concessions.
On 27 November 2018, we announced a copper, gold and uranium discovery at onetesting. With the addition of our exploration projects on the Stuart Shelf, 65 kilometresnickel to the southeastexploration portfolio, our field activities now include Western Australia, where BHP holds a significant land position, and drill programs are scheduled to start as soon as we are able to mobilise. A global assessment of BHP’s operations at Olympic Dam. Our Copper Exploration team was responsible fornew opportunities is under review.
At Oak Dam in South Australia, the four drill hole intercepts, the most significant having grades of 3.04 per cent copper, 0.59 grams per tonne gold and 346 parts per million uranium over a drill length of 426 metres. We progressed the secondthird phase of the drilling program was completed in the June 2019 half and2020 quarter, bringing the total metres drilled to approximately 21,500. The results are currently being analysed. This follows encouraging results from the previous drilling phases, which confirmed high-grade mineralised intercepts of copper, with associated gold, uranium and silver.
In parallel, we
We continued to review other jurisdictions and opportunities to partner with third parties to counter the increasing exploration maturity of our existing geographies. During FY2019, weFY2020, BHP acquired an 11.2additional 3.5 per cent and now holds 13.6 per cent interest in Solgold Plc, the majority owner and operator of the Cascabel porphyry copper-gold project, and in July 2019, we entered into a bindingan earn-in and joint venture agreement with Luminex,Luminex; both in Ecuador. We acquired aare maintaining our 5 per cent interest in Midland Exploration Inc., a Canadian junior company with interests in copper projects in northern Québec in Canada. In Mexico, Copperour Metals Exploration entered into ateam continued the financial agreement with Riverside Resources, that will enablewhich enables BHP to access new search spaces. The financial agreement is focusing onspaces and early stage exploration opportunities. In Australia, we agreed to acquire the Honeymoon Well development project and a 50 per cent interest in the Albion Downs North and Jericho exploration joint ventures from MPI Nickel Pty Ltd, a wholly owned subsidiary of Norilsk Nickel Australian Holdings BV.
Conventional petroleum
In FY2020, Petroleum continued to add to and mature the exploration potential of our portfolio.
In Mexico, we drilled the Trion 3-DEL appraisal well in the September 2019 quarter. We are encouraged by the preliminary results, with the well encountering oil in the reservoirs up dip from all previous well intersections. Evaluation and analysis of the Trion project is ongoing and no further appraisal wells are anticipated.
In Trinidad and Tobago, we drilled two additional exploration wells, which completed the exploration program on our northern licences. The Boom-1 well was spud in August 2019 and encountered hydrocarbons; evaluation and analysis is ongoing. The Carnival-1 well was spud in September 2019 and was a dry hole. Evaluation and development planning studies in relation to these northern licences are ongoing. Exploration potential in the southern blocks continues to progress with potential for a deep oil exploration test in FY2021.
In the US Gulf of Mexico, we expanded our acreage positions through lease sale participation. In FY2020, the regulator awarded BHP two blocks(1) in Green Canyon, central Gulf of Mexico and 19 blocks(2) in the western Gulf of Mexico. In July 2020, the regulator awarded BHP two blocks(3) in Green Canyon, central Gulf of Mexico and three blocks(4) in the western Gulf of Mexico. Additionally in the western US Gulf of Mexico, the final processed data from the Ocean Bottom Node seismic acquisition was received in April 2020 and technical work is ongoing to inform the exploration program. We continue to advance evaluation of options to optimise value at Wildling through progressive development of the discovery. Different options for the development concept are under review, including a tieback to the Shenzi facility.
In Barbados, the regulator has approved offshore exploration licences for the Carlisle Bay and Bimshire blocks, allowing BHP to commence the first three-year licence phase.
In Canada, we continue to progress our assessment of the Orphan Basin in Eastern Canada where we are in year two of our six-year exploration licences. Potential exploration wells are anticipated in FY2022 pending approval of the environmental impact assessment and other regulatory approvals.
In Australia, BHP participated in a multi-client 3D seismic acquisition in the Gippsland Basin. The data will be delivered during FY2021 through FY2022 and will inform us of the prospectivity in this area.
For more information on conventional petroleum exploration, refer to section 1.11.1.
(1) | Leases were awarded in blocks: GC124 and GC168. |
(2) | Leases were awarded in blocks: GB721, GB630, GB574, GB575, GB619, GB676, GB677, EB655, EB656, EB701, GB762, GB805, GB806, GB851, GB852, GB895, GB672, GB716 and GB760. |
(3) | Leases were awarded in blocks: GC80 and GC123. |
(4) | Leases were awarded in blocks: AC36, AC80 and AC81. |
Exploration expenditure
Our resource assessment exploration expenditure increased by 135 per cent in FY2019FY2020 to US$126132 million, while our greenfield expenditure increaseddecreased by 29 per cent to US$6244 million. Expenditure on resourceresources assessment and greenfield exploration over the last three financial years is set out in the following table.below.
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | 2020 US$M | 2019 US$M | 2018 US$M | ||||||||||||||||||
Greenfield exploration | 62 | 53 | 43 | 44 | 62 | 53 | ||||||||||||||||||
Resource assessment | 126 | 112 | 120 | |||||||||||||||||||||
Resources assessment | 132 | 126 | 112 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total minerals exploration and assessment | 188 | 165 | 163 | |||||||||||||||||||||
Total metals exploration and assessment | 176 | 188 | 165 | |||||||||||||||||||||
|
|
|
|
|
|
Conventional petroleum exploration and appraisal
Petroleum exploration expenditure for FY2019FY2020 was US$685564 million, of which US$388394 million was expensed. Expenditure on petroleum exploration over the last three financial years is set out below.
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | 2020 US$M | 2019 US$M | 2018 US$M | ||||||||||||||||||
Conventional petroleum exploration and appraisal | 685 | 709 | 803 | |||||||||||||||||||||
Conventional petroleum exploration | 564 | 685 | 709 |
Our petroleum exploration program had positive results in FY2019.FY2020. We are pursuing high-quality plays in our four priority basins and a US$0.7 billion450 million exploration program is planned for FY2020FY2021 as we progress testing of our future growth opportunities.opportunities and evaluate potential new basins for future entries.
For more information on conventional petroleum exploration, refer to section 1.13.1.1.11.1.
27
Exploration expense
Exploration expense represents that portion of exploration expenditure that is not capitalised in accordance with our accounting policies, as set out in note 11 ‘Property, plant and equipment’ in section 5.
Exploration expense for each segment over the last three financial years is set out below.
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | 2020 US$M | 2019 US$M | 2018 US$M | ||||||||||||||||||
Exploration expense | ||||||||||||||||||||||||
Petroleum | 409 | 592 | 573 | 394 | 409 | 592 | ||||||||||||||||||
Copper | 62 | 53 | 44 | 54 | 62 | 53 | ||||||||||||||||||
Iron Ore | 41 | 44 | 70 | 47 | 41 | 44 | ||||||||||||||||||
Coal | 15 | 21 | 9 | 9 | 15 | 21 | ||||||||||||||||||
Group and unallocated items | 10 | 7 | 16 | 13 | 10 | 7 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Group | 537 | 717 | 712 | 517 | 537 | 717 | ||||||||||||||||||
|
|
|
|
|
|
(1) | Includes US$ nil (FY2019: US$21 |
(2) |
|
Group and unallocated items includes functions, other unallocated operations including Potash, Nickel West and legacy assets (previously disclosed as closed mines in the Petroleum reportable segment), and consolidation adjustments. |
28
The identification and management of risks is central to achieving our strategic objectives. It protects us against potential negative impacts, enables us to take risk for strategic reward and improves our resilience against emerging risks. BHP believes an essential element of effective risk management is to haverequires a single, consolidated view of risks across the business to understand the Group’s full risk exposure and to prioritise risk management and governance activity. As such, we apply a single framework (known as the ‘Risk Framework’)Risk Framework) for all risks.
Refinements were made to BHP’s Risk Framework during FY2019. There are four pillars in our Risk Framework: risk strategy, risk governance, risk process and risk intelligence.
29
Risk strategy
Group Risk Architecture
In order to understand and manage the risks that BHP is exposed to, we have developed aThe Group Risk Architecture which is a tool to identify, analyse, monitor and report risk. Therisk, which provides a platform to understand and manage the risks to which BHP is exposed. It currently comprises 12 Group Risk Architecture is currently made up of 10 Group Risk categories,Categories, which cover a number of Group Risks. Risks in BHP’s risk profile are connected to a Group Risk. This gives the Board and management visibility over the aggregate exposure to risks on an enterprise-wide basis and supports performance monitoring and reporting against BHP’s risk appetite.
For example, under the Group Risk of occupational safety, we have identified risks relating to the safety of our people in performing their work such(such as vehicle incidents, falls from height and dropped objects.objects) and, under the Group Risk of mental and physical health, we have identified risks to our people associated with the impacts of the COVID-19 pandemic on our assets and offices.
The Group Risk Architecture (as at 30 June 2019)2020) is illustratedoutlined in the diagram below. The left column shows the Group Risk categoryCategory and the columns to the right show the allocation of the Group Risks to each category.Category. This Group Risk Architecture will changechanges over time to reflect our strategy, changing activities, organisational accountabilities and consideration of the external context. Our principalFor example, Group Risks may be added, removed, renamed, merged or moved between Group Risk Categories if there is a more appropriate place for them in our continuously evolving Group Risk Architecture.
In FY2020, we added two new Group Risk Categories – Planning and technical, and Allocation of capital and group planning – which include new Group Risks, as well as Group Risks moved from other categories. The new Group Risks were created to provide additional visibility and oversight of some of the Group’s most significant risks are shown in a darker shadeand better recognise the importance of blue inmanaging certain strategic risks, including those relating to business planning, cash prioritisation and cash flow forecasts. In addition, changes were made to existing Group Risks to further clarify and streamline the diagram below, and are described further inGroup Risk Architecture. To date, the COVID-19 pandemic has not required any changes to be made to the Group Risk factors section below.
30Architecture, which is sufficiently broad to accommodate risks associated with the pandemic.
Risk appetite
BHP’s Risk Appetite Statement has been approved by the Board and is a foundational element of our Risk Framework. It is made up of a qualitative statement for each Group Risk categoryCategory that describes the nature and extent of risk we are prepared to take in pursuing our objectives. When a new Group Risk Category is introduced, the Board is asked to approve an updated Risk Appetite Statement that includes a new qualitative statement for that new Category. The Risk Appetite Statement definesprovides guidance to management on the parametersamount and type of risk that management is obliged to operate withinacceptable, and we use key risk indicators are set by management to indicate any changes tohelp monitor performance against our risk exposure.appetite.
Key risk indicators
Key risk indicators (KRIs) assist in identifying whether BHP is operating within or outside of our risk appetite, as defined in our Risk Appetite Statement. They also support decision makingdecision-making by providing management with information about financial and non-financialrisk exposure at a groupGroup level. KRIs are defined for Group Risks to provide the data for proactive monitoring of BHP’s risk performance. Where upper or lower KRI limits are exceeded, management will review potential causes to understand if BHP may be taking too little or too much risk, and to identify whether further action is required. For example, ourOur current KRIs monitor data such as market concentration based on the percentage of revenue linked to a single jurisdiction, the number of critical cybersecurity incidents, greenhouse gas emissions relative to the FY2017 baseline and trends in the number of community complaints received.
Strategic business decisions
31Strategic business decisions and the pursuit of our strategic objectives can inform, create or affect risks to which BHP is exposed. These risks may represent opportunities as well as threats. The Risk Appetite Statement and KRIs are available to assist in determining whether a proposed course of action is within BHP’s risk appetite.
Our focus when managing risks associated with strategic business decisions is to enable the pursuit of high-reward strategies. Therefore, as well as having controls to protect BHP from the downside risk, we will implement controls to increase the likelihood of the opportunity being realised. For example, we might establish additional governance, oversight or reporting to ensure new initiatives remain on track.
Risk governance
Risk management accountability and oversight is an integral part of BHP’s governance. The Board and senior management (including the Executive Leadership Team) provide oversight and monitoring of risk management outcomes. They are ultimately responsible for ensuring BHP maintains a robust Risk Framework and an effective internal control environment.
BHP uses the ‘three lines of defence’ model of risk governance and management to define the relationships and clarify the role of different teams across the organisation in managing risk. This approach is illustrated in the diagram below and integrates risk management, control definition, control improvement, governance and assurance frameworks into one governance model.
Adapted from Institute of Internal Audit Position Paper: The three lines of defence in effective risk management and control.
For example, for a loss of containment risk within the Group Risk of process safety,safety/hazardous materials containment, our first line operations personnel would be responsible for implementing pipe thickness checks to ensure corrosion is within acceptable limits. Second line functions, such as our engineering teams, would define and assure minimum standards for pipe materials and acceptable levels of corrosion. Our Internal Audit and Advisory team would then auditaudits the effectiveness of the standards and their application as the third line.line of defence.
BHP Board and committeesCommittees
The Board reviews and considers BHP’s risk profile, covering operational, strategic and strategicemerging risks, usingbased on the Material Risk Report.material risk report. The report includes an overview of the risk profile, summary of material changes to the profile, performance against KRIs, and summaries of our priority group risks.Group Risks and, with the introduction of our enterprise-level watch list in FY2020 (as described in the Emerging risk section), updates on emerging risk themes. The contents of this report are further described in the diagram below ‘Risk intelligence’.in the Risk intelligence section.
The broad range of skills, experience and knowledge of the Board assists in providing a diverse view on risk management. The Risk and Audit Committee (RAC) assistsand Sustainability Committee assist the Board with the oversight of risk management, including by receiving a range of reports from management on all types of risk, although the Board retains overall accountability for BHP’s risk profile. In addition, the Board requires the CEO to implement a system of control for identifying and managing risk. The Directors, through the RAC, review the systems that have been established for this purpose, review the effectiveness of those systems and monitor that necessary actions have been taken to remedy any significant failings or weaknesses identified from that review. The RAC regularly reports to the Board to enable the Board to review our Risk Framework.management. For more information, refer to section 2.13.
The Sustainability Committee has oversight of health, safety, environmentsections 2.7, 2.10 and community related (HSEC) risks. Identification and management of HSEC risks and the investigation of any HSEC incidents are undertaken by management and reported to the Sustainability Committee. For more information, refer to section 2.13.2.11.
32
The Risk Appetite Statement is the mechanism by which the Board sets boundaries for taking risk. It enables management to make risk-informed decisions within the risk appetite ofthat has been determined by the Board. Performance against risk appetite is monitored and reported to the RAC and the Board, as described below.well as the Sustainability Committee for HSEC matters. This includes reporting of performance that is outside upper or lower tolerance limits to indicate whether management is taking sufficient or excessive risk.risk, enabling the Board to hold management to account where necessary.
In FY2019, we introduced an additional second-linesecond line led review of the Group’s most significant risks such(such as dam failure,tailings storage facility failure) to provide a further levelgreater oversight and assurance of, rigour inand identify any opportunities to improve, the management of these risks. This process, referred to as the Priority Group Risk Review process, reviews the analysis and controls for risks that could impact the Group’s viability or strategy, with findings and recommendations reported to the Board’s Risk and Audit,RAC and Sustainability Committees.Committee. Findings and recommendations will be used toare considered by management and the Board and may inform strategic decisions on whether to accept, reduce or further eliminate risks to align with the Group’s risk appetite, and may be used to develop remediation plans, such as to improve risk analysis or control definition.
Additional information on risk management and internal controls is provided toshared between the Board, and the RAC and, for HSEC matters, the Sustainability Committee and also provided by the Business Risk and Audit Committees (covering each asset group)business region), other Board committees, management committees, and our Internal Audit and Advisory team.team and our External Auditor. For more information, refer to section 2.13.2. Our approach to risk reporting is outlined in the ‘Risk intelligence’Risk intelligence section.
Risk process
Our Risk Framework requires identification and management of risks to be embedded in business activities through the following processes:process:
Riskrisk identification – new and emerging risks are identified and ownedeach is assigned an owner, or accountable individual, in the part of our business where they occur within BHP;the risk is located
Riskrisk assessments – risks are assessed with the mostusing an appropriate and internationally-recognised technique to determine their potential impacts and results are translated for BHP to understandlikelihood, prioritise them and appetite to be considered;inform risk treatment options
Riskrisk treatment – controls are implemented to prevent, reduce or mitigate downside risks are prevented, reduced or mitigated with controls;and increase the likelihood of opportunities being realised
Monitoringmonitoring and review – risks and controls are reviewed periodically and on an adhocad hoc basis (including where there are high potential events or changes in the external environment, such as the COVID-19 pandemic) to evaluate performance.performance
Our Risk Framework includes requirements and guidance on the tools and process to manage all risk types (current strategy and emerging).
Current riskrisks
Current risks may have their origin inside BHP or originate as a result of BHP’s activities. These may be strategic or operational in nature and include material andnon-material risks.
The materiality of oura current risksrisk is determined by calculatingestimating the maximum foreseeable loss (MFL) if that risk was to materialise. The MFL is not an estimate of the maximum foreseeable loss (MFL). Theprobable impact to BHP if the risk was to materialise. Instead, the MFL is the estimated impact sustained byto BHP in the ‘worst case’a worst case scenario for that risk. The ‘worst case’ scenario considers all potential impacts without regard to probability and assumesassuming that all risk controls, including insurance and hedging contracts, are ineffective. For example, when calculating the number of fatalities to assess MFL in the event of an underground explosion,offshore well blow out, we might assume the maximumpersonnel capacity of the drilling rig even though there may be fewer people on it at the time of an incident and despite controls such as emergency response plans and equipment in place that are designed to reduce the number of people who are allowed to enter the underground mine.fatalities.
Our focus for current risks is to prevent their occurrence or minimise their impact should they occur.occur, but we also consider how to maximise possible benefits that might be associated with strategic risks (as described in the Risk strategy section). Current material risks are required to be evaluated once a year at a minimum to determine whether our exposure to the risk exposure is within our risk appetite.
Strategy risk
StrategyEmerging risks inform, are created, or are affected by business strategy decisions or pursuit of strategic objectives. They represent opportunities as well as threats. The Risk Appetite Statement and KRIs are available to assist in determining whether a proposed course of action is within BHP’s appetite. Once a decision has been made, our risk process as described above applies. In addition to calculating the MFL, another tool available to inform decision-making is the Maximum Foreseeable Gain (MFG). The MFG is the ‘best case’ scenario that should be articulated when seeking to take risk for strategic returns. It represents the optimum return.
Our focus for strategy risks is to enable the pursuit of high-reward strategies. Therefore, as well as having controls to protect BHP from the downside risk, we will implement controls to increase the likelihood of the opportunity being realised. For example, we might establish additional governance, oversight or reporting to ensure new initiatives remain on track.
Emerging risk
Emerging risks typically have their origin outside BHP. There isare newly developing or changing risks that are highly uncertain and difficult to quantify. They are generally driven by external influences and often insufficient information for these risks to be fully understood and they cannot be prevented, by BHP. Effectivealthough they can be prepared for. They also tend to be interconnected and often require solutions that draw upon expertise from across our organisation.
In FY2020, we introduced an enterprise-level watch list of emerging themes that provides an evolving view of the changing external environment and how it might have an impact on our business. These themes represent areas of risk where a shift in direction could have a significant impact on our operating environment, with the potential to affect our strategy or business continuity.
We maintain the watch list and use it to support the identification and management of emerging risks is critical to strengtheningthrough our resilience to foreseeable changesnormal business activities and planning processes under our ability to capture competitive advantages. We assess and manage emerging risks based on the expected consequence, timing and speed of the risk event,Risk Framework, as well as the capacity for BHP to respond.
33inform and test our corporate strategy.
Emerging risks areOnce identified, and initially monitored by subject matter experts. Ongoing management is handed over to risk owners when the impact and our response is defined. For example, BHP has a dedicated climate change team that monitors and manages the emerging risks relating to climate change as they evolve. However, operational aspects (such as managing the increased risk of extreme weather events) are managed by our operations.
Our focus for emerging risks is on reducingstructured monitoring of the impact should an event occur, and onexternal environment, advocacy efforts to reduce the likelihood of the risk manifesting. Our approach is todownside risks manifesting and, where appropriate, considering emerging risks (including opportunities) as part of our planning and strategy setting and review process. We also apply contingency controls, such as response plans, to reduce the impact should emerging risks that are outside our appetite.appetite occur. These controls increase the resilience of BHP to shocks from the external environment. Emerging risks are required to be evaluated annuallyonce a year at a minimum to determine whether the risk remainsrisks remain emerging and if theour exposure is within our risk appetite.
Our emerging risk process was formalised during FY2019 and in FY2020, emerging risks will be included in our Group-wide risk register.
34
Risk intelligence
The Board and senior management are provided with insights on trends and aggregate exposure for our most significant risks, as well as performance against risk appetite, by the Risk team. The Board also receives reports from other teams to support theirits robust assessment of BHP’s emerging and principal risks;risks, including internal audit reports, ethics and compliance reports and the Chief Executive Officer’s report.
A summary of the risk reports delivered by the Risk team and how these provide additional intelligence to the Board areis outlined below.
35
Robust risk assessment and viability statement
During the year, theThe Board has carried out a robust assessment of BHP’s emerging and principal risks, including those risks that wouldcould result in events or circumstances that might threaten theBHP’s business model, future performance, solvency or liquidity.liquidity and reputation.
The DirectorsBoard has assessed the prospects of BHP over the next three years, taking into account our current position and principal risks.
The Directors believeBoard believes a three-year viability assessment period is appropriate for the following reasons. BHP has atwo-year budget, a five-year plan and a longer-term life of asset outlook. We have publicly stated our view that, whileAs highlighted in the Risk factors section, there is currently increased uncertainty in the external environment, including due to heightened political and policy uncertainty, growing civil unrest in some countries in which we operate and market volatility and geopolitical tensions resulting from the COVID-19 pandemic. This may increase the risk of commodity prices remain volatile, our short-term outlook is optimistic. Priceprice and exchange rate volatility resultsand also affect the longer-term supply, demand and price of our commodities. These factors result in variability in plans and budgets. A three-year period strikes an appropriate balance between longlong- and short-term influences on performance.
The viability assessment took into account, among other things, BHP’s commodity price protocols, including:low-case prices; the latest funding and liquidity update; the long-dated maturity profile of BHP’s debt and the maximum debt maturing in any one year; the Group-level risk profile and the mitigating actions available should particular risks materialise; the regular Board strategy discussions, which address the range of outcomes under the capital allocation framework; the flexibility in BHP’s capital and exploration expenditure programs under the capital allocation framework; and the reserve life of BHP’s minerals assets and thereserves-to-production life of our oil and gas assets.things:
• BHP’s commodity price protocols, including low-case prices • the latest funding and liquidity update • the long-dated maturity profile of BHP’s debt and the maximum debt maturing in any one year • the flexibility in BHP’s capital and exploration expenditure programs under the CAF | • the reserve life of BHP’s minerals assets and the reserves-to-production life of our oil and gas assets • the Group-level risk profile and the mitigating actions available should particular risks materialise • any actual and further anticipated impacts of the COVID-19 pandemic on BHP’s two-year budget and five-year plan |
The Directors’Board’s assessment also took into account of additional stress-testingstress testing of the balance sheet against twoa number of scenarios that model three hypothetical significant risk events:events occurring individually and together in various combinations over the three-year viability period. These hypothetical events were:
1. | an offshore well blow out involving a drilling rig that we operate |
2. | simultaneous, short-term production outages at some of our most significant assets |
3. | a low commodity price environment in FY2021 and FY2022, followed by a gradual recovery by FY2025 |
A number of our principal risks may have impacts that are embedded in these scenarios. For example, operational risks associated with occupational and process safety, asset integrity, tailings storage facilities and third party performance may have comparable impacts to an offshore well blow out. Similarly, risks associated with community, human rights and climate change (such as civil unrest or a wellblow-outnatural disaster, including the physical impacts of climate change or a pandemic) may result in production outages at one or more of our assets, while risks associated with commodity prices, geopolitics and stakeholder relations may have impacts that result in a sustained low commodity price environment (for example, an economic slowdown may be caused by geopolitical events or responses of governments and other stakeholders to a pandemic). For further information on our principal risks, see the GulfRisk factors section.
Stress testing demonstrated that the Group’s balance sheet was put under the greatest stress by the least likely scenario that all three hypothetical events occur together. In such circumstances, the Board considered that the Group would have a number of Mexicomitigating actions available to it, including deferral of discretionary capital expenditure, issuance of debt and alow-price environment.divestment of certain assets. A further level of robustness is added given no debt issuance is required in the three-year period, and BHP would stillalso have access to US$6.05.5 billion of credit through its revolving credit facility.
The Directors wereBoard was also mindful of key risk indicator performance, regular balance sheet stress testing against low commodity prices, and the assessment of our portfolio against scenarios as part of BHP’s strategy and corporate planning processprocesses to help identify key uncertainties facing the global natural resources sector.sector (including in relation to climate change, the COVID-19 pandemic and commodity price volatility).
In making this viability statement, the Directors have considered the capital allocation framework and haveBoard has also made certain assumptions regarding management of the portfolio, the alignment of production, capital expenditure and operating expenditure with five yearfive-year plan forecasts and the alignment of prices with the cyclical low price case used in the control stress case for monthly balance sheet stress testing.
Taking account of these matters (including the assumptions) and BHP’sour current position and principal risks, the Directors haveBoard has a reasonable expectation that BHP will be able to continue in operation and meet its liabilities as they fall due.
36due over the next three years.
Risk factors
Our Group Risk Architecture currently has 10 Group Risk categories that represent BHP’s areas of risk. These categories are further broken down into Group Risks. This section highlights our principal risks, as illustrated in the Group Risk Architecture diagram in the Risk strategy section. Our principal risks have changed since FY2019, largely due to changes in our external environment and the continued evolution of our Group Risk Architecture. These changes can be summarised as follows.
Risks associated with tailings storage facilities, geotechnical stability, non-process fire and explosion, and sales security and concentration have been identified as principal risks to provide additional visibility of some of the Group’s most significant risks and to better recognise the importance of managing certain strategic risks. Tailings storage facilities risks are discussed in this section with asset integrity. Geotechnical failures and underground fires or explosions may pose significant threats to the health and safety of our people and are therefore discussed with occupational and process safety. Strategic risks associated with gaining and maintaining access to the global markets that we rely upon to trade our commodities are discussed with geopolitics and stakeholder relations.
The scope of two of our principal risks was expanded in FY2020 and they have been removed from the Group Risks. EachRisk Architecture diagram. Returns sustainability risks are now captured by assets and growth options, which better supports and reinforces revisions made to our purpose and strategy in FY2020. Risks associated with geopolitics and macroeconomics now fall within geopolitics and stakeholder relations in order to focus on broader macroeconomic and geopolitical trends that may affect BHP and our stakeholders. The names of some of our principal risks have also changed in order to better represent associated risks, although their scope remains the same.
Our principal risks are further described in the risk factors listed belowon the following pages. Each of these could materially and adversely affect our business, financial performance, financial condition, prospects or reputation, leading to a loss of long-term shareholder and/or investor confidence. While these represent our most significant risks, BHP is also exposed to other risks that are important to us (for example, health, safety, environmental, community, financial, reputational, legal or other risks) that are not described in the risk factors.
We have considered the implications of the COVID-19 pandemic on our business, including through event tree analysis to assess its potential medium- to longer-term cascading impacts on the Group’s risk profile and our enterprise-level watch list of emerging themes. We will continue to assess the implications of the pandemic and have referenced impacts to our principal risks in the following risk factors, where relevant. To the extent that our business is adversely impacted by the COVID-19 pandemic, any such impacts may also have the effect of heightening some of the risks listed on the following pages.
Asset integrity and tailings storage facilities |
Risks associated with operational integrity, tailings storage facilities and performance of our assets.
|
Why is this important to BHP? |
Maintaining the operational integrity and performance of our assets is crucial to protect our people, the environment and communities in which we While we seek to design and implement the right strategy and processes to maintain the operational integrity and performance of our assets, we may not always be effective in doing so. The impacts of any serious incidents that occur may also be amplified if we fail to respond in an appropriate manner.
|
Threats |
Failure to maintain the operational integrity and performance of our assets may |
• multiple injuries and |
• extensive community disruption, |
• |
• environmental damage (for example, |
• loss of licences, permits or necessary approvals to operate |
• other adverse impacts on the communities in which we operate, including loss of community infrastructure and services, |
• failure or redundancy of mining, processing or support infrastructure or equipment, |
• disruption to essential supplies or delivery of our products (for example, where channel blockage is caused by an owned, chartered or third party vessel incident, including at Port Hedland in Australia where our operations rely on a |
• significant repair, |
• interruption in production or other critical activities and loss of revenue from operations that are directly or indirectly affected |
• litigation |
• loss of workforce confidence |
• impacts on our ability to access capital (for example, an operational incident may affect our ability to retain the confidence of shareholders and other stakeholders, including financial institutions) |
A failure to maintain the operational integrity and performance of our assets may adversely impact asset value, including due to production shortfalls, loss of development options or a delay in asset |
We take steps to maintain the operational integrity and performance of our assets through planning, design, construction, operation and closure. However, our projects are complex and may be adversely impacted by factors out of our control, such as natural |
disasters or national crises. The COVID-19 pandemic has resulted in controls being implemented by BHP and third parties that may affect the performance of our assets. For example, workplace entry and travel restrictions may result in the delay of key personnel or external consultants accessing our sites to undertake inspections or other activities, potentially resulting in unidentified asset integrity issues or production shortfalls. |
Our risk financing approach is, where appropriate, to self-insure
|
37
Occupational and process safety (including geotechnical failures and underground fires or explosions) |
Risks associated with the safety of BHP employees and contractors in performing their
|
Why is this important to BHP? |
We have onshore and offshore extractive, processing and logistical operations in many geographic locations. Transporting our people to the locations of our exploration activities and operations |
We operate in zones prone to natural disasters. This includes our Western Australia Iron Ore, Queensland Coal and Gulf of Mexico oil and gas assets, which are located in areas subject to cyclones or hurricanes, and our Chilean copper and Peruvian base metals assets and Global Asset Services office in Manila, which are located in known
|
Threats |
Occupational safety and process |
• interruption |
• |
• failure of |
• environmental |
• increased costs or other commercial |
• litigation (including class actions), fines or investigations by |
• |
• short- and long-term health and safety risks to members of the community, and adverse impacts on local communities’ economic position or human rights |
Our response to occupational safety and process safety/hazardous materials containment incidents, such as our emergency response or engagement with affected stakeholders, may not be adequate and could result in impacts being amplified. |
The COVID-19 pandemic has created challenges for health and safety systems across our operations, such as the implementation of social distancing measures at our sites. A failure to adequately respond to these challenges could affect our ability to operate in specific jurisdictions and may result in health and safety impacts, legal action or reputational impacts. In addition, the pandemic may amplify impacts associated with the occupational safety and process safety/hazardous materials containment risks described above. For example, the ability of emergency services to respond to operational incidents at our sites (including those described above) may be affected by diversion of resources by local or national governments or additional safeguards that have been implemented to protect emergency responders. |
Our risk financing
|
38
Risks associated with geopolitical changes and government actions that affect the macroeconomic outlook, commodity demand and supply and/or impact our ability to access resources, markets and the operational or other inputs needed to realise our strategy; as well as relationships with key stakeholders whose support is needed to realise our strategy and purpose. |
Why is this important to BHP? Geopolitical developments and changes in our relationships with key stakeholders (such as investors, governments, employees, customers and suppliers) have the potential to cause a wide range of impacts in locations where we operate or may wish to operate, or where our customers and suppliers are located. In addition, we may be affected by changes to bilateral relationships, the frameworks and global norms that govern international trade, and other geopolitical developments (such as multilateral agreements on climate change and freedom of navigation). This includes acute shocks (such as civil unrest or sanctions) and chronic stresses (such as political or business disputes and other forms of conflict, including military conflict) that may pose longer-term threats to our business. Disruptions or unanticipated changes of the nature described above may affect our ability to sell our commodities for optimum value or access inputs required for the effective pursuit of our strategy, including access to markets, resources, technology, talent and capital. For example, our mining operations in Australia rely on equipment, consumables (such as tyres) and specialised fabricated parts for ongoing operations, expansion and development. We need to maintain access to international markets to source these items. Changes in the external environment (such as increased protectionism, changes in stakeholder expectations regarding our role in society, or requirements to reduce emissions) may also impact our ability to realise our strategy as competition for resources grows, existing reserves are depleted and supply sources become increasingly expensive to develop. |
Threats Unilateral action by, or changes in relations between, countries in which we operate, may consider operating or where our customers or suppliers operate, and such countries’ approach to multilateralism, trade protectionism and political uncertainty, can impact our ability to access resources, markets, technology, talent and capital, shape the external environment, and adversely affect our financial performance. For instance: • the challenging global political and economic conditions arising from the impact of the COVID-19 pandemic, including the relative damage to national economies and the speed at which they recover from the effects of the pandemic, may exacerbate existing tensions between countries and introduce a high degree of uncertainty in domestic and international policy settings. These conditions, as well as protectionism, interventionist industrial policy and restrictive trade policies (such as tariffs, sanctions or other measures that amount to import restrictions on our products), may adversely affect our ability to trade and impact demand for our products, as well as impact our access to resources, markets, technology, talent and capital • our ability to obtain and retain licences to explore or develop resources or access markets for sales or supply may be inhibited if there are tensions between a country where we operate or sell our products and other countries with which we are connected. Such tensions may result in trade remedies (such as punitive tariffs or quotas on inputs or outputs), rescission of licences, nationalisation of assets or limitations on markets or customer access that could affect our financial performance and reputation • our operations may be disrupted or our access to customers and suppliers and their facilities may be restricted through disruptions to shipping lanes, ports, land logistics or other facilities as a result of civil unrest, conflicts, embargoes or other measures • geopolitical events, such as a shift in the relationship between the United States and China or Australia and China, may affect the supply, demand and price of our commodities and therefore our financial performance. Shifts in great power relations may also introduce greater uncertainty with respect to issues requiring global co-ordination (such as climate change, trade agreements, tax regulation, freedom of navigation and technology regulation), as well as raise questions on the efficacy of and trust in international institutions, including those that underpin international trade. These types of changes may cause restrictions or impose costs on our business, and may inhibit our future opportunities • evolving government responses to the COVID-19 pandemic may create challenges for us. For example, government responses to the pandemic have varied significantly across the globe and have resulted in and may continue to result in restrictions on our operations, including mandatory lockdowns or self-imposed temporary suspensions at our mines to allow effective systems to be implemented to meet government requirements, such as the temporary suspension of operations at Cerrejón in the June 2020 quarter. There may also be impacts on associated activities and the broader supply chain (such as measures affecting suppliers, essential services and transport of goods and our commodities) that could affect production or our financial performance A failure to meet the expectations of or maintain strong relationships with key stakeholders (including investors, governments, employees, suppliers and customers) whose support is needed to realise our strategy and purpose could negatively affect our business. Such failures could damage our reputation, our social value proposition and/or negatively affect our ability to operate our assets and sell our products, which may adversely impact financial performance. For example, not meeting growing societal expectations of corporations to deliver value to all stakeholders can damage our reputation and impact our ability to operate in jurisdictions where we have a presence or to enter new jurisdictions. Growing societal and government expectations, including in relation to climate change, and their effect on our business may also be influenced by the impacts of the COVID-19 pandemic (for example, if corporations such as BHP are expected to play a larger role in the recovery of local and national economies than we anticipate or if governments adjust climate change policy to take into account economic recovery). |
Capital allocation, and assets and growth options Risks associated with the allocation of capital through annual planning and other processes, to make investment decisions and
|
Why is this important to BHP? |
Our strategy is to have the best capabilities, commodities and assets to create long-term value and high returns. While we seek to design and implement the right strategy at the right time, we may not always be effective in doing so. Our decisions and actions relating to the allocation of capital across asset or reserve discovery, acquisition, maintenance, growth, development or divestment
|
Threats |
Changes in our portfolio, failure to secure or discover new reserves or resources, missed opportunities to invest or a failure to effectively allocate capital or achieve expected returns from existing assets or growth investments have impacted our performance in the past and may in the future lead to: |
• loss of value, for example, due to |
• failure to achieve expected commercial objectives from assets or investments, including cost savings, sales revenues or operational |
• poor performance of current assets due to over-investment in growth capital at the expense of non-discretionary sustaining capital (for example, delaying asset maintenance tasks to free up capital for growth projects resulting in production losses) • unexpected costs or liabilities |
• adverse market |
• |
• not investing in opportunities due to increased debt levels resulting in a lack of available growth capital • missed investment opportunities due to a failure to understand potential new developments or identify major trends (for example, faster electrical vehicle penetration or hydrogen cost competitiveness could impact whether we are well positioned for these changes in copper, nickel, metallurgical coal or petroleum) • financial write-downs (for example, as a result of changes in market, industry or |
• |
• lack of diversified production base, increasing exposure to large single-event risks (for example, too much reliance on Australian-based assets or particular commodities) that may result in loss of value or reduced cash flows • inability to retain or attract key staff As evidenced by price volatility during CY2020, there are and may continue to be potential short to medium-term impacts on certain commodity prices due to the COVID-19 pandemic that could impact values and result in growth project delays.
|
39
|
Risks associated with
|
Why is this important to BHP? |
The prices we obtain for our minerals, oil and gas are determined by or linked to prices in
|
Threats |
Fluctuations in We are particularly exposed to price movements in minerals, oil and |
financial results.
Long-term price volatility or sustained low prices may adversely affect our future profitability. This could result in |
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Community |
Risks that have the potential to impact human rights and/or communities and
|
Why is this important to BHP? |
We recognise that our everyday interactions, activities, behaviours and decisions are intricately linked to Impacts could be in relation to Although our community and environmental performance is intended to go beyond managing threats to actively contributing to the resilience, rehabilitation and conservation of the natural environment and communities with which we work, we may not always be successful in doing so if our social value proposition is inadequate or we are unable to implement it.
|
Threats |
BHP may engage in activities These activities, or a failure to effectively engage with communities and relevant stakeholders, can affect |
• loss of |
• withdrawal of consent or support from Indigenous peoples • opposition to |
• increased costs for mitigation, offsets or financial compensatory actions or |
• |
• loss or limited access to commercial partners or employee talent • increased taxes, royalties and |
• reduced access to equity and capital markets • civil unrest, industrial relations disputes or action, negotiations, litigation or regulatory action, resulting in higher costs and a loss of |
• The COVID-19 pandemic has affected community health, safety and quality of |
Heightened societal expectations can also result in changes to legal requirements, as well as litigation, inquiries, regulatory action or
|
43
Climate change |
Risks associated with changes in climate patterns, as well as risks arising from policy, regulatory, legal, technological, market or
|
Why is this important to BHP? |
We are exposed to a broad range of climate-related risks arising from |
Risks related to the potential physical impacts of climate change include acute risks resulting from increased severity of extreme weather events and chronic risks resulting from longer-term changes in climate patterns. |
Risks
|
Threats |
Risks associated with climate change and the transition to a low carbon economy could affect the execution of our strategy, the expansion of our portfolio and the ability of our operated andnon-operated assets to operate efficiently. We are exposed to |
• adverse impacts to the • adverse impacts to our assets, such as • disruptions to our supply chains, transport and distribution networks, customers’ facilities and the markets in which we sell our |
In addition, assessments of the potential impact of future climate change policy, regulatory, legal, technological, market, societal and environmental outcomes are uncertain given the wide scope of influencing factors and the countries in which we do business. For example, countries will need to introduce new or strengthen existing policies and regulation in order to meet the goals of the Paris Agreement. Accordingly, the following risks relating to the transition to a low carbon economy have (in some instances) already affected us and may in the future continue to affect us: • the Group’s asset carrying values or financial performance may be affected by any adverse impacts to reserve estimates or market prices that may occur if, for example, reserves are rendered incapable of extraction or demand for fossil fuel commodities (such as petroleum and thermal coal) decreases due to policy, regulatory (including carbon pricing mechanisms), legal, technological, market or other societal responses to climate change in our operating jurisdictions or |
• climate change may increase competition for and the regulation of limited resources, such as power and water, which are critical to the operation of our business. This could affect the productivity of |
• we are impacted by current and emerging policy and regulation aimed at reducing GHG emissions from the resources, electricity generation, transport and industrial sectors, including the introduction of carbon pricing mechanisms. Climate policy and regulation, as well as changes to international reporting standards on climate change and pressure from society for more rapid and aggressive action from governments and companies, may reduce demand for our products, |
• increased scrutiny of applications for licences, permits |
• the Group’s reputation and financial performance may be impacted by concerns regarding the contribution of fossil fuels to climate |
The following threats, which are common to risks related to both the physical impacts of climate change and the transition to a low carbon economy, may also materially and adversely affect our business: • increased costs for mitigation, offsets or financial compensatory actions or obligations, including taxes and royalties • restricted access to capital or an inability to attract new or retain existing employees • adverse impacts to the environment, communities, human rights and social wellbeing, which could affect our relationships with and be viewed negatively by the community and other stakeholders and damage our reputation • opposition to new projects or our entry to new jurisdictions by communities, including through legal or social action, or other loss of business opportunities • the Group may be subject to, or impacted by, climate-related litigation (including class actions), associated costs and |
Cybersecurity Cyber-related risk events, including attacks on our enterprise or incidents relating to human error, online and web-based operations and infrastructure. |
Many of |
Threats Cyber events or attacks may lead to: • operational or commercial disruption (such as the inability to process or ship resources) • corruption or loss of system data • a misappropriation or loss of funds • unintended disclosure of commercial or personal information • health and safety incidents, including fatalities (where cyber events or attacks cause system error or malfunction, which result in • environmental damage (for example, • a hampered ability to • regulatory fines and compensation to people impacted • loss of licences, permits or • reputational damage
|
44
Third party performance Risks associated with non-operated joint ventures and the delivery of products and services by third parties engaged by BHP, including contractors. |
Why is this important to BHP? The Group, through its affiliated entities, holds interests in companies and joint ventures that we do not operate, primarily within Minerals Americas (Samarco, Antamina, Resolution and Cerrejón) and Petroleum (Algeria, Australia and Gulf of Mexico). Joint venture partners or other companies managing non-operated joint ventures may take action contrary to our standards or fail to adopt or apply standards equivalent to our standards in relation to health, safety, environment, communities and other aspects of operations. In these situations, we may be unable to influence non-operated joint venture activities and any incidents could result in potential financial, legal and reputational exposure. In addition, approximately 60 per cent of our workforce (around 40,000 people) are contractors, with approximately 80 per cent of those contractors undertaking activities classified as high risk. As a result, appropriate contractor selection and effective management of contractors from a safety, business ethics, cost, quality, schedule and performance perspective is important to the success of our business. We also contract with many commercial and financial counterparties, including end customers, suppliers, joint venture partners and financial institutions, which may experience financial difficulties (for example, in the context of global financial markets that remain volatile). |
Threats Third party (including contractor) activities, including a failure to adopt and apply standards, controls and procedures that are equivalent to ours, could lead to material risks, including the risk of: • safety events that may result in injuries or fatalities, including among community members • production downtime and damage to or loss of equipment or facilities • delay in project delivery • poor quality on service delivery • failure to meet remediation and compensation requirements (such as delays to community resettlements related to the Samarco dam failure; see section 1.8 for information on our response, support and commitments) • litigation (including class actions) or regulatory action, inquiries and reputational damage • shareholder activism (for example, to divest our interest in a non-operated joint venture or stop using a certain supplier) • industrial action, civil unrest or other adverse impacts on human rights (for example, our joint venture partners may not engage in appropriate consultation with communities or non-operated joint venture operations may cause disruptions to community access to water, including through contamination of potable water supplies) A failure by suppliers, contractors or joint venture partners to perform existing contracts or obligations may lead to adverse impacts, including: • non-supply of key inputs, such as explosives, mining equipment, petrol and other consumables important to our business • loss of access to third party owned or supplied infrastructure • disruption to essential supplies or delivery of our products (for example, where access to or use of BHP owned and operated rail is disrupted by third parties) • reduction in production at our assets • litigation (for example, for contractual breach) and reputational damage • loss of revenue The potential effects of the COVID-19 pandemic on third parties may increase the likelihood of or amplify the risks or impacts set out above. For example, the operators of our non-operated joint ventures may not implement effective standards, controls or procedures in response to the pandemic, which may result in production downtime. In addition, there is an increased likelihood of disruptions to our supply chains, which may result in a shortage of critical equipment and supplies in some geographical locations. The mobility of our direct and indirect workforce (including contractors) has been limited by restrictions implemented due to the pandemic which, for example, may impact the delivery of construction projects. Our existing counterparty credit controls may not prevent a material loss to us due to our credit exposure to certain customer segments, or commercial or financial counterparties. Our risk financing approach is to self-insure or not purchase external insurance for certain risks. For more information, refer to the Asset integrity and tailings storage facilities risk factor. |
Legal, regulatory, ethics and compliance |
Risks associated with
|
Why is this important to BHP? |
Our operated assets andnon-operated joint ventures |
Our Code of Conduct and our other internal policies, standards, systems and processes reflect these requirements. Section
|
Threats |
Certain action or |
• actions, investigations or inquiries by regulatory authorities or courts over actual or alleged legal or regulatory breaches (for example, over suspected facilitation payments or bribery and corruption which are prevalent in some of the countries where we do business or our assets are located) |
• disgorgement of profits (for example, if bribery or corruption is established) |
• civil proceedings against or criminal prosecution of Directors, executives, employees or third |
• loss of operating licences, permits or |
• operational impacts, such as unforeseen closures, site rehabilitation expenses, delays or |
• increased compliance costs (for example, to meet new or more onerous operating or reporting standards) |
• regulatory fines or settlements (for example, from a failure to comply with reporting standards or recognise royalties) |
• increased costs in relation to taxation or royalties if laws or policies |
|
• adverse change to regulatory regimes for access to government-owned or privately-operated infrastructure or resources (for example, rail, electricity or water), resulting in additional costs, onerous terms or limitations on access by |
• renegotiation or nullification of existing contracts, leases, permits or other |
• litigation (including class actions), prosecutions or disputes (such as in connection with ownership and use of land) and the associated cost |
• public inquiries such as Parliamentary inquiries or Royal Commissions, which may adversely impact our reputation and ability to pursue projects or conduct operations and which may lead to changes to laws with cost or other impacts to financial performance • loss, uncertainty or The COVID-19 pandemic has led to increased government action around the world. Varying responses to the pandemic at all levels of government have amplified pre-existing differences in policy and standards between and within countries and may continue to do so. Increased government action has resulted in and may continue to result in heightened legal obligations in relation to, for example, the provision of a safe and healthy workplace, management of personal health-related data, and public health and emergency management. In addition, community, investor and regulator expectations as to corporate governance requirements for the Board to satisfy its fiduciary duties in |
|
We conduct our business globally in numerous jurisdictions with complex regulatory frameworks. Our governance and compliance processes may not identify or prevent misstatements or fraud or prevent potential breaches of law, accounting or governance practice.
|
45
|
|
|
Balance sheet and liquidity |
Risks associated with
|
Why is this important to BHP? |
Fluctuations in commodity prices, operational or supply chain disruptions and ongoing global economic volatility could materially and adversely affect our future cash flows and ability to access capital from financial markets at acceptable pricing. If our liquidity and cash flows deteriorate significantly, it may adversely affect our ability to fund our strategy.
|
Threats |
If our key financial ratios and credit ratings are not maintained, our ability to fund current and future capital projects and acquisitions, cost of financing, solvency and our ability to
A number of risks across the Group Risk Architecture, including our principal risks, could adversely impact the Balance Sheet and liquidity to varying degrees should they occur and depending on their severity. Examples of risks that may affect our short to medium-term cash flow generation, profitability or the value of our assets (including reserves) – and therefore the Balance Sheet and/or liquidity – include: • a significant reduction in production at our assets caused by material third party performance issues and operational disruptions due to the COVID-19 pandemic • long-term commodity price volatility and sustained low prices. For example, a prolonged low oil price may result in write downs to our petroleum reserves, and a sustained decrease in the price of iron ore may have significant impacts on liquidity (in FY2020, 48 per cent of our revenue was derived from iron ore), as discussed further in the Commodity prices risk factor • inability to sell our commodities (for example, caused by physical blockages of shipping lanes, closure of ports or land logistics, or other restrictions to trade, including as a result of tensions between a country where we operate or sell our products and other countries with which BHP is connected, as discussed in the Geopolitics and stakeholder relations risk factor) |
46
Management of risks
This section details the measures we have in place to manageAsset integrity and tailings storage facilities
Risks associated with operational integrity, tailings storage facilities and performance of our most significant Group Risks, as well as an assessment of the Group’s current exposure to these risks.assets.
Asset integrityManagement
We employ a number of measures designed to protect the operational integrity and performance of our assets, and to detect, eliminate, prevent and mitigate operational incidents and outages. These measures include:
BHP’s standards on health, safety, the environment, communities, water and tailings dams,storage facilities, maintenance, security, crisis and emergency management, and event and investigation management;management
planning, designing, constructing, maintaining and constructingmonitoring mines, dams and equipment to avoid incidents;incidents
maintaining and improving production infrastructure and equipment to protect our people and assets (for example, controls to preventmaintain the accumulationstructural integrity of flammable gas and coal dust);dams)
inspections and reviews (including a(for example, independent dam risk reviewsafety reviews to assess the management of significant tailings storage facilities, both active and inactive as described in section 1.8);1.7.10)
routine reviews of and revisions to management plans and manuals (for example, to test and update for alignment with operating specifications and industry dam codes);
defining key accountable roles, and providing training and qualifications for staff and contractors;contractors
maintaining minelocal availability of critical skilled personnel within BHP, where possible, to increase operational resilience by ensuring the continuity of critical inspections and other activities (for example, this has mitigated the impacts of workplace entry and travel restrictions imposed on our assets in response to the COVID-19 pandemic)
maintaining evacuation routes, and supporting equipment, (such as breathing apparatus), crisisemergency preparedness and emergency response plans, and business continuity plans.plans
collaborating with industry peers and relevant organisations on minimum standards (such as a minimum maritime standard for bulk ore carriers) and improvement of third party risk management practices to reduce exposure to external events, as well as identifying opportunities to improve our own risk management practices
For more information on our approach to risks associated with tailings storage facilities, see section 1.7.10.
FY2019FY2020 insights
The Group’s exposure to asset integrity and tailings storage facilities risks is expected to remain relatively stable. The Priority Group Risk Review process (described inWhile the ‘Risk governance’ section) aims to provide additional rigour around theCOVID-19 pandemic has not had significant impacts during FY2020 on asset integrity and tailings storage facilities risks, management of top operational risks, such as dam failurerisk at each of our operated onshore and underground fireoffshore assets will continue to be reviewed to ensure we maintain an effective control environment for the duration of the COVID-19 pandemic and explosion.safely transition to post-COVID-19 operating conditions when it is appropriate to do so.
Occupational and process safety (including geotechnical failures and underground fires or explosions)
Risks associated with the safety of BHP employees and contractors in performing their work and the containment of hazardous materials.
Management
We employ a number of measures designed to detect, eliminate, prevent and mitigate operationaloccupational safety and process safetysafety/hazardous materials containment incidents, including:
BHP’s standards on aviation, health, safety, the environment and community, crisis and emergency management;management
compliance with quality assurance standards (for example, the Drilling and Completions Quality Assurance Standard for Petroleum offshore drilling and completion activity);
selection and design of mine plans (in compliance with our global geotechnical standards), wells and equipment to prevent incidents (including slope design and underground support systems);
inspection, maintenance and improvements of infrastructure and critical equipment to protect our people and assets (for example, cyclone resilience);
inspection, maintenance and improvement of key equipment designed to prevent or mitigate an occupational or process safety incident (for example,resilience, pressure vessels designed to contain fluids or gas at pressure and emergency response equipment);
implementing controls at our operated assets to comply with applicable local laws and regulations on safety (for example, relating to the safe storage, handling and use of explosives, fuels and other flammable substances)
training and qualifications for staff and contractors (including drill rig contractors and aircraft operators);
specifying minimum technical specifications for aircraft
influencing joint venture partners to align with BHP standards;internationally recognised standards
monitoring adverse weather conditions, ground stability (based on early alert systems) and pressure/temperature of materials;materials
continuity plans and crisis and emergency response plans;plans
self-insurance for losses arising from property damage, business interruption and construction.construction
applying our experience in safety frameworks to the issue of sexual harassment and assault in order to prevent and respond appropriately to such events, and create an inclusive workplace
implementation of a global COVID-19 control framework across BHP, which includes health and hygiene controls for our workforce, partners and the communities in which we operate
FY2019FY2020 insights
AlthoughThe Group’s occupational safety performance continued to improve in FY2020 compared to FY2019, with higher hazard identification and lower high potential injuries, and the divestmentidentification of process safety/hazardous material containment incidents across our Onshore US assets in FY2019 decreased the onshore risk exposure in Petroleum, the Group’s exposurebusiness also improved over this period. Exposure to operational and process safety riskthese risks is expected to remain relatively stable.stable in FY2021. Our response to the COVID-19 pandemic is intended to support the safety of our workforce and maintain the confidence of key stakeholders (such as local and national governments and the communities in which we operate), and to enable the continuation of BHP’s operations in a safe and sustainable manner. Notwithstanding our efforts and the efforts of local and national governments where we operate, it is possible that the COVID-19 pandemic may continue to impact the communities where our assets are located, which may jeopardise the health, safety and wellbeing of our workforce.
Geopolitics and stakeholder relations (including access to markets)
47Risks associated with geopolitical changes and government actions that affect the macroeconomic outlook, commodity demand and supply and/or impact our ability to access resources, markets and the operational or other inputs needed to realise our strategy; as well as relationships with key stakeholders whose support is needed to realise our strategy and purpose.
Management
The diversification of our portfolio of commodities, markets, geographies and currencies is a key strategy intended to reduce our exposure to geopolitical and macroeconomic shifts.
We actively monitor geopolitical and macroeconomic developments and trends, including through our enterprise-level watch list of emerging themes that provides an evolving view of the changing external environment (see Emerging risk section for further information). We also regularly assess our ability to access markets, resources, technology, talent and capital, as well as monitor the ongoing political and economic landscape required to maintain trade and access for the effective pursuit of our strategy. This enables an understanding of potential impacts on our business and the identification of mitigating actions.
In addition, we monitor the sociopolitical environment in which we operate and the stakeholders that influence that environment in order to prioritise and manage the threats and opportunities that could have the greatest impacts on our business and our social value proposition. We also engage regularly and seek to maintain strong relationships with governments and other key stakeholders to understand, respond to and manage any potential impacts from changes to policy that could affect us, such as trade or resource policies, or evolving expectations of BHP.
FY2020 insights
Our FY2019 Annual Report anticipated that the Group’s exposure to risks associated with geopolitics and macroeconomics would increase in the short-term due to heightened political and policy uncertainty. This trend has accelerated due to changes in relationships and increased strategic competition at an international level (for example, between the United States and China, and Australia and China), a decline in multilateralism, growing civil unrest in some countries in which we operate (as further described in the Community and human rights risk factor), and market volatility and geopolitical tensions resulting from the COVID-19 pandemic. Our influence over most of these aspects of our external environment is limited and the Group’s exposure to the risks described above may continue to increase in the short-term.
On stakeholder relations, we anticipate risks associated with changing expectations of stakeholders related to the role of corporations in society are likely to increase in the short-term, as governments and societies continue to deal with the COVID-19 pandemic and begin to realise the adjustments required for the recovery of national economies.
Capital allocation, and returns sustainabilityassets and growth options
Risks associated with the allocation of capital through annual planning and other processes, to make investment decisions and to discover, maintain and grow assets suited to our capabilities and strategy.
Management
We have a number of strategies, processes and frameworks in place designed to grow and protect the strength of our portfolio and to help deliver ongoing returns to shareholders, including:
our exploration program, with a focus on replenishing our resource base and enhancing our portfolio
a long-term strategy that informs the decisions and actions in capital allocation;allocation and which is embedded through a tested CAF
an ongoing strategy process that assesses the competitive advantage of our business and enables identification of risksthreats and opportunities for our portfolio using forecasting and fit-for-purpose scenarios;scenarios
monitoring indicators to interpret external events and trends;trends
commodity strategies and commodity price protocols that are reviewed and presented to the Executive Leadership Team and Board;Board
corporate planning processes, including life of asset plans, capital prioritisation and asset appraisals, which inform forecasts for proposed investments and operations;operations
management reviews and governance activities to support operational and project forecasts and planning;planning
our Capital Allocation Framework,CAF, which provides the structure and governance for prioritising capital allocation across the Group and adding growth options to our portfolio. Referportfolio (for more information, refer to section 1.4.3 for more information;1.4.5)
investment approval processes that apply to investment decisions, including mergers and acquisitions activity, overseen by an investment committee as described in sections 2.14 and 2.15;2.15
annual reviews of our portfolio valuations to identify any value change and test internal value methodologies and assumptions against external benchmarks.
FY2019 insights
The Group’s exposure to risks related to capital allocation and returns sustainability is expected to remain relatively stable. The divestment of our Onshore US assets in FY2019 has further simplified our portfolio.
Geopolitics and macroeconomics
The diversification of our portfolio of commodities, markets, geographies and currencies is a key strategy intended to reduce our exposure to geopolitical and macroeconomic shifts.
We regularly monitor geopolitical and macroeconomic trends to understand potential impacts on our business and seek to identify mitigating actions as soon as possible.
We also engage with governments and other key stakeholders to understand and attempt to mitigate any potential impacts from changes in trade or resource policies.
FY2019 insights
The Group’s exposure to geopolitics and macroeconomics risks is anticipated to increase in the short term due to heightened political and policy uncertainty.
Cybersecurity
We employ a number of measures designed to protect, detect and respond to cyber events, including:
BHP’s standards on technology and cybersecurity, communications and external engagement;benchmarks
cybersecurityembedding the social value framework designed to drive better outcomes that benefit all stakeholders through strategy, planning and resilience programs;
enterprise security frameworkinvestment processes (including emissions, water, other environmental factors and cybersecurity standards;
cybersecurity awareness plan and training;
security assessments and monitoring;
restricted physical access to critical centres and servers;
incident response plans, process and root cause analysis.community initiatives)
FY2019FY2020 insights
Although there were no identified cyber breachesWhile the COVID-19 pandemic has affected commodity prices and had significant impacts on businesses and national economies around the world (as discussed in the Geopolitics and stakeholder relations risk factor), it may also present opportunities for growth options through acquisitions in attractive commodities that align with our strategy. The discipline and competition for capital stimulated through our CAF is designed to the Group’s technology environment during FY2019, the Group’s exposure to cyber-related risk events is expected to increase primarily due to our growing reliance on technology and the increasing sophistication of external cyberattacks.
48
Third party performance
We have global practices and standards for operations and production that apply to third parties, including:
BHP’s standards on supply, safetydrive better decision-making and capital projects that applyefficiency. This helps to contractorsstrike a balance between returns to shareholders and include requirements relating to contractor management;
|
our Contractor Management Framework, which specifies a holistic approach to support regional alignmentreinvesting in the business and is supported by global training;
|
independent inspections, assurance and verifications (in some cases performed by regulatory bodies);
governance frameworks for our joint ventures, which define how shareholders work together with managementintended to govern the joint venture;
BHP and external reviews of joint venture projects, risk management and governance activities;
internal and shareholder audits of joint ventures.
We maintain a ‘one book’ approach with commercial counterparties, which means that we aim to quantify and assess our credit exposures on a consistent basis. We also have contingency plans in place if production or shipping is interrupted.
FY2019 insights
There are no changes identified in the risk environment for third party performance, internally or externally, that are expected to significantly increase the Group’s exposure.
Community wellbeing and human rights
We have Group-wide standards for communications, community and external engagement; and environment and climate change. These standards and underpinning practices strengthen our environmental and social performance and include:
conducting regular impact assessments for each asset to understand the social, environmental and economic context;
identifying and analysing stakeholder, social, environmental and human rights impacts and business risks;
engaging in regular, open and honest dialogue with stakeholders to understand their expectations, concerns and interests;
contributing to environmental and community resilience through social investment;
applying the mitigation hierarchy (avoid, minimise, rehabilitate, compensate) to minimise environment and community impacts, and achieve target environmental outcomes.
These activities also assistenable us to identify, mitigate or manage key potential social, environmental and human rights risks, as describedbe in section 1.10.a position to consider acquisition opportunities that may arise.
FY2019 insightsCommodity prices
The Group’s exposure to risksRisks associated with the community and human rights is assessed as increasing dueprices of commodities, including sustained price shifts relative to increasing societal and political requirements and expectations.the price of extraction.
Climate change, greenhouse gas emissions and energy
We work with globally recognised agencies to obtain regional analyses of climate science to improve our understanding of the potential climate vulnerabilities of our operations and communities where we operate, and to inform resilience planning at an asset level. Our assets are required to build climate resilience into their activities, for example, by designing facilities to withstand sea level rise or changing climate patterns, or factoring forecast increases in extreme weather events into operational plans. We also require new investments to assess and manage risks associated with the forecast physical impacts of climate change.
We evaluate the resilience of our portfolio to climate change and the low carbon transition by using a broad range of scenarios that consider divergent policy, regulatory, legal, technological, market and societal outcomes, including low plausibility, extreme shock events. We also continue to monitor climate-related developments that could impact the resilience of our portfolio. Our investment evaluation process has incorporated market and sector-based carbon prices for more than a decade.
49
We seek to mitigate our exposure to risk arising from current and emerging policy and regulation in our operating jurisdictions and markets by reducing our operational emissions and developing a product stewardship approach to emissions in our value chain.
We also respond to our exposure to policy and regulatory risk by advocating for the development of an effective, long-term policy framework that can deliver a measured transition to a lower carbon economy.
Identifying cost-effective and robust carbon offsets is important to meeting our emissions reduction commitments and managing reputational risk. We therefore also support the development of market mechanisms that reduce global GHG emissions through projects that generate carbon credits.
The Group continues to monitor policy, market and technological changes and community, investor and regulatory standards and expectations, as they develop, to inform appropriate management actions. For more information on our climate change risk management strategy, refer to section 1.10.8.
FY2019 insights
During FY2019, there was an accumulation of new indicators of the risks and costs associated with climate change, including the Intergovernmental Panel on Climate Change’s Special Report on Global Warming of 1.5°C, which stated that the effects of climate change are already being observed, that warming of even 1.5°C would have profound impacts and that 2°C of warming would be more damaging than previously believed.
Community, investor and regulatory standards and expectations in relation to climate change continued to increase during FY2019. There has also been a recent escalation of climate-related litigation involving companies, particularly in the United States.
Legal, regulatory, ethics and compliance
We have internal policies, standards, systems and processes for governance and compliance, including:
BHP’s standards on business conduct, market disclosure, and information governance and controlled documents;
|
contractor due diligence and automated risk screening;
ring fencing protocols to separate potentially competitive businesses within BHP;
classification of compliance sensitive transactions;
governance and compliance processes (including the review of internal controls over financial reporting and specific internal controls in relation to trade and financial sanctions, market manipulation, competition, data protection and privacy and corruption);
|
oversight and engagement with higher risk areas by our Ethics and Compliance function, Internal Audit and Advisory team and the Disclosure Committee;
global monitoring of compliance controls by our Ethics and Compliance function;
|
FY2019 insights
There are currently no changes identified in the risk environment for BHP’s legal and regulatory obligations that are expected to significantly increase the Group’s exposure, with the exception of those noted above for climate change and community and human rights. The Group’s exposure to risks associated with legal, regulatory, ethics and compliance issues may increase in the event of increased investment and activity in higher risk jurisdictions.
Commodity pricesManagement
Our usual policy is to sell our products at the prevailing market prices. We manage our exposures primarily through the diversity of commodities, markets, geographies and currencies provided by our relatively broad portfolio of commodities. However, this does not necessarily insulate BHPus from the effects of price changes.
Note 2122 ‘Financial risk management’ in section 5 outlines BHP’sour financial risk management strategy, including market, commodity and currency risk.
FY2019FY2020 insights
WithImpacts from the exception ofCOVID-19 pandemic and other geopolitical and macroeconomic developments (mentioned in the Geopolitics and macroeconomics section), whichstakeholder relations risk factor) are expected to increase commodity price volatility, there are no changes identified in the risk environment for commodity prices that are likely to significantly increase or decrease the Group’s exposure to commodity prices.volatility. Volatility in the market will continue to translate into profit variability.
Community and human rights
50Risks that have the potential to impact human rights and/or communities and affect support for our business with stakeholders, including communities, governments or the general public.
Management
In FY2020, social value was integrated into asset plans, which is intended to enhance our contribution to the natural environment, communities and our many stakeholders at an asset and Group-wide level.
BHP’s standards for communications, community and external engagement, and supply chain management provide mandatory minimum requirements and practices that are designed to strengthen our social and human rights performance. In addition, our Human Rights Policy Statement, Climate Change Position Statement, Water Stewardship Position Statement and Indigenous Peoples Policy Statement set out our commitments to human rights, climate change, water security and access to safe water for all, and the traditional rights of Indigenous peoples (including our approach to engaging with Indigenous peoples).
These requirements and our practices also include:
conducting regular impact assessments for each operated asset to understand the social, environmental, human rights and economic context
identifying and analysing stakeholder, community and human rights impacts, including modern slavery risks
engaging in regular, open and honest dialogue with stakeholders to understand their expectations, concerns and interests
contributing to environmental and community resilience through social investment
completing due diligence on all current and new suppliers through our Ethical Supply Chain processes
These activities also assist us to identify, mitigate or manage key potential social, environmental and human rights risks, as described in section 1.7.
FY2020 insights
The Group’s exposure to risks associated with the community and human rights is expected to increase as societal, community and political pressures continue to grow, as evidenced by recent civil unrest in Chile, the United States and other countries where we have a presence. The COVID-19 pandemic has amplified risks and impacts associated with pre-existing factors that affect communities and society across some of our locations (such as inadequate community services and community health and safety). This highlights the need for a rapid and coordinated response by BHP in partnership with relevant stakeholders and, along with adjustments required for the recovery of local and national economies, may present an opportunity for BHP as strong social performance could generate competitive advantage in Australia and other countries in which we operate. For information on our community response to the COVID-19 pandemic, refer to section 1.4.6.
Climate change
Risks associated with changes in climate patterns, as well as risks arising from policy, regulatory, legal, technological, market or other societal responses to the challenges posed by climate change.
Management
We have a Climate Change Position Statement that sets out our views on climate change and our commitments to act in response to climate change. The Our Requirements for Environment and Climate Change standard establishes minimum requirements for managing climate change threats and opportunities and supports the execution of our climate change strategies and plans through our corporate planning processes.
We work with globally recognised agencies to obtain regional analyses of climate science to improve our understanding of the potential climate vulnerabilities of our operations and communities where we operate, and to inform resilience planning at an asset level. We take a risk-based approach to adaptation, including consideration of the potential vulnerabilities of our operated assets, investments, portfolio, communities, ecosystems and our suppliers and customers across the value chain.
Our operated assets are required to develop plans to build climate resilience into their activities and we require proposed new investments to assess and manage risks associated with potential physical impacts of climate change.
Climate-related scenarios, themes and signposts are used to evaluate the resilience of our portfolio and inform BHP’s strategy. Climate-related risks are assessed alongside the other threats and opportunities that BHP faces when making capital expenditure decisions or allocating capital through our CAF. Our Risk Framework helps identify these risks for input to the prioritisation of capital and to investment approval processes. Our investment evaluation process has incorporated market and sector-based carbon prices for more than a decade.
In CY2020, we published the BHP Climate Change Report 2020 that describes our latest portfolio analysis, including a 1.5°C Paris Agreement-aligned scenario. We continue to monitor climate-related developments that could impact the resilience of our portfolio and remain alert to policy, regulatory, legal, technological, market, societal and environmental developments that may indicate changes to our signposts and the development of new uncertainties in our portfolio analysis.
We seek to mitigate our exposure to risk arising from current and emerging policy and regulation in our operating jurisdictions and markets by reducing our operational emissions. In CY2020, we set a medium-term target to reduce our operational GHG emissions (Scope 1 and Scope 2 from our operated assets) by at least 30 per cent from FY2020 levels(1) by FY2030. We also take a product stewardship approach to emissions in our value chain. In CY2020, for example, we set public goals to address Scope 3 emissions.
Identifying cost-effective and robust carbon offsets is important to meeting our emissions reduction commitments and managing reputational risk. We therefore also support the development of market mechanisms that reduce global GHG emissions through projects that generate carbon credits.
We also respond to our exposure to policy and regulatory risk by advocating for the development of an effective, long-term policy framework that can deliver a measured transition to a low carbon economy.
The Group continues to monitor policy, market and technological changes and community, investor and regulatory standards and expectations as they develop, to inform appropriate management actions.
For more information on our climate change risk management strategy, refer to the BHP Climate Change Report 2020 available at bhp.com/climate.
(1) FY2020 baseline will be adjusted for any material acquisitions and divestments based on greenhouse gas emissions at the time of the transaction. Carbon offsets will be used as required.
FY2020 insights
During FY2020, community, investor and regulatory standards and expectations in relation to climate change continued to increase. Public response to severe natural disasters, including bushfires in Australia this year, heightened scrutiny of potential links between climate change and physical impacts and spurred calls for more rapid and aggressive action from governments and companies. In addition, the COVID-19 pandemic and the subsequent reduction in economic activity decreased emissions, which may lead to opportunities to restart economies with a greater focus on sustainability.
Cybersecurity
Cyber-related risk events, including attacks on our enterprise or incidents relating to human error, online and web-based operations and infrastructure.
Management
We employ a number of measures designed to protect against, detect and respond to cyber events or attacks, including:
BHP’s standards on technology and cybersecurity, communications and external engagement
cybersecurity strategy and resilience programs
enterprise security framework and cybersecurity standards
cybersecurity awareness plan and training
security assessments and monitoring
restricted physical access to critical centres, servers and network equipment
incident response and crisis management plans
FY2020 insights
There were no identified cybersecurity breaches to the Group’s technology environment during FY2020 despite an increase in attempted cyberattacks during the COVID-19 pandemic. The Group’s exposure to cybersecurity-related risk events increased in FY2020 and is expected to increase further, primarily due to our growing reliance on technology and the increasing sophistication and frequency of external cyberattacks.
Third party performance
Risks associated with non-operated joint ventures and the delivery of products and services by third parties engaged by BHP, including contractors.
Management
We manage our interests in non-operated joint ventures through:
dedicated non-operated joint venture teams
development of formal influencing plans and key focus areas specific to each non-operated joint venture
governance frameworks that define how joint venture partners work together with operators
where appropriate, governance improvement plans specific to non-operated joint ventures
BHP and external reviews of non-operated joint venture projects, risk management and governance activities
internal audits and participation in joint venture partner audits of non-operated joint ventures
In addition, we have global practices and standards for operations and production that apply to contractors, including:
BHP’s standards on supply, safety, health, aviation and capital projects
• | Our Code of Conduct, which sets out requirements related to working with integrity, including dealings with third parties as described in section 2.16 |
our Contractor Management Framework, which specifies a holistic approach to support regional alignment and is supported by global training
• | training on anti-corruption, competition and Our Code of Conduct |
independent inspections, assurance and verifications (in some cases performed by regulatory bodies)
We are in the process of improving our Contractor Management Framework by developing a globally integrated approach, enabled through the introduction of a new BHP standard for contractor management, delivery of a suite of technology solutions to support the end-to-end contractor management process, building organisational capacity and capability, and changing behaviours to be more inclusive and integrated with our contractor workforce.
We maintain a ‘one book’ approach with commercial counterparties, which means we aim to quantify and assess our credit exposures on a consistent basis. We also have contingency plans in place if production or shipping is interrupted.
FY2020 insights
While the COVID-19 pandemic may affect some third party performance risks (as described above), it has also presented opportunities to BHP. These include focusing on local supply chain resilience by supporting small, local and Indigenous businesses (for example, in March and April 2020 we made immediate payments of outstanding invoices and reduced payment terms from 30 to seven days for our small, local and Indigenous suppliers in Australia and for those that support our Petroleum business), as well as employing additional contractors to support our Australian operations.
Legal, regulatory, ethics and compliance
Risks associated with legal, regulatory, ethics and compliance obligations.
Management
We have internal policies, standards, systems and processes for governance and compliance, including:
• | Our Code of Conduct |
BHP’s standards on business conduct, market disclosure, and information governance and controlled documents
• | training on Our Code of Conduct and in relation to anti-corruption, market conduct and competition matters |
contractor due diligence and automated risk screening
global monitoring of compliance controls and higher risk transactions by our Ethics and Compliance function
ring fencing protocols to separate potentially competitive businesses within BHP
classification of compliance sensitive transactions
governance and compliance processes (including the review of internal controls over financial reporting and specific internal controls in relation to trade and financial sanctions, market manipulation, competition, data protection and privacy, and corruption)
oversight and engagement with higher risk areas by our Ethics and Compliance function, Internal Audit and Advisory team and the Disclosure Committee
• | EthicsPoint anonymous reporting service, supported by an ethics and investigations framework and central investigations team (within the Ethics and Compliance function) to investigate Our Code of Conduct concerns. Material breaches of Our Code of Conduct are reported to the Board on a regular basis and individuals are encouraged to report anything they believe may be misconduct or an improper state of affairs or circumstance without fear of retaliation (EthicsPoint is discussed in further detail in section 2.15) |
FY2020 insights
The Group’s exposure to risks associated with legal, regulatory, ethics and compliance issues may increase given changes in the external environment. These risks could be exacerbated by the COVID-19 pandemic, as well as by the continuing response of governments and society to ethical and cultural failings within large corporates, including the financial services industry. Exposure to these risks may also increase in the event of additional investment and activity in higher risk jurisdictions. The impacts of the pandemic on such jurisdictions may amplify those risks (for example, adverse effects on local economic wellbeing may increase corruption risks).
Balance sheet and liquidity
Risks associated with our ability to maintain a robust and effective balance sheet, raise debt, return value to shareholders and remain financially liquid.
Management
The Financial Risk Management Committee (FRMC) oversees the financial risks faced by BHPacross our business and endorses or approves financial risk management strategies, mandates and activities, including those related to commodity, currency, credit and insurance markets. The role of the FRMC is described in sections 2.14 and 2.15. Note 2122 ‘Financial risk management’ in section 5 outlines our financial risk management strategy.
We seek to maintain a strong balance sheetBalance Sheet supported by our portfolio risk management strategy. To achieve this, we:
operate a diversified portfolio, which reduces overall cash flow volatility;volatility
maintain access to key debt markets globally;globally and a US$5.5 billion revolving credit facility (undrawn as at 30 June 2020)
monitor target gearing levels and credit rating metrics;metrics under a range of different stress test scenarios incorporating operational and macroeconomic factors
assess cash flow at risk to monitor sensitivities to market prices and their impact on key financial ratios;ratios
maintain target cash and liquidity buffers within ranges set by the Board (which are designed to sustain BHP through periods where there is limited access to debt markets);
operate within credit limits set by frameworks approved by the FRMC.FRMC
FY2019FY2020 insights
ProtectionismThe global economy has been impacted by the COVID-19 pandemic. Increased geopolitical uncertainty, including the impact on national economies and political uncertaintythe speed at which they recover from the effects of the pandemic, has further weighed on the macroeconomic outlook. There is a risk of heightened during FY2019, which we expect will constrainfluctuations in commodity prices, operational or supply chain disruptions and ongoing global economic growth. However, no material changes have been identified in the risk environment, internally or externally, that are expectedvolatility, which could affect short to significantly increase the Group’s risk exposure or significantly impact the Group’s ability to maintain a strong balance sheet, distribute dividendsmedium-term cash flow generation and remain financially liquid.
51profitability.
1.7 Samarco1.6 Capability and culture
The Fundão dam failure
On 5 November 2015, the Fundão tailings dam operated by Samarco Mineração S.A. (Samarco) failed. Samarco is anon-operated joint venture owned by BHP Billiton Brasil Limitada (BHP Billiton Brasil) and Vale S.A. (Vale), with each having a 50 per cent shareholding.
A significant volume of tailings (water andmud-like waste resulting from the iron ore beneficiation process) was released. Tragically, 191.6.1 Our people died – five community members and 14 people who were working on the dam when it failed. The communities of Bento Rodrigues, Gesteira and Paracatu were flooded. A number of other communities further downstream in the states of Minas Gerais and Espírito Santo were also affected by the tailings, as was the environment of the Rio Doce basin.
Our response and support for Fundação Renova
More than three years into the recovery process, we remain committed to doing the right thing for the people and the environment in the Rio Doce region in a challenging and complex operating context.
The Framework Agreement entered into between Samarco, Vale and BHP Billiton Brasil and the relevant Brazilian authorities in March 2016 established Fundação Renova, anot-for-profit, private foundation that has developed andglobal workforce is implementing 42 remediation and compensatory programs to restore the environment andre-establish affected communities. As well as remediating the impacts of the dam failure, Fundação Renova is implementing a range of compensatory actions aimed at leaving a lasting, positive legacy for the people and environment of the Rio Doce.
BHP is focused on supporting Fundação Renova’s operations through representation on the Board of Governors and Board Committees, making available secondees who work within Fundação Renova to provide their technical expertise on priority areas, and regular peer engagement on issues such as safety, risk management, human rights and compliance.
Fundação Renova
Fundação Renova’s staff of approximately 530 people is supported by about 6,200 contractors. Its CY2019 budget is R$3.1 billion.
The activities of Fundação Renova are overseen by an Interfederative Committee comprising representatives from the Brazilian Federal and State Governments, local municipalities, environmental agencies, impacted communities and the Public Defense Office, who monitor, guide and assess the progress of actions agreed in the Framework Agreement. The Interfederative Committee is supported by the Technical Chambers, made up of specialists from the various government departments, which are established to assist the Interfederative Committee in the performance of its purpose of guiding, monitoring and supervising the execution of the socioeconomic and socio-environmental programs managed by Fundação Renova. There are 11 Technical Chambers in the following areas: communication, participation, dialogue and social control; economy and innovation; social organisation and emergency aid; Indigenous peoples and traditional communities; reconstruction and infrastructure recovery; health, education, culture, leisure and information; conservation and biodiversity; tailings and environmental safety management; forestry restoration and water production; and water safety and quality.
Fundação Renova is governed by a Board of Governors, currently comprising representatives nominated by Vale, BHP Billiton Brasil and the Interfederative Committee. In the near term, representatives of impacted communities are also expected to join the Board of Governors. The Board of Governors appoints an Executive Board, including the CEO, which is responsible for the operational management of Fundação Renova.
Fundação Renova’s governance structure also comprises a Fiscal Council, Advisory Council, seven Board Committees, a Compliance Manager and an Ombudsman. The Advisory Council includes representation from impacted communities and community development and education experts.
On 25 June 2018, Samarco, Vale and BHP Billiton Brasil signed a Governance Agreement with the other parties to the Framework Agreement, the Public Prosecutors Office and the Public Defense Office. The Governance Agreement augments the participation of impacted people in the decision-making process, through representation on both the Fundação Renova Board of Governors and the Interfederative Committee.
In addition, during FY2019, a network of 18 local commissions, made up of affected people, was established along the Rio Doce to represent the affected people in the governance process for full reparation of the damages.
Participants in the local commissions will be offered training by the technical advisers(non-profit organisations that aim to defend the rights of affected people, providing access to information and technical guidance) to enable them to actively participate in the process by submitting proposals, recommendations and comments on the work of the Interfederative Committee, Technical Chambers and Fundação Renova. Each commission should also be able to work with other local commissions to discuss and improve the results in each territory. Due to the diversity, scale and complexity of the programs, Fundação Renova collaborates and engages broadly with affected communities, scientific and academic institutions, regulators and civil society.
52
Resettlement
One of Fundação Renova’spriority social programs is the livelihood restoration program to relocate and rebuild the communities of Bento Rodrigues, Paracatu and Gesteira. A key to the success of this program is the participation of affected community members, their technical advisers, State Prosecutors, municipal leaders, regulators and other interested parties.
The process involves the identification and acquisition of land, design and planning for the urban plan, including all infrastructure services (roads, power, water, drainage, sewerage) and public buildings (schools, health centres, squares, sports grounds and religious buildings), and construction of new houses for the affected people. The resettlement project provides local employment for community members where possible and support to help affected people restore their livelihoods.
In Bento Rodrigues, preparation for construction of the public school has commenced and infrastructure works are progressing. Unfortunately, work is behind schedule due to delays in project engineering and in the permitting process. Fundação Renova has signed an agreement to provide additional resources required by the municipality to analyse the individual house projects for permitting approval. Of the 257 houses, as of June 2019, 112 families had concluded the conceptual design of their houses and around 76 house projects have permits submitted to start construction. In June 2019, Renova signed Letters of Intent with two major Brazilian construction companies to undertake construction of the houses and infrastructure.
In Paracatu, by June 2019, all licences and authorisations to commence construction were granted and works to prepare the construction site were under way (117 houses).
In December 2018, land was purchased for the resettlement of 37 families of Gesteira following a protracted negotiation with the landowner. The urban plan design is being designed with the community.
In addition to these three community resettlements, 14 families from the rural area chose to rebuild their houses on their previous property, and of these, six houses have been rebuilt and delivered to the families.
Eighty-three families have chosen not to live in one of the three villages or in their previous houses. Fundação Renova is assisting them.Twenty-two properties have been purchased for these families (as of June 2019).
Financial assistance and compensation
Fundação Renova had paid R$1.7 billion in indemnification and financial aid up to June 2019.
Fundação Renova has distributed about 13,160 financial assistance cards to those whose livelihoods were impacted by the dam failure, including registered and informal commercial fisherfolk who are unable to fish due to the imposition of fishing bans in the Rio Doce and along the coast of Espírito Santo. The payments are designed to provide those affected with the capacity to support themselves and their families pending there-establishment of conditions that enable them to resume their economic activities.
Fundação Renova is also undertaking Brazil’s largest mediated compensation program to fairly compensate all individuals impacted by the dam failure. It comprises two key components:
The Water Damages component compensated people for an interruption to public water supplies for seven to 10 days following the dam failure. Over 268,000 people participated in the program, and were paid a total of approximately R$267 million. Between judicial and extrajudicial processes, about 300,000 settlements have been reached in small claims filed by impacted people in Minas Gerais and Espírito Santo requesting the payment of moral damages related to the shortage of public water supply.
The General Damages component covers all other impacts, including loss of life, injury, property, business impacts, loss of income and moral damages. The program was designed based on inputs from public agencies, technical entities and impacted families and has been validated by the Interfederative Committee.
Compensation represents 36 per cent of Fundação Renova’s budget, which is approximately R$1 billion for CY2019.
Of the 19 fatalities, 16 families have been fully indemnified and one partially. The remaining two families are still in legal negotiations.
Other socioeconomic programs
While resettlement, compensation and restoring fishing livelihoods are an important focus, Fundação Renova continues to implement a wide range of other socioeconomic programs in areas such as health and social protection, education, small business development, economic diversification, Indigenous peoples and traditional communities (i.e. sand-gold miners):
There are two work fronts of Fundação Renova in the area of health: (i) conducting epidemiological and toxicological studies to investigate the health risk of tailings and heavy metals from the Doce River and to monitor the impact of dust on people’s lives and (ii) supporting the public management of municipalities by strengthening existing municipal structures, both in clinical care and social protection. In March 2019, more than 60 professionals, including doctors, nurses, social workers and psychologists hired by Fundação Renova worked in Mariana and Barra Longa (Minas Gerais).
53
Fundacão Renova seeks to promote the local economy to stimulate the resumption of the economic activity of the impacted region. To promote small business development and economic diversification, Fundação Renova launched, amongst others, a fund of R$40 million, to finance micro and medium companies with loans ranging from R$10,000 to R$200,000.
Fundação Renova prioritises the local workforce in repair actions and in March 2019, reported that 57 per cent of people directly engaged or engaged via suppliers were from affected municipalities. Fundação Renova’s goal is for this percentage to stabilise at or exceed 70 per cent.
Actions to protect and restore the quality of life of Indigenous peoples and traditional communities aim to repair and compensate for the social, cultural, environmental and economic impacts on four communities and a total of 1,600 families. Impact studies are being developed to be the foundation of an integrated development action plan to recoverour business and we believe that supporting the livelihoods of each of these communities.
Environmental remediation
Fundação Renova had successfully concluded works to stabilise the impacted land areas by June 2019. The riverbanks and floodplains have been vegetated, river margins have been stabilised and, in general, water and sediment qualities have returned to historic conditions. Regarding long-term remediation, work is continuing with landowners and regulators to define the land use objectives, further interventions that may be required, and the indicators and monitoring programs that will be used to demonstrate success of the program.
One of the main concerns held by stakeholders regarding the tailings related to the potential contamination of water, sediment, soil and biota. Fundação Renova commissioned human health and ecological risk assessment studies to answer these questions. Although the tailings have low concentrations of trace metals, the background concentrations of some elements are elevated in the area due to previous human activity or natural conditions. It is therefore important that studies are well designed and results clearly show the source of any potential health risks. BHP has been working with Fundação Renova to make sure robust data is collected, the correct methodologies are applied and clear causes for any health impacts are identified so that health authorities have accurate information to support their decision-making.
Water quality, aquatic habitat and fish surveys are continuing in the rivers and coastal zone to understand the impact of the tailings flow and the rate of recovery of the ecological systems. Results from these studies indicate that, while sediment in the river channels along the spill flow path upstream of the Candonga reservoir continues to limit there-establishment of habitats and aquatic fauna diversity and abundance, the natural sediment transport processes will ultimately restore suitable habitat. Methods to enhance the rate of habitat recovery in the upstream section of the river closest to the dam failure are under implementation.
Research institutions have been progressing with studies along the river and coast required by regulators and prosecutors, with preliminary results scheduled for late 2019. In May 2019, Brazil’s National Sanitary Surveillance Agency (ANVISA) attested to the safety of the consumption of fish and crustaceans from the Doce River Basin and the coastal region, within daily limits of 200 grams per adult and 50 grams per child. Given the significant impacts of the fishing bans on the livelihoods of commercial and subsistence fisherfolk and the social cohesion within their communities, BHP Billiton Brasil has continued providing technical support to Fundação Renova to accelerate the collection of data to address the concerns of regulators and the community. This includes analysis of the safety of fish for human consumption and the status of fish populations to support lifting of the fishing bans currently in place.
Legal proceedings
BHP Group Limited, BHP Group Plc and BHP Billiton Brasil are involved in legal proceedings relating to the Samarco dam failure. For more information on the significant legal proceedings in which BHP is currently involved, refer to section 6.6.
Restart
While restart remains a focus and is expected to provide a positive effect on livelihoods in impacted communities, restart will only occur if it is safe, economically viable and has the support of the community.
Progress on our commitments
Following the investigation into the causes of the dam failure, Samarco and its shareholders identified a number of specific actions to help prevent a similar event from occurring. The actions were in addition to the overall improvements we identified to further improve the management of our tailings dams (as discussed in section 1.8)
Monitoring: A centralised monitoring system and control room with emergency warning and response protocols has been established for the Samarco tailings dams. Specifically trained personnel staff the control room 24 hours a day, seven days a week.
Dam decommissioning plan: Due to legislative changes in Brazil, Samarco is currently progressing plans for the accelerated decommissioning of its upstream tailings dams (the Germano dam complex). Plans for the decommissioning are at an early stage and work is in progress on finalising the conceptual design.
54
Emergency drills:Emergency drills are conducted once a year, bringing together the communities, employees and civil defence to validate the efficiency of the Emergency Response Plan, so that all parties that may potentially be affected are aware and prepared to respond in case of an emergency.
More information on our ongoing dam and tailings management is available in our Sustainability Report 2019 at bhp.com. More information on health, safety and environmental performance at our NOJVs is available in our Sustainability Report 2019, available online at bhp.com.
Tailings dams are dynamic structures and maintaining their integrity requires consideration of a range of factors, including appropriate engineering design, quality construction, ongoing operating discipline and effective governance processes.
Nothing is more important than the safetywellbeing of our people and communities. Immediately following the tragic failure of the Fundão dam at Samarco in 2015, the BHP Boardpromoting an inclusive and senior management initiateddiverse culture are vital for maintaining a dam risk review to assess the management of significant (4) tailings storage facilities, (5) both active and inactive. This review was in addition to existing review processes already being undertaken by our operated assets. The review, conducted by a combination of external tailings experts and BHP personnel, assessed dam design, construction, operations, emergency response and governance to determine the current level of risk and the adequacy and effectiveness of controls.
The scope of the review included:
significant tailings facilities across all operated assets andnon-operated joint ventures;
any proposed significant tailings or water dams as part of major capital projects;
consideration of health, safety, environmental, community and financial impacts associated with the failure of a tailings dam, including the physical impacts of climate change.
Improvement actions were assigned to address facility-specific findings. Our Internal Audit and Advisory team subsequently followed up to assess quality and completeness. These actions resulted in enhancements such as buttressing of dam walls and installation of additional instrumentation to monitor dam integrity. Following such findings, we have subsequently undertaken and will continue to undertake dam safety reviews, which provide external assurance statements on dam integrity.
Improvement actions were also identified at the Group level to address common findings and lessons learned across the Group so that our approach to dam risk management could be further improved. As part of this, a central technical team was set up to enhance oversight and assurance. We also increased our investment in research and development to reduce and eliminate tailings storage risks, including research into static liquefaction failure mechanisms and evaluating dewatering of tailings. We are also actively assisting the International Council on Mining and Metals (ICMM) Tailings Working Group to contribute to improvements in tailings storage management across the broader mining industry.
Prior to the tragic collapse of the Brumadinho dam at Vale’s iron ore operation in Brazil in January 2019, we already had a significant focus on looking at how we could deliver a step change reduction in tailings risk. Together with our peers across the resource sector, Brumadinho further strengthened our resolve to collaborate to reduce tailings risk by sharing and implementing best practice. As well as implementing a comprehensive tailings governance plan, we established an internal Tailings Taskforce team reporting to the Executive Leadership Team and the Board’s Sustainability Committee. The Taskforce is accountable for the continued improvement and assurance of our operated tailings storage facilities, progressing the development of technology to improve tailings management storage, and engaging in the setting of new tailings management standards. BHP continues to review our approach to tailings management as information on the causes of the Brumadinho dam failure come to light, and will continue to consider any industry guidance, standards and regulation as they emerge.competitive advantage.
We welcome a common, international and independent body to oversee integrity of construction and operation of all tailings storage facilities across the industry. In addition, we support calls for greater transparency in tailings management and plan to work with community, regulatory and financial stakeholders to promote the application of consistent disclosure that informs better tailings dam stewardship.
Dam risk management
BHP’s approach to dam risk management at our operated dams is integrated into our standard approach to risk management, assurance and continuous improvement with particular focus on four key areas:
|
|
55
|
|
|
|
Supporting this approach to dam risk management at our operated assets are Group-wide processes of technical support and oversight.
Maintenance of dam integrity
Central to our approach is the recognition that maintaining dam integrity is a process of continuous assessment that needs to be maintained for the life (including into closure and post-closure) of a tailings facility. As a result, we have identified five key dimensions to maintaining dam integrity:
|
|
|
|
|
Governance of dam facilities
We believe that effective governance encompasses a range of aspects from the management of change in our business to appropriately employing and enabling qualified personnel with clear accountabilities.
We have mandated three key roles across our operated assets, accountable to the Asset General Manager of the relevant asset:
Dam Owner – the single point of accountability for maintaining effective governance and integrity of the tailings storage facility throughout its life cycle;
Responsible Dam Engineer – a suitably qualified BHP individual accountable for maintaining overall engineering stewardship of the facility, including planning, operation, surveillance and maintenance;
Engineer of Record – an independent, suitably qualified professional engineer retained by the Dam Owner for the purpose of maintaining dam design, certifying dam integrity and supporting the Dam Owner and the Responsible Dam Engineer on any other matters of a technical nature.
Monitoring, surveillance and review
Given tailings dams are dynamic structures, we believe effective monitoring, surveillance and review is central to ongoing dam integrity and governance. We believe these processes span six dimensions, with the level of utilisation of each dimension being dependent on the specific needs of the relevant facility. These six dimensions include:
|
|
|
|
|
|
The type and frequency of monitoring, surveillance and review is informed by the consequence classification, complexity and operational status of the dam. Dams that are likely to have a greater level of consequence, as a result of failure, that have greater technical complexity and that are actively operating will have monitoring, surveillance and reviews with greater rigour and frequency.
|
56
Dam safety reviews
Dam safety reviews are central to our approach to dam integrity and continuous improvement. We engage an external engineer to undertake dam safety reviews consistent with the guidance provided by the CDA in their 2016 Technical Bulletin on Dam Safety Reviews. As per this guidance, review frequency is informed by the dam classification under the CDA.
Dam safety reviews are detailed processes that include a thorough review of dam integrity, dam governance and include a review of the dam break assessment and dam consequence classification. Reviews are led by an external qualified professional engineer (selected for their appropriate level of education, training and experience), with support and input from other technical specialists from fields that may include, for example, hydrology, geochemistry, seismicity, geotechnical and mechanical. At the conclusion of the review, the qualified professional engineer provides a signed assurance statement, which includes a comment as to the integrity of the facility.
Emergency preparedness and response
We believe the final key element in our approach to dam risk management is emergency preparedness and response. Our approach to emergency response planning for our tailings facilities is designed to be commensurate with risk, with the following steps taken as appropriate given the risk:
identifying and monitoring stability and operating conditions, with thresholds that prompt preventive or remedial action;
assessing and mapping the potential impacts from a hypothetical, significant failure, including infrastructure, communities and environment, both on and offsite, regardless of probability;
establishing procedures to assist operations personnel responding to emergency conditions at the dam;
testing and training in emergency preparedness ranges from desktop exercises to full-scale simulations. Desktop and field drills are scheduled at a frequency commensurate with the level of risk of the facility.
BHP’s operated andnon-operated tailings portfolio
The following classifications align to the CDA classification system. It is important to note that the classification is based on the modelled, hypothetical most significant failure mode and consequences possible without controls, and not on the current physical stability of the dam. It is also important to note that it is possible for dam classifications to change over time, for example, following changes to the operating context of a dam. As such, this data represents the status of the portfolio as at May 2019. The dam classification informs the design, surveillance and review components of risk management and, therefore, dams that will likely have a greater level of consequence as a result of failure will have more rigorous requirements than dams that will have a lesser level of consequence.
In total, we have 67 tailings facilities(1) at our operated assets, 29 of which are of upstream design. Of the 67 operated facilities, we have five classified as extreme and a further 16 classified as very high. Thirteen of our operated facilities are active. The substantial inactive portfolio (54) at our operated assets is due largely to the number of historic tailings facilities associated with our North American legacy assets portfolio.
There arenine tailings facilities at ournon-operated joint ventures. Allnon-operated facilities are located in the Americas. There are two active tailings facilities: Antamina in Peru, which is of downstream/centreline construction and Cantor TSF at Cerrejón in Colombia, which is of downstream construction. In addition, there are seven inactive facilities. These include: two upstream facilities at Samarco (Germano) in Brazil that are being decommissioned following the February 2019 rulings by the Brazilian Government on upstream dams in Brazil; three upstream inactive facilities and one inactive modified centreline facility at Resolution Copper in the United States; and one downstream inactive facility at Bullmoose in Canada. The highest classification facilities, rated as extreme, are the downstream facility at Antamina and the upstream Germano facilities at Samarco.
More information on tailings dams is available online at bhp.com.
57
|
|
|
|
|
|
58
1.9.1 Our people
We employ over 72,00080,000 employees and contractors globally. We are committedglobally and empower them to investingwork in our people so they have the right skills and are supported by a healthy workplace culture that is inclusive and collaborative.
We are committed to empowering our people to find safer, more creative and more efficient ways of working.rewarding ways. We continue to develop a culture based on trust and collaborationcollaborate to drive performance and give our people more say, new capabilities and tools, and new avenues for technology and innovation to support BHP’s transformation.innovation.
We provide competitive remuneration to reward employees for their expertise and commitment to our business strategy and long-term success. Our remuneration approach is designed to inspire our employees to embrace BHP’s core objectives and values. Performance against key performance indicators linked to safety, productivity and culture drives our employees’ variable reward outcomes.
Building an enabled culture to support BHP’s transformation
Our annual Engagement and Perception Survey (EPS) is an important tool to gauge our culture. The overall results in FY2019 remained stable and showed we sustained the positive improvements achieved in FY2018, despite the changes that occurred across the business.
Our employees told us they feel proud to work at BHP and described the work environment as collaborative and inclusive. They have the confidence to make decisions required to do their job well and believe they have opportunities for professional and personal development.
We have seen improvements in our EPS results related to equal opportunities at work for all employees, perceptions on how the leadership group communicates a vision of the future that is exciting, how leaders are managing change, and perceived opportunities for growth and development. These are important indicators of people’s experiences at work.
The FY2019 results indicated we have more to do to continue to simplify our processes and make it easier for our team to perform their work. Our focus for FY2020 will be to support our transformation initiatives (refer to section 1.4.4) and realise the benefits to our culture and people. We will continue to enable our people and address the obstacles that prevent them from doing their job well by simplifying processes and increasing technology capability. We expect that further capability development of our employees in our new ways of working and continued development of our leaders will set up our people and the organisation for success.
Developing our capabilities and an enabled culture
The delivery of our strategy is predicated on culture and capability.
We believe thatapply the changing nature of work presents significant opportunity for BHP. Our approach is to invest in new skills, so our people are ready for the jobs of the future.
Over the past five years, we have invested in developing leadership capability, as these qualities are critical to guiding our people and navigating changes to the work environment.
Our Operational Leadership Program aims to develop the technical and operational leadership excellence of our operational general managers and to identify successors to senior leadership roles that drive operational value. The program launched in FY2018 and was completed by 38 operational leaders in FY2019.
The Step Up to Leadership and Leading Value programs continue to drive our foundational leadership focus and in FY2019, 856 leaders completed the programs. Our Maintenance Academy Program, introduced in FY2018, saw 39 maintenance managers work to broaden their technical knowledge, leadership capability and collaboration in FY2019.
We also focused in FY2019 on developing the leadership skills of our Indigenous employees through our Indigenous Development Program. The program is designed to identify Indigenous employees with leadership potential and to respond to issues identified as barriers to career progression. By May 2019, 147 employees in Australia had completed the program. Of the 97 employees that completed the program in the first half of 2019, 40 per cent have moved into new roles and 19 per cent have been promoted to leadership roles.
We are proud of our EPS results related to the performance of our leaders. In particular, the results identified our leaders as strong in communicating the vision of BHP and leading their teams through significant change.
In FY2020, we expect to increase our focus on systems, processes, tools and behaviours to improve operational capability. The BHP Operating System (BOS) practices to build leader capability. We invest in people and capability to deliver high performance and our aspiration for a gender-balanced workforce. We drive continuous improvement through respect for people’s differences, self-accountability, a hunger to learn and a commercial mindset.
The BOS sets out the foundation for long-term andin-depth learning and development, by developing practices and capabilities that empower our people to pursue operating excellence. In FY2020, the focus of our capability building work was on teaching and embedding the BOS practices across our operated assets, from general managers to frontline employees and contractors. The BOS senior leader development sessions equipped senior leaders to lead and role model the BOS’s principles and practices. We will further develop leadership capability in FY2021 through the BOS learning and development programs for coaches and work with our leaders to support the effective embedment of the BOS to improve operational capability and cultural outcomes.
To continue to grow value we must ensure our operations perform well and that means safely, productively, cost-effectively and reliably. We invest in our people to drive this performance.
In FY2020, we invested in a new workforce surveying and analytics platform that provides our leaders with deeper and more frequent insights into our culture and our people’s safety, engagement and enablement. We first deployed this technology in response to the COVID-19 pandemic, to closely manage wellbeing and monitor the effectiveness of communication. With more than 55,000 responses over a three-month period from employees and contractors to a weekly pulse survey, we could respond to the needs of our workforce by deploying targeted support initiatives, such as leader guides, training packages, coaching and access to mental health services.
Our COVID-19 wellbeing survey results identified our leaders as strong communicators and leaders of their teams through significant change. Eighty-nine per cent of respondents indicated they received support from their leader when they needed it and 92 per cent were clear about what they should be working on.
With a focus on developing capability in core leadership routines, 2,602 leaders have participated in the Step Up to Leadership training since FY2015, which has been pivotal in the development of BHP’s culture over the past five years. These programs will be updated in FY2021 to further support our people and the development of our culture.
We also focused on developing the leadership skills of our Indigenous employees in FY2020, through our Indigenous development program, which identifies Indigenous employees with leadership potential and addresses barriers to career progression. For more information, refer to the Indigenous employment section.
Operations Services which provideswas created by BHP to provide permanent employment within BHP for roles undertaking maintenance and production execution services across Minerals Australia assets. Operations Services supports people to build their skills through a structured coaching and by performingin-field verifications.verification process, designed to enable operators and maintainers to achieve mastery within their roles. This helps deliver consistent equipment operation and maintenance that balances safety, maximum productivity and equipment reliability. Participants report
We recognise government, industry and education stakeholders play important roles in helping us fulfil our skills requirements. The Queensland Future Skills Partnership with TAFE Queensland and Central Queensland University has been established to fast track development of new autonomy skills. Our Minerals Americas team is partnering with the Industrial and Mining Training Centre in Chile, initially established 24 years ago by Escondida, to deliver new technology skills and a high sensepipeline of achievementoperators/maintainers who are new to mining, with a focus on increasing female participation in mining. We are working with the Minerals Council of Australia as a key stakeholder through which the Department of Education, Skills and Employment will engage with the mining sector to develop a new skills organisation. Some of our operated assets are also partnering locally with external companies to deliver programs that prepare people who are new to mining with the skills they leverage best practice from across BHPneed to help perfect their daily activities and accelerate productivity.
59work in the mining industry.
Inclusion and diversity
We believe our people should have the opportunity to fulfil their potential and thrive in an inclusive and diverse workplace. In our experience, inclusionInclusion and diversity promotes safety, productivity and wellbeing within BHPof our workforce and underpins our ability to attract new employees.
We employ, develop and promote people based on meritpeople’s strengths and ourwe do not tolerate any form of discrimination, bullying, harassment, exclusion or victimisation.(8) Our systems, processes and practices are designed to empowersupport fair treatment. We do not tolerate any form of unlawful discrimination, bullying or harassment.treatment for all.
Our employees are trained to recognise and mitigate potential bias towards any employee.employee and encouraged to speak up if they encounter behaviours that are inconsistent with our values and expectations. To help addressprevent gender pay disparities, we have taken steps to reduce potential bias in recruitment and conduct an annual gender pay review, the results of which are reported to the BHP Remuneration Committee.
Respect is one of our six coreOur Charter values and we believe it is fundamental to building stronger teams and being a trulyan inclusive and diverse workplace. For some people, in our business, this ishas not been their experience of working at BHP. We are determined to address this, so during FY2019this. In FY2020, we began a Group-widecontinued our Respectful Behaviour campaign, about respectful behaviour. The aim is to create greaterwhich builds awareness and build understanding of what constitutes disrespectful behaviour is and how it affects our people. We shared real-life examples of how some people experience disrespectful behaviour at BHP,behaviours in the workplace to highlight the current environment and generate conversations.
The campaign asks everyone to reflect on their own behaviours and what they see around them and ask ‘Is that ok?’conversation. We equipped leaders and employees with materials to help them have conversations about disrespectful behaviours and take stepsintegrated those materials and concepts throughout our cultural tools and programs (including BHP leadership programs, Leading Inclusion, sexual harassment training, and Our Code of Conduct training).
We also started to assemble an internal working group in FY2020, to develop a holistic plan to address it. We also launched a new eLearning module on inclusionthe controls and continue to develop additional resources for our people as we continue this critical initiative. Further developmentcultural enablers of a culture of care within our business is a fundamental element of our FY2020 business plan.
Gender balance(7)
We have an aspirational goal to achieve gender balance globally by CY2025. In FY2019 we increasedsexual harassment and assault in the representation of women working at BHP by 2.1 percent, resulting in 1,156 more female employees than the same time in FY2018. Our overall representation of women is 24.5 per cent (7).
In FY2019, the percentage of people newly hired to work for BHP was 62.3 per cent male and 37.7 per cent female. This female representation outcome is a marked increase when compared to FY2015 (10.4 per cent), the baseline for our aspirational goal. Our growth projects have reported strong female representation. For example, South Flank operational workforce in Western Australia has achieved 41 per cent female representation as at the end of FY2019. We have improved the voluntary turnover rate of women by 0.7 per cent, when compared to FY2018; the turnover of women (11.4 per cent) remains higher than the rate for men (10.4 per cent).workplace.
Our strategy to achieve a more diverse and inclusive workplace continues towith focus on the following four areas:
embedding flexibility in the way we work;work
encouraging and working with our supply chain partners to support our commitment to inclusion and diversity;diversity
uncovering and taking steps to mitigate potential bias in our behaviours, systems, policies and processes;processes
ensuring our brand is attractive to a diverse range of people.people
Indigenous employmentGender balance(9)
In communities in which we operate, we aim to provide employment opportunities that contribute to sustainable social and economic benefits for Indigenous peoples. In Minerals Australia, Indigenous employment within our overall workforce increased from 4.4 per cent to 5 per cent (1,090 to 1,168) as weWe aim to achieve 5.75gender balance globally by CY2025. In FY2020, we increased the representation of women working at BHP by 2.0 per cent, byresulting in 1,767 more female employees than at the end of FY2020. TwentyFY2019. Our overall representation of women is 26.5 per cent.
We signed the CEO Statement of Support for the United Nations (UN) Women’s Empowerment Principles in FY2020 to strengthen our global commitment towards gender equality. The partnership with UN Women and the UN Global Compact encourages business leaders to use seven principles as a guide for actions that advance and empower women in the workplace, marketplace and community.
The percentage of people newly hired to work for BHP in FY2020 was 60.7 per cent of all apprentices were Aboriginalmale and Torres Strait Islander people . In North America, we have focused on working with our contracting partners to support the employment of First Nations and Métis peoples, who now comprise 939.3 per cent female. This female representation outcome is a marked increase compared to FY2015 (10.4 per cent female), the baseline for our aspirational goal.
Several of our workforce at the Jansen Potash Project. Chile has implemented a numberoperations and major capital projects have reported strong female representation with investment in entry-level programs. Operations Services, South Flank, Escondida, Olympic Dam and other operations increased their female representation with apprenticeship intakes to develop women and create new talent pools of initiatives that will resultfemales and diverse talent in formal performance reportingentry-level roles as operators, maintainers and others according to specific operational needs where this diversity does not exist today. Escondida improved female representation in FY2020.FY2020 by 3.1 percentage points and hired 67 female apprentices in mine operations. Operations Services increased female representation by 8.0 percentage points to 33.1 per cent in FY2020, including 82.9 per cent female apprentices and trainees, 266 females and 55 males
We promote a workplace that is free from discrimination based on personal attributes unrelated to job performance, such as race, age, ethnicity, nationality, gender identity, sexual orientation, intersex status, physical or mental disability, mental health condition, relationship status, religion, political opinion, industry/union affiliations, pregnancy, breastfeeding or family responsibilities. This is subject to BHP’s requirement to comply with local laws in the jurisdictions in which we operate. |
(9) | Based on a ‘point in time’ snapshot of employees as at 30 June |
We also improved our representation of women in leadership by 1.7 percentage points compared to FY2019, with 22.4 per cent female leaders.
To accelerate female representation, in FY2020 we:
improved employment branding that targets diverse audiences about why they should join BHP
progressed market mapping to proactively target people or groups of people not actively looking to work for BHP or our industry
broadened our channels across social, digital and traditional media
enhanced our workforce development and retention through coaching and support materials for leaders
• | took further steps to uncover and remove barriers for women with the launch of the Women@BHP group on BHP’s social networking service and set clear expectations of leaders about how to respond to OurCode of Conduct breaches relating to sexual harassment |
Indigenous employment
60We aim to provide employment opportunities in the communities in which we operate that contribute to sustainable social and economic benefits for Indigenous peoples. In Minerals Australia, Indigenous employment within our employee and contractor(10) workforce increased from 5 per cent to 6.5 per cent (1,726 employees and 475 contractors), exceeding our target of 5.75 per cent by the end of FY2020. There has been a 140 per cent (50 to 120) increase in Indigenous employees in supervisor, superintendent and manager roles since FY2017 through external hiring and internal leadership development and career progression. In North America, we have focused on working with our contracting partners to support the employment of First Nations and Métis peoples, who now comprise 22 per cent of our workforce at the Jansen Potash Project, and our overall workforce including employees comprising 15 per cent Indigenous people. In Chile, representation of Indigenous workers at our operations rose to 6.6 per cent in FY2020 (from 5.9 per cent in FY2019).
(10) | Based on a ‘point in time’ snapshot of employees and labour hire contractors as at 30 June 2020. |
Case study: Developing Indigenous leaders in Minerals Australia
A successful Indigenous Development Program (IDP), run since FY2015, has helped Minerals Australia progress its goal of developing Indigenous employees for leadership roles.
The program has created career pathways for Aboriginal and Torres Strait Islander employees to move into new roles, including leadership roles, across BHP.
It has proven to be a success; 49 per cent of employees who have completed the program have moved into new roles, and 20 per cent have been promoted into leadership roles.
Research underpinning the program showed that Indigenous employees would benefit from mentoring, more exposure to senior leaders and better access to training.
The program targeted Indigenous employees in entry-level roles. In addition to addressing the opportunities raised through the research, the program helped participants develop or enhance skills in communication, emotional intelligence, project management and business acumen.
Program alumni said they had grown in confidence following the program, with leaders also reporting positive changes in the participants. This has resulted in a strong pipeline of potential participants to take part in future program intakes.
Reflecting on her participation in the program, Dee Clarke, Planner Work Management, said: ‘The IDP has been one of the most personally rewarding courses I have ever done. It helped me with confidence, resilience and motivation. The program taught us that whatever opportunities came our way, to no longer say ‘no’ or think that we are not good enough. We were exposed to managers, other supervisors and senior leadership and this enabled us to network and further develop skills so that we could create our own opportunities after the course.’
Working towards leadership parity
Following the IDP’s success, in FY2019 BHP created the Indigenous Leadership Program (ILP) to help achieve the leadership parity aspiration of 3 per cent Indigenous representation at manager-level and above Australia by 2028.
The ILP supports Indigenous leaders to develop their careers and move into higher levels of leadership. The program aims to build capability, provide tools to manage the complexities that come with leadership, learn different leadership models and further develop skills in understanding and using emotional intelligence.
FY2020 course alumni Aaron Keevers, Contract Maintenance Supervisor, said: ‘The BHP ILP was a very rewarding course for me and the tools and learnings I took away have been invaluable and will help me to go to the next step in my development and career. From our very first day, we were told to be ‘comfortable with the uncomfortable’ – four words that helped change my mind-set.’
Indigenous leaders by role type in Minerals Australia
Role Type | FY2017 | FY2018 | FY2019 | FY2020 | Increase FY2017 to FY2020 | |||||||||||||||
Manager | 1 | 2 | 2 | 4 | 300 | % | ||||||||||||||
Superintendent | 3 | 6 | 15 | 17 | 467 | % | ||||||||||||||
Supervisor | 46 | 57 | 68 | 99 | 115 | % | ||||||||||||||
Total | 50 | 65 | 85 | 120 | 140 | % |
LGBT+ inclusion
We want to provide a safe, inclusive and supportive workplace for everyone at BHP. Jasper is BHP’s employee inclusion group for our lesbian, gay, bisexual, transgender and others (LGBT+) community and its allies. Inspired by the mineral rock jasper, which is known for its unique multi-coloured patterns, the group was formally endorsed by BHP’s Global Inclusion and Diversity Council in 2017 and is sponsored by BHP Executive team member, Laura Tyler. Jasper’sIts aim is to drive a safe, inclusive and supportive work environment for everyone by providing advice on ways to reduce bias and ensure LGBT+ people are respected and valued irrespective of their sexual orientation, gender identity or intersex variability.status.
Since its formationIn FY2020, Jasper continued to focus on awareness and education, internal networking and building a network of allies.
In Australia, over the past two years Jasper and non-profit organisation, Pride in 2017, Jasper has grownDiversity, have visited our coal and iron ore mines in Western Australia, Queensland and New South Wales and Olympic Dam in South Australia to over 900 members. We rolledroll out LGBT+ inclusion awareness and education sessions across all Minerals Australia operationssessions.
In Asia, Jasper hosted the Jasper Enrichment Sessions, which covered topics such as sexuality, coming out, HIV/AIDS and COVID-19. We continue to co-chair the InterEnergy Forum in FY2019, with plansSingapore and are an active member of the Philippine Financial and Inter-Industry Pride forum in Manila.
In the United States, Jasper held monthly lunches where LGBT+ educational highlights were shared in a safe environment for discussion and support. We continued to extend to our other operationsreceive positive feedback on the LGBT+ reverse mentoring pilot program in Houston.
Our employees participated in pride events in Adelaide, Brisbane, Houston, Manila, Perth and officesSaskatoon in FY2020. We also continuebegan to celebrate daysroll out ‘all-gender’ bathrooms, starting in our corporate offices in Melbourne and Adelaide. We continued to participate in the Australian Workplace Equality Index, the national benchmark on LGBTQ+ workplace inclusion and surveyed employees to assess the impact of significance, including IDAHOBIT (International Day Against Homophobia, Biphobia, Interphobia and Transphobia) and Wear It Purple Day (awareness day for youngour LGBT+ people).inclusion initiatives on organisational culture.
Flexible working
Flexible work supports the diversity and wellness of our workforce. Some 41 per cent ofWe further implemented our flexible work principles during the COVID-19 crisis by encouraging and supporting flexible work in different ways, such as new rosters, shifts for people worked flexibly in FY2019office buildings and we continue to educateworking from home offices (for people from our workforce about flexible workingfunctions and also our operations if they were at BHP. We also continue to challengerisk). COVID-19 has rapidly challenged the mindset that flexible working is only available for office-based employees, with a number of operations implementing flexible rosters and job share arrangements that assist employees both commuting long distances and living locally. For example, the Crib Relief Program at BHP Mitsubishi Alliance (BMA) changed the existing approach to truck crib relief by reducing the shift length for relief drivers to better align with school hours. This helped unlock a new and more diverse talent pool that also increased the workforce’s local community representation. It also helped improve workforce culture and morale as employees shared skills and knowledge with those new to the industry.on work flexibility.
Working with suppliers
We continue to work with our suppliers on ensuringsupply partners to ensure their products and services are suitable for a diverseour workforce, as well as encouraging diversity in their own work teams. For example, we are workingworked with Caterpillarour major materials supplier, Blackwoods, to investigate improvingredesign personal protective equipment (PPE) and other workwear to offer more size choices. In formerly male dominated industries, such as resources, the ergonomic design of their vehicles. At Olympic DamPPE and other industrial workwear has historically centred on male requirements. This created a culture of ‘making do’, resulting in Australia, following a request by an employee of Muslim faith living at camp, we collaborated with our catering supplier to ensure the availability of halal food. This helped ensurewomen in these industries wearing uniforms that appropriate food was available for all living at camp, as well as helping create adid not fit, were uncomfortable and impacted their sense of one team amongbelonging in the workforce. In FY2019, where practicable, we also introduced inclusionworkplace. More than 70 changes and diversity incentives into our supply contracts.improvements have been made to the Blackwoods clothing range, from the size of socks and female boots, to the size and weight of helmets, garments, and head lamps.
Employee relations
The culture of care and trustful relationships is a fundamental principle of our employee relations strategy. The threefour key focus areas for employee relations at BHP has continued to be:
ensureensuring BHP complies with legal obligations and regional labour regulations;regulations
negotiate,negotiating, where there are requirements to collectively bargain;bargain
closeclosing out agreements with our workforce in South America and Australia, with no lost time due to industrial action.action, to the extent possible
On 17 August 2018, Minera Escondida Limitada (Escondida) successfully completed negotiations
endeavouring to create solid relations with Union N°1our workforce, based on a culture of trust and signed a new collective agreement, effective for 36 months from 1 August 2018.cooperation
Our people policies
We have a comprehensive set of frameworks that support our culture and drive our focus on safety and productivity.
Our Charter is central tothe foundation of everything we do. It describes our purpose, our values, how we measure our success, who we are, what we do and what we stand for.
Our Code of Conduct demonstrates how to practically apply the commitments and values set out inOur Charter and reflects many of the standards and procedures we apply throughout BHP. We have a business conduct advisory service as well as internal dispute and grievance handling processes to report and address any potential breaches ofOurCode of Conduct.
Through all of these documents, we make it clear that discrimination on any basis is not acceptable. In instances where employees require support for a disability, we work with them to identify roles that meet their skills, experience and capability, and offer retraining where required.
TheOur Requirements standards outline the mandatory minimum mandatory standards we expect of those who work for or on behalf of BHP. Some of those standards relate to people activities, such as recruitment and talent retention.
Ourall-employee share purchase plan, Shareplus, is available to all permanent full-time and part-time employees and those on fixed-term contracts, except where local regulations limit operation of the scheme. In these instances, alternative arrangements are in place.
Through all of these documents, we make it clear that unlawful discrimination on any basis is not acceptable. In instances where employees require support for a disability, we work with them to identify any roles that meet their skill, experience and capability and offer retraining where required.
The information in this section illustrates how these policies have been implemented and the steps that we take to measure their effectiveness.
61
Case study: Inclusion and diversity in Minerals Americasour supply chain
Diversity in new projects
A goalPartnering with our suppliers to support our commitment to inclusion and diversity is one of the Spence Growth Option (SGO) Project wasfour commitments that underpins our aspirational goal to developreach gender balance by CY2025. Over the past three years, this commitment has presented a diverse workforce for the concentrator plant. The aim washuge opportunity to achieve a gender-balanced workforce and increase local employability by focusing on hiring people from local communities, of people without experience and workers with disabilities.
A series of information and recruitment activities occurred in regional towns of Iquique, Calama, Antofagasta, Copiapo and La Serena and the communities of Sierra Gorda and Baquedano, reaching nearly 1,200 people. Differentiated training also occurred for people with and without experience in mining, engineering and procurement,challenge ourselves, as well as more than 10,000 of our supply partners across 60 countries.
With an annual spend of more than US$15.5 billion in FY2020, we continue to work in partnership with construction companies engaged byour supply partners to promote the SGO. This helped improve knowledge rangingvalues and standards of behaviour we’ve committed to in areas from equipment assemblyOur Charter and Our Code of Conduct, and to commissioning.follow the Our Requirements for Supply standards.
All recruitment goals were exceeded, including creating a workforce with a numberWe establish and foster supplier relationships based on mutual commercial value built on foundations of employees with disabilities; 61 per cent females; 22long-lasting partnerships. Through these partnerships, we make decisions that positively influence those around us, such as:
providing support and incentives to encourage our contracting partners to increase the diversity of potential applicants for roles across BHP locations, who make up approximately 60 per cent of employees hired fromour workforce
encouraging our supply partners to support greater diversity through ergonomic design and product development. For example, working with manufacturers to make excavators and trucks more accessible and safer to use by a wide range of people, as well as easier to maintain
working closely with supply partners to make sure the clothes we wear at our operations, the food we eat and the camps we live in are more inclusive
introducing an online tool to our Australian supply partners to allow BHP to collect and track local communities; and 60 per cent from the Antofagasta region.
Gender balanced programs at Escondida
Escondida faced the challenge of embeddingIndigenous procurement and diversity metrics. The data feeds into internal and external reporting and tracks against contract incentives and tender evaluation criteria. The metrics help recognise and reward supply partners who have embedded BHP’s values and are making a positive inclusion and diversity within an operationimpact
More information on inclusion and diversity in our supply chain is available at bhp.com.
Case study: BHP Operating System
The BHP Operating System (BOS) and the Maintenance and Engineering Centre of Excellence (MECoE) are two key priorities driving exceptional performance and operational excellence through the business.
The BOS is a way of working that traditionally hadputs 100 per cent safety for our people, 100 per cent value for our customers achieved with zero per cent waste at the centre of everything we do. It is a high percentagebusiness-wide philosophy that guides leadership behaviours and practices, empowers our teams, builds capability and makes problem solving and improvement part of maleswhat we do every day. Three principles underpin the BOS: serve our customers, pursue operating perfection and low employee turnover. Similarempower our people.
The MECoE was established in 2016 to achieve industry leading performance and outright excellence in maintenance at BHP by delivering safe, sustainable improvement in our equipment availability, reliability and cost. To achieve this the MECoE focuses on five core elements: establishing the BHP maintenance way, achieving excellence in planning and scheduling, establishing total equipment strategies, instilling maintenance as a profession and making life easier for our people.
The advanced analytical techniques of the MECoE identify what we need to work on to improve performance. By integrating them with the BOS, we accelerate our cycle of continuous improvement. Put simply, the MECoE provides us with the ‘what’, the BOS provides us with the ‘how’, and a feedback loop is created.
During FY2020, the BOS and MECoE have invested in a series of value analytics projects to unlock capacity and improve performance at BHP. Two prominent examples of their combined benefit to the SGO project,business have been at the car dumper at our Port Hedland operations in Western Australia Iron Ore (WAIO), and the uplift at the concentrator at our Escondida adoptedmine.
Improving car dumper dump time at WAIO
Adopting the BOS and leveraging the MECoE support has enabled a balanced hiring strategy, which consistently achieved gender balancemonth-on-month through FY2019.sharper focus on sustainable performance and enabled the teams across the WAIO supply chain to deliver record production in FY2020. The recruitment strategy for apprenticescollective effort and graduates also achieved greaterexpertise across the WAIO Port operational and functional teams has unlocked capability and reduced the car dumper dump time by more than 507 per cent, female representation,delivering an improvement value of 2.1 million tonnes per annum (Mtpa).
To achieve this result, BOS principles and practices were established as part of daily interactions with all of our frontline teams, which enabled effective problem solving, innovative thinking and safe delivery of key metrics. This combined with support from the MECoE through the design of total equipment strategies, planning and scheduling services, root cause analysis and data analytics capabilities continues to improve performance.
Escondida concentrator improvement
The combined work of our operations, the BOS and MECoE has supported the delivery of historic throughput for Escondida concentrators, averaging 371 kilotonnes per day throughout for the first time equating to 135 Mtpa.
By bringing together domain knowledge, machine learning and dynamic simulation modelling, variable drivers were able to be prioritised in order of value so that defect elimination, strategy optimisation and standardised work practices were applied in areas that would impact performance, resulting in some 50 women joining Escondida via this program since 2016.
There was a 4.1 per cent increase in total female representation and a 5.9 per cent increase in female representation in regional leadership executive roles in FY2019. Escondida’s total female representation at the end of FY2019 was 15.5 per cent, up from 7.4 per cent in FY2016. Female turnover decreased from 6.6 per cent in FY2016 down to 2.1 per cent at the end of FY2019.
Adopting the BHP Operating System enabled operational roles to be redefined and standardised.
Victoria Moreno is an example of the positive effect of this dedicated focus on diversity. After many years working in various camp service roles, Victoria was inspired to pursue an operator role and in FY2019 commenced working as a truck operator in the North Pit at Escondida.significant outcomes.
The Mine Apprenticeship Program also selected 45 female maintainerscombination of activity from a class of 81, enhancing local employment, increasing the gender diversityBOS and MECoE at WAIO and Escondida demonstrate the significant value that can be unlocked when they are united, which we are looking to replicate in other parts of our workforce and creating new opportunities for women that historically have had fewer opportunities than males to develop careers in the mobile maintenance field.business.
Reflecting on her participation in the program, participant Raquel Gavia commented: ‘I am a woman from an Indigenous community, specifically from the Toconao community. This has been a very good opportunity in my life, one I did not imagine I could have, which I have tried to take advantage of, as I do not have experience and they gave me the possibility to develop. I will always be grateful. Women also have the right to work, and this opportunity allows us to achieve this dream.’
62
1.9.21.6.2 Employees and contractors
The data in this section (consistent with previous years) are averages. We take the number of employees and contractors (where applicable) at the last day of each calendar month for a10-month period to calculate an average for the year. This does not necessarily reflect the number of employees and contractors as at the end of FY2019. All the data in this section includes Continuing and Discontinued operations for theeach financial years being reported.
The diagram below shows the average number of employees and contractors over the last three financial years, and a breakdown of our average number of employees by geographic region over the last three financial years.year.
The table below shows the gender composition of our employees, senior leaders and the Boardboard over the last three financial years.
2019 | 2018 | 2017 | ||||||||||
Female employees(1) | 6,874 | 5,907 | 4,868 | |||||||||
Male employees(1) | 22,052 | 21,254 | 21,278 | |||||||||
Female senior managers(2)(3) | 70 | 70 | 65 | |||||||||
Male senior managers(2)(3) | 227 | 235 | 211 | |||||||||
Female Board members(2) | 4 | 3 | 3 | |||||||||
Male Board members(2) | 7 | 7 | 7 |
2,020 | 2,019 | 2,018 | ||||||||||
Female employees (1) | 8,072 | 6,874 | 5,907 | |||||||||
Male employees (1) | 23,517 | 22,052 | 21,254 | |||||||||
Female senior leaders (2)(3) | 67 | 70 | 70 | |||||||||
Male senior leaders (2)(3) | 185 | 227 | 235 | |||||||||
Female board members (2) | 3 | 4 | 3 | |||||||||
Male board members (2) | 9 | 7 | 7 |
(1) | Based on the average of the number of employees at the last day of each calendar month for a10-month period from July 2019 to April 2020 and in accordance with our reporting requirement under the UK Companies Act 2006, which is then used to calculate a weighted average for the year to 30 June based on BHP ownership. Data includes Continuing and Discontinued operations (Onshore US assets) for the financial years being reported. These numbers differ from the ‘point in time’ snapshot |
(2) | Based on actual numbers as at 30 June |
(3) | For the purposes of the UK Companies Act 2006, we are required to show information for ‘senior managers’, which are defined to include both senior leaders and any persons who are directors of any subsidiary company, even if they are not senior leaders. In |
63Technology is a key lever for BHP to improve frontline safety, increase productivity, reduce cost, build capability and accelerate value creation. This is being achieved by leveraging technologies such as cloud computing and storage, and smart analytics to enhance decision-making and advance mining technologies to automate equipment.
In FY2020, we refocused our Technology function to an asset-centric model, while streamlining our processes and our portfolio of work to significantly increase the speed of delivering digital solutions to our operations and functions. Plans have been delivered that aim to realise a 30 per cent saving (against the FY2020 budget baseline) by end of FY2021. This refocus also established our first digital centre, elevated our use of data and fast-tracked our infrastructure debottlenecking with concurrent evolution towards cloud.
Digital centres partner our technology teams with our operations to help rapidly solve asset-specific challenges. These hubs leverage external partnerships, data, analytics and cloud-based infrastructure to develop targeted solutions. They represent a shift from the traditional model of having digital projects delivered by multiple parts of our business. Our first two digital centres were launched in Coal (Brisbane) and Enterprise (global), and we plan to launch digital centres in Chile, North America and Western Australia by the end of CY2020.
An example of the value unlocked through our digital centre in Brisbane is a decision automation solution for our operations at Caval Ridge using machine learning. This solution informs operators of the optimal set points in the wash plant and is enabling coal processing plants to reduce product ash variability and improve overall product yield. This solution is being scaled to other Coal sites.
Digital solutions are also improving safety and reducing the risk for frontline staff. Our Innovation Centre developed a pedestrian avoidance technology that leverages ultra-wide front-of-view cameras and deep learning models to reduce the likelihood of forklift associated injuries. This avoidance technology can be fitted to any mobile heavy equipment. Another safety solution was the Dash maintainer tool, an in-house hardware and software platform that enables maintenance technicians to undertake machine diagnostics out of harm’s way, eliminating more than 50 per cent of live work exposure hours on excavator maintenance.
To ensure our sites are ready to leverage robotics, autonomous equipment and advanced analytics solutions, we are accelerating the modernisation of our sites’ infrastructure foundations. These progressive upgrades commenced in FY2020 with Jimblebar and Newman in Western Australia and Goonyella Riverside and Daunia in Queensland, and include modular data centres, in-ground fibre, and networks and hosting infrastructure.
Our ability to develop capability and attract technical talent is critical to ensuring BHP’s workforce is future ready. Key talent pipeline programs include our neurodiversity program (nurturing career pathways that cater for a variety of neurological conditions, including Autism Spectrum Disorder) and our sponsorship of SheCodes Plus (female-focused pathways into coding and software development). We have partnered with TAFE and Central Queensland University to design and deliver qualifications in automation, and supported the Resources Technology Showcase in Western Australia.
Case study: Automation
Use of advanced mine automation technologies is part of BHP’s strategy to improve safety, build capability and drive greater productivity.
In 2017, we completed the rollout of our first fully autonomous haul truck fleet at WAIO’s Jimblebar Mine. The implementation of autonomous haulage resulted in reducing the risk exposure of our people to driving-related hazards, improved productivity and provided an opportunity for our workforce to gain new skills. The site is now one of the safest operations in our portfolio, with significant events involving trucks at Jimblebar having dropped by more than 90 per cent since the introduction of autonomous haulage. Jimblebar is our benchmark site for haulage costs with a 20 per cent reduction since implementation (compared to other WAIO sites), and is an example of leveraging technology and data to drive performance and safety.
Following this success, in November 2019 BHP Mitsubishi Alliance (BMA) announced Goonyella Riverside Mine would be the first site to implement autonomous haulage in Queensland. The transition to an autonomous fleet of up to 86 trucks over the next two years is underway and will involve more than 40,000 hours of training delivered to the Goonyella team to develop the competencies required for autonomous operations. BMA’s Daunia Mine (also in Central Queensland) will transition 34 trucks over 14 months with 30,000 hours of training. In February, Newman East (Eastern Ridge) was announced as the next iron ore site to deploy this technology.
While the introduction of this technology removes the need for an operator in the haul truck, new roles are being created in the operations as a result. Roles such as field officers, service technicians and mine controllers are an essential part of an autonomous operation and we are working with our people to provide opportunities to transition into these new roles. Our people and the communities in which we operate are central to this change.
For more information on developing our people, refer to section 1.6.1
1.7.1 Sustainability is one of the core values set out inguided by our purpose
Our Charter. That means putting health and safety first, being environmentally responsible and supporting our communities. The wellbeing of our people, the community and the environment is considered in everything we do.
1.10.1 Our approachcommitment to sustainability
For more than 130 years, BHP has sought to operate a safe, sustainable and productive business that makes a fair contribution to society. As custodians of natural resources, we have a responsibility to shape the future in a way that creates prosperity for shareholders, our communities and society.
In 2011, BHP expressed its purpose as the creation of long-term shareholder value. That statement of purpose was laid out inOur Charter. Since then, we have evolved as the external business landscape has changed. While value creation is central to what we do, this purpose did not fully reflect the story behind why we exist. We believed starts with our purpose must encompass all of our stakeholders and more accurately capture our long-term approach.
Following a year of feedback and testing with more than 1,000 employees, BHP’s Board approved our new purpose as:– to bring people and resources together to build a better world. Our purpose reflects why we exist and underpins everything we do.
Our new purpose reflects a spirit, approachproducts support global economic development and ambition that already exists at BHPmany aspects of modern life, helping maintain and raise living standards for people around the world. They have been doing this for more than 100 years and will guidecontinue to do so into the future. We realise the production and use of our products has other impacts and we are committed to understanding these impacts and minimising and mitigating where they may have adverse effects.
Delivering our purpose requires us to make decisions based not only on financial value, but social value, value that cannot be measured in simple monetary terms. Without it, the economic contributions we deliver will not be sustainable. Our commitment to social value will enable our ability to attract and retain the best talent, attract the best commercial partners and achieve the widest access to resources, markets and capital.
The importance of social value to delivering sustainable financial returns is especially relevant in the production of resources. Our business is characterised by large-scale investments in long-term assets and supply chains that often operate for decades.
We choose to do more than meet the terms of our contracts, permits and licences. The currency of social value is not compliance, but trust. We are committed to making a positive contribution to the environment and society and seek to build deep and authentic relationships with our local, regional and global stakeholders. Our aim is to ensure that our business benefits our stakeholders – financially, environmentally and socially.
Social value is a BHP priority and is considered at every level of our decision-making. It is embedded into our whole-of-business five-year planning process – through which we deliver on our strategy – and the assessment of our businesses and people through the scorecard used to reward employees, from the front line to the CEO.
Our management of sustainability lies at the core of our efforts to generate social value. That includes:
putting the health and safety of our people first
being environmentally responsible
respecting human rights
supporting the communities in which we operate
When our efforts to create social value are successful, they are a source of sustained competitive advantage. Ultimately, our management of sustainability enables our commercial performance and underpins it.
That is why this year for the first time we have integrated reporting on our sustainability commitments and our performance against them into this Annual Report. This reflects our belief that sustainability performance is an integral driver of long-term shareholder and social value and is something our stakeholders value.
We recognise the delivery of sustainable outcomes is never complete and the challenges aren’t static; it will always require our focus. Our approach, however, will be informed by our purpose, our commitment to social value creation, and the knowledge that the commodities we produce enable global growth and improve the lives of people around the world.
We welcome your feedback.
Our material sustainability issues
We use international frameworks to track our performance, such as the Global Reporting Initiative (GRI) Standards and the International Council on Mining and Metals (ICMM) Mining Principles.
We conduct an annual materiality assessment to identify key sustainability issues for BHP. The issues identified in FY2020 are in the table below.
More information about our materiality assessment is available at bhp.com.
How we report
We focus on the most material issues, which we disclose in this Annual Report.
More information on sustainability and the full suite of our FY2020 sustainability content, including topic-specific detail and case studies, is available at bhp.com/sustainability.
For mapping against frameworks and standards, including the GRI Standards, ICMM Mining Principles, Task Force on Climate-related Financial Disclosures (TCFD), United Nations Global Compact (UNGC) Ten Principles and the United Nations Sustainable Development Goals (UNSDGs), refer to our mapping navigator at bhp.com/sustainability.
For key sustainability performance data, refer to section 6.6 and our online databook. We have obtained external limited assurance over our disclosures in sections 1.6.1 Our people, 1.6.2 Employees and contractors, 1.7 Sustainability and 6.6 Sustainability – performance data.
Our sustainability approach | • Board competency, succession and accountability • Product stewardship and value chain sustainability • Governance and management of our non-operated joint ventures | Section 2 Section 1.7.7 Section 1.9.3 | ||
Health and safety | • Elimination of fatalities • Safety, health and wellbeing of our people and the community | Section 1.7.3 Section 1.7.4 | ||
Ethics and business conduct | • Anti-corruption and bribery • Transparency and disclosure | Section 1.7.5 | ||
Environment | • Biodiversity and land management • Environmental impacts of our operations • Managing air emissions • Water management and access | Section 1.7.6 | ||
Climate change | • Portfolio resilience • Physical impacts of climate change • Minimising greenhouse gas emissions (GHG) from our operations and from the use of our products • Global response to climate change | Section 1.7.8 and Climate Change Report 2020 | ||
Society | • Community relationships • Respecting human rights • Indigenous peoples • Economic support for communities and social investment | Section 1.7.9 | ||
Tailings dams | • Dams and tailings management • Response to Samarco | Section 1.7.10 Section 1.8 | ||
People | • Inclusion and diversity • Training and development of our people • Technology | Section 1.6.1 Section 1.6.1 Section 1.6.3 | ||
Economic contribution | • Tax and royalty payments | Economic Contribution Report 2020 |
We must consider the wellbeing of our people, the communities in which we operate and the environment in everything we do. Creating long-term shareholderOur approach to sustainability and social value remains a strategic imperative. Withoutreflects this. We look to integrate social value into our decision-making and actions by considering the needs of our many stakeholders and finding new and innovative solutions that focus, BHP would not exist, becausecreate mutual benefit.
Our approach to sustainability is defined by Our Charter and realised through Our Requirements standards. These standards describe our shareholders entrust usmandatory minimum performance requirements and provide the foundation to develop and implement management systems at our operated assets.
We set clear targets to improve our sustainability performance. We embed sustainability performance measures throughout the Group through our public five-year sustainability targets. Achieving these targets and working towards our goals aligns with their fundsour commitments to the objectives of the Paris Agreement and expect competitive returns.
To fulfil our purpose, we have evolved our thinkingthe UNSDGs. For more information about our partnershipsFY2020 performance against our targets, refer to section 1.4.8.
We voluntarily commit to several sustainability frameworks, standards and initiatives and transparently disclose data according to their requirements. The sustainability disclosures within this Strategic Report align with the communities where we operateICMM Sustainable Development Framework and are prepared in accordance with the GRI Standards comprehensive-level reporting. As BHP is a UNGC signatory, this serves as our contribution to societyUNGC Communication on Progress on implementation of the UNGC Ten Principles and the environment more broadly. For many years, BHP has maintained relationships and achieved social, environmental and economic outcomes that were necessary to operate, otherwise referred to as social licence. However, we believe this is no longer enough to maintain BHP’s long-term success. Our focus has shifted to identifying opportunities that contribute to social value, while continuing to meet our legal, regulatory and ethical requirements.support for its broader development objectives.
The long-term success of our business depends on the long-term health of society and a sustainable natural environment; our approach must be about the long-term value we can create together with our stakeholders. If we do not do this well, our ability to earn and maintain the trust of our stakeholders, attract the right employees and secure access to capital, resources and markets will be hampered. Importantly, social value is not new to BHP – there are already many examples of BHP’s contribution to social value: from global water stewardship and Indigenous advocacy to our Local Buying Program.Keeping ourselves accountable
Sustainability governance
BHP’s Board oversees our sustainability approach with theto sustainability. The Board’s Sustainability Committee overseeinghas oversight of health, safety, environmentenvironmental and community (HSEC) matters and assistingassists the Board with governance and monitoring. Members of the Sustainability Committee are Non-executive Directors determined by the Board to have appropriate skills in HSEC matters.
The members of the Sustainability Committee in FY2020 were Malcolm Broomhead, Ian Cockerill, Gary Goldberg (from 1 February 2020) and John Mogford. The Committee met five times during FY2020, three times face to face and twice virtually.
The Sustainability Committee also oversees the adequacy of the systems to identify and manage HSEC-related risks, legal and regulatory compliance and overall HSEC and other human rights performance. The Board’s Risk and Audit Committee assists with oversight of the Group’s risk management systems. In FY2020, three of the five Sustainability Committee meetings included a joint session with the RAC. For more information, refer to section 2.10.
The Sustainability Committee recommends to the Board the approval of disclosures regarding sustainability matters in conjunction with the Annual Report. The Committee also guides the Remuneration Committee in setting HSEC-related scorecard targets and evaluating performance against those targets. The Sustainability Committee also meets with the Forum on Corporate Responsibility, as described in the Section 172 Statement in section 1.4.3.
For more information about the Sustainability Committee and its work, refer to section 2.11.
Our stakeholders
BHP is committed to building strong relationships with our stakeholders to achieve long-term sustainable social, environmental and economic outcomes. We actively participate in government consultations and voluntary initiatives, and engage with industry associations to support positive change and sustainable practices. Locally, our operated assets develop mutually beneficial relationships with communities and plan, implement and document stakeholder engagement activities.
A detailed description of our stakeholders, their interests and how we engage with them is available at bhp.com/our-approach/sustainability/. For information on how the Board engages with key stakeholder groups, refer to section 1.4.3.
Regulatory requirements
We are committed to complying with the laws and regulations of the jurisdictions in which we operate and aim to exceed legal and regulatory requirements where they are less stringent than our own internal standards.
We set clear sustainability accountabilities. Everyone involved in our operated assets and our functions is guided in the execution of these accountabilities by Our Charter and supported by Our Code of Conduct and the Our Requirements standards.
Although these standards are for internal use, we have made the HSEC-related elements of several of the Our Requirements standards and related documents publicly available at bhp.com. We updated and released the Our Requirements for Environment and Climate Change standard in FY2020.
We comply with the Non-financial Reporting Directive requirements from sections 414CA and 414CB of the UK Companies Act 2006. The table below sets out where relevant information is located in this Annual Report.
Reporting requirement | Reference in this Annual Report | Policies and standards available online | ||
Environmental matters | 1.7.6 Environment | Our Requirements for Environment and Climate Change standard Water Stewardship Position Statement Climate Change Position Statement | ||
Employees | 1.6.1 Our people 1.6.2 Employees and contractors 1.7.3 Safety 1.7.4 Health | Our Code of Conduct Our Requirements for Safety standard Our Requirements for Health standard | ||
Social matters and human rights | 1.7.9 Community | Our Code of Conduct Our Requirementsfor Community, Environment and Climate Change, Security and Emergency Management standards, and Our Requirements for Supply standard (Minimum requirements for suppliers) Human Rights Policy Statement Indigenous Peoples Policy Statement Indigenous Peoples Strategy | ||
Anti-corruption and anti-bribery matters | 1.7.5 Ethics and business conduct | Our Code of Conduct Our Requirements for Supply standard (Minimum requirements for suppliers) | ||
Principal risks relating to the matters mentioned above | 1.5.4 Risk management | Our mandatory minimum performance requirements for risk management | ||
Non-financial key performance indicators | 1.4.8 Our performance: Non-financial KPIs 6.6 Sustainability – performance data |
Our highest priority is the safety of our workforce and the communities in which we operate.
In FY2020, there were no fatalities at our operated assets, and we have continued the disciplined implementation of our safety standards. We have continued to improve and refine our Field Leadership Program, incident investigations, and controls to manage fatal risks.
We continue to strengthen our safety leadership and culture by educating our people about chronic unease, which is being mindful of the possibility of what could go wrong and creating a culture where it is safe to speak up and report hazards and incidents. One of the objectives of our global Field Leadership Program is to strengthen the reporting culture. We monitor reporting culture across all our operations and coach and support our leaders to improve the quality of our field leadership activities with our employees and contractors.
To support the BHP target of zero work-related fatalities, we have been working towards global risk standardisation of critical controls and performance standards for three safety risks: person(s) falling from heights; lifting and cranage; and confined space incidents.
Our safety performance
Total recordable injury frequency (per million hours worked)
Year ended 30 June | 2020 | 2019 | 2018 | |||||||||
Total recordable injury frequency (1) | 4.2 | 4.7 | 4.4 |
(1) | FY2017 to FY2018 data includes Continuing operations and Discontinued operations (Onshore US assets). FY2019 data includes Discontinued operations (Onshore US assets) to 28 February 2019 and Continuing operations. |
Our total recordable injury frequency (TRIF) performance decreased by 11 per cent from FY2019.
High potential injury events(1)
Year ended 30 June | 2020 | 2019 | 2018 | |||||||||
High potential injury events (2) | 42 | 50 | 54 |
(1) | High potential injury basis of calculation revised in FY2020 from event count to injury count as part of a safety reporting methodology improvement. |
(2) | FY2017 to FY2018 data includes Continuing operations and Discontinued operations (Onshore US assets). FY2019 data includes Discontinued operations (Onshore US assets) to 28 February 2019 and Continuing operations. |
High potential injuries decreased by 16 per cent from FY2019 and the frequency rate decreased by 23 per cent. We see the highest number of events that have fatality potential in vehicle, mobile equipment, dropped and falling object events. High potential injury trends remain a primary focus to assess progress against our most important safety objective: to eliminate fatalities.
Contractor safety
In FY2020, we implemented additional safety requirements for engaging, contracting and transacting with our contractors. These contractor safety requirements have been rolled out across BHP’s operated assets. In addition, the integrated Contractor Management Program was established to:
take a human-centric, inclusive approach to establish partnerships with external service providers, driving safer work through integrated processes and technologies
develop long-term mutually beneficial relationships with our external partners
support an inclusive, respectful and caring workforce culture, with improved safety, health and wellbeing outcomes
Event management system
During FY2019, we introduced our improved and more intuitive event management system. The system records health, safety, environmental and community events, and is designed to capture, analyse and track those events in real time. The system allows us to capture incident investigations and share information across the organisation so that we can learn from those incidents. The system drives data quality, through consistent inputs and outputs, producing meaningful and effective reports. In FY2020, we enhanced our event management system to allow events to be recorded in more detail, to enable deeper analysis and continuous improvement.
For more information on safety visit bhp.com/sustainability.
We recognise that activities at our operated assets can impact the health of our people. We set clear requirements with mandatory minimum controls (the Our Requirements for Health standard) to manage and protect the health and wellbeing of our employees and contractors.
Occupational illness
In FY2020, the reported incidence of occupational illness(11) for employees was 4.3 per million hours worked, a decrease of 1.6 per cent compared with FY2019. The hours worked increased by 9 per cent reducing the overall occupational illness rate.
Excluded from this reporting are cases of COVID-19 among our employees that may have arisen from workplace transmission. This is due to the inherent difficulty in concluding, with reasonable certainty, that a person was infected as a consequence of work-related activities or exposure, in a setting of high levels of community transmission and evolving understanding of the epidemiological criteria for infection. For internal risk management purposes, we have sought to identify where risks of workplace transmission may have been a factor. Review of this information, along with a suite of leading indicators, has supported the continual evaluation of the effectiveness of our COVID-19 controls and informed improvement opportunities. We are progressing work on classification and verification of potential work-relatedness for COVID-19 cases in further support of enhancing our risk management processes and enabling external reporting. For key statistics and more information on our COVID-19 response, refer to section 1.4.6.
The data for FY2016 to FY2018 includes Continuing and Discontinued operations (Onshore US assets). FY2019 data includes Discontinued operations (Onshore US assets) to 31 October 2018 and Continuing operations.
The reported incidence of contractor occupational illness was 1.43 per million hours worked, a decrease of 11 per cent compared with FY2019. We do not have full oversight of the incidence of contractor noise-induced hearing loss (NIHL) cases in many parts of BHP due to regulatory regimes and limited access to data. Also excluded from this reporting are cases of COVID-19 among contractors engaged by BHP, due to the inherent difficulty in concluding, with reasonable certainty, that a person was infected as a consequence of work-related activities or exposure, as described above.
The majority of our reported occupational illnesses are musculoskeletal illness, which are conditions impacting the musculoskeletal system and connective tissues attributable to repetitive work-related stress or strain or exposure over time. Musculoskeletal illness does not include disorders caused by slips, trips, falls or similar incidents. We are trialling the APHIRM (A Participative Hazard Identification and Risk Management) toolkit developed by La Trobe University at a number of our Minerals Australia operated assets. Planned additional trials in FY2020 were delayed due to COVID-19. APHIRM applies a concept referred to as ‘systems thinking’ where work is considered as a whole, to provide effective identification, assessment and management of risks. Through our Standardised Work Program, we seek to empower individuals to design their work in a way that focuses on potentially damaging energies (for example electrical, gravitational, high pressure) to identify health and other risks and implement controls.
The main changes in the incidence of occupational illness in FY2020 compared to FY2019 were a decrease in the rate of employee cases of NIHL reported by our operated assets in South America, which were offset by an increase in the rate of musculoskeletal illness in Minerals Australia. As noted above the hours worked increased by 9 per cent, reducing the overall illness rate.
In March 2020, health surveillance activities, such as audiometric testing, had to be suspended in some operated assets in Australia and South America due to the requirements of managing COVID-19. This influenced the reduced number of NIHL cases reported by the operated assets in South America.
(11) | An illness that occurs as a consequence of work-related activities or exposure. |
Occupational exposures
For more than a decade BHP has set occupational exposure limits (OELs) for our most material exposures based upon the latest scientific evidence, which for a number of agents resulted in stricter limits than the regulatory requirements, and for others, such as diesel exhaust, a significantly lower limit than regulations require. Where exposures potentially exceed regulatory limits or the stricter limits of BHP, respiratory protective equipment is worn.
In addition, for our most material exposures to diesel particulate matter (DPM), silica and coal mine dust, we have committed to a five-year target to achieve a 50 per cent reduction in the number of workers potentially exposed(12) as compared to our baseline exposure profile (as at 30 June 2017(13)(14)) by FY2022. In FY2016, we committed to applying an OEL of 0.03 mg/m3 for DPM and in FY2017, we committed to applying OELs of 1.5 mg/m3 for respirable coal mine dust by 1 July 2020 and 0.05 mg/m3 for silica by 1 July 2021. Exposure data in this Report is based on these limits and in all cases discounts the effect of personal protective equipment.
In FY2020, there was a reduction in potential exposure to silica in excess our OEL of 8 per cent compared to FY2019 reported by our Minerals Americas operated assets. An initial qualitative assessment of some work groups indicated potential exposure in excess of our OEL; however, an extensive quantitative assessment determined exposure to be less than estimated and less than our OEL. At our Minerals Australia coal operated assets, implemented exposure reduction projects have reduced potential exposure to silica in FY2020 by 30 per cent compared to FY2019. Overall, in FY2020 we achieved a reduction of 13 per cent compared to FY2019 in the number of workers potentially exposed to silica in excess of our OEL.
In FY2020, exposure to respirable coal mine dust remained below our OEL in all operated assets. Work to control exposure to diesel exhaust particulate at Olympic Dam and Nickel West resulted in potential exposure being reduced by 55 per cent compared to FY2019 and by 88 per cent compared to the adjusted FY2017 baseline.
Overall, our material exposures have reduced by 60 per cent compared to the adjusted FY2017 baseline, which exceeds our FY2022 target.
Coal mine dust lung disease
As at 30 June 2020, two cases of coal mine dust lung disease (CMDLD)(15) were recorded among our current employees at our coal operated assets. In addition, one current employee who had previously been recorded as a case of CMDLD had a workers’ compensation claim accepted. There were five former BHP employees who had a workers’ compensation claim accepted for CMDLD in FY2020.
Mental health
We prioritised focus on the mental health of our people in 2015 and are making good progress with the implementation of our Group-wide Mental Health Framework.
In the second half of FY2020, activity focused on support for our workforce during the COVID-19 pandemic. Our Resilience Program was reinforced with a program refresher and, in response to the COVID-19 pandemic, we progressed virtual delivery by developing podcasts and videos to supplement the peer-led program. COVID-19 specific examples were developed for discussion during delivery of the program. We have provided additional support through employee assistance programs for our workforce and their families and have increased access to counselling to assist in addressing the impacts of the pandemic. As part of our Risk Framework, we have set a key risk indicator (KRI) for mental health using annual Engagement and Perception Survey (EPS) outcomes. Our annual EPS was not held during FY2020; instead we have been running a weekly COVID-19 wellbeing survey with more than 55,000 responses being received. We also conduct annual mental health maturity curve assessments in our operated assets, which include pillars such as culture, capacity, prevention and recovery to assess year-on-year progress against those pillars and provide focus for future action.
For more information on health visit bhp.com/sustainability.
(12) | For exposures exceeding our FY2017 occupational exposure limits discounting the use of personal protective equipment, where required. |
(13) | The baseline exposure profile is derived through a combination of quantitative exposure measurements and qualitative assessments undertaken by specialist occupational hygienists consistent with best practice as defined by the American Industrial Hygiene Association. |
(14) | The baseline has been adjusted to exclude Discontinued operations (Onshore US assets) |
(15) | CMDLD is the name given to the lung diseases related to exposure to coal mine dust and includes coal workers’ pneumoconiosis, silicosis, mixed dust pneumoconiosis and chronic obstructive pulmonary disease. |
1.7.5 Ethics and business conduct
Our conduct
Every day, BHP works to deliver the resources that are the building blocks of an ever-changing world. While what we achieve is important, so is how we achieve it.
We know consistent ethical behaviour cultivates a culture of inclusion, care and trust, which ultimately results in improved performance by BHP. It also strengthens our relationships with the communities where we work and helps protect the social value we deliver.
How we work is guided by the core values in Our Charter. They are: Sustainability, Integrity, Respect, Performance, Simplicity and Accountability. Our Code of Conduct(Our Code) brings our core values to life, reminds us why they are important and helps us understand what it means to work with those values as our guiding principle.
Acting in accordance with Our Code is a requirement for BHP employees. Our Code is accessible to all our people and external stakeholders at bhp.com. We deliver annual training to help our workforce understand Our Code and the standards of behaviour that are acceptable at BHP.
Transparency and accountability
BHP’s business modelexistence is premised on trust and public acceptance because our mines and petroleum assets have long lifespans and cannot be moved across jurisdictions in response to a breakdown in trust, changing societal expectations or regulatory requirements. That is why we must contribute to long-term social value.value is so important to us. Our tax and royalty payments help governments fund healthcare, education, infrastructure and other essential services. Conversely, any instances of corruption and poor governance of natural resources can divert funding from provision of those basic provisionsessential services and diminish the contribution of the resources sector.
We continue to support and contribute to global transparency and anti-corruption initiatives, including through our contribution.work in partnership with Transparency International, our representation on the Board of the Extractive Industries Transparency Initiative, our financial support for and Steering Committee membership of the Bribery Prevention Network (in Australia) and through our funding to support the work of the BHP Foundation, including its Natural Resources Governance Global Signature Program.
Economic transparency is not our only focus. We also have a strong record of supporting robust reporting on climate change issues. We were one of the first companies to report in accordance with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures in our Annual Report.
We set clear targets to challenge ourselves to improve our sustainability performance, transparency and accountability. To realise these targets, we embed sustainability performance measures throughout the Group. They include Group-wide key performance indicators to balanced scorecards for individual employees. Achieving these goals is fundamental to the success of our business and our commitments to the objectives of the Paris Agreement and the United Nations Sustainable Development Goals.
Our conduct
While what we achieve is important – so is how we achieve it. We know consistent ethical behaviour cultivates loyalty and trust with each other and our stakeholders.
How we work is guided by the core values inOur Charter. They are: Sustainability, Integrity, Respect, Performance, Simplicity and Accountability. We are relentless in our pursuit of these values and they guide our decision-making.
64
Our Code of Conduct sets the standard for our commitment to working with integrity and respect. OurCode of Conduct guides us in our daily work and demonstrates how to practically apply the commitments and values set out inOur Charter. Acting in accordance withOur Code of Conduct is a condition of employment for everyone who works for and on behalf of BHP, and is accessible to all our people and external stakeholders on our website.
We deliver annual mandatory training for employees and contractors to help them clearly understandOur Code of Conduct and the standards of behaviour that are acceptable at BHP. We do not tolerate any form of unlawful discrimination, bullying or harassment.
Anti-corruption
Our commitment to anti-corruption compliance is embodied inOur Charter andOur Code of Conduct. We also have a specific anti-corruption procedure that sets out mandatory requirements to identify and manage the risk of anti-corruption laws being breached. Our anti-corruption processes require review or approval by our Ethics and Compliance function of activities that potentially involve higher risks of exposure to corruption. We prohibit authorising, offering, giving or promising anything of value directly or indirectly to a government official to influence official action, or to anyone to encourage them to perform their work disloyally or otherwise improperly. We also prohibit facilitation payments, which are payments to government officials for routine government actions. We require our people to take care that third parties acting on our behalf do not violate anti-corruption laws. A breach of these requirements can result in disciplinary action, including dismissal or termination of contractual relationships.
Our Ethics and Compliance function has a mandate to design and govern BHP’s compliance frameworks for key compliance risks, including anti-bribery and corruption. The function is independent of our assets and asset groups,regions, and comprises teams that areco-located in our main global locations and a specialised Compliance Legal team.reports to the Chief External Affairs Officer. The Chief Compliance Officer reportspreviously provided a report twice a year to the RiskRAC on ethics and Audit Committee and separatelycompliance issues. Since March 2020, the Chief Compliance Officer reports quarterly to the RAC and meets separately with the Committee Chairman,Chair.
The Ethics and Compliance function also twice a year.participates in all risk assessments in respect of operated assets or functions considered to carry material anti-corruption compliance risks. To date, 33 risk assessments have been completed with input from Ethics and Compliance.
Our anti-corruption compliance program is designed to meet the requirements of the US Foreign Corrupt Practices Act, the UK Bribery Act, the Australian Criminal Code and applicable laws of all places where we do business. These laws are consistent with the standards of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. We regularly review our anti-corruption compliance program to make any changes required by regulatory developments.developments and otherwise to reflect best practice aligned with regulatory requirements. Among other activities in FY2020, we conducted a review of the design and risk weighting of key anti-corruption compliance processes, with a particular focus on third party risk management and related controls embedded in our contracting processes. Regular calibration of our compliance processes enables us to ensure optimal resource allocation to areas presenting the highest corruption risks to our business.
In addition to anti-corruption training as part of annual training onOur Code of Conduct, additional risk-based anti-corruption training was completed by 9,3743,244 employees and contractors in FY2019FY2020, as well as numerous employees of business partners and community partners.
1.10.2 Safety
Our highest priority is the safety of our operations, including our employees and contractors and the communities in which we operate.
Tragically, one of our colleagues died at work on 31 December 2018. Allan Houston suffered fatal injuries while he was operating a dozer at BHP Mitsubishi Alliance’s Saraji Mine. After a thorough investigation, we could not determine the direct cause In recognition of the incident. However, we identified several areas for improvement and are actively sharing the learnings from the investigation throughout our operations, with contract partners and the broader resources industry.
On 5 November 2018, Western Australia Iron Ore (WAIO) experienced a train rollaway event. There were no injuries as our team at Train Control intentionally derailed the train at a time when it was considered the safest to do so. Post the incident and before rail operations recommenced, we implemented additional procedures to help prevent a similar event fromre-occurring.
In FY2019, we established new requirements for engaging and managing contractors. The contractor safety requirements were rolled out across BHP and assurance programs have been established to monitor and verify the implementation of the requirements.
To strengthen our safety leadership and culture, we are educating our people about chronic unease, that is, being mindful of the possibility of what could go wrong, and creating a culture where it is safe to speak up and report hazards and incidents. One of the objectives of our global Field Leadership Program is to strengthen the reporting culture. We monitor reporting culture across all our operations and we coach and support our leaders to improve the quality of our field leadership activities with our employees and contractors.
We also introduced a new event management system for recording health, safety, environmental and community events. The system is designed to capture, analyse and track events in real time and will be implemented in FY2020.
65
Our safety performance
Total recordable injury frequency (per million hours worked)
Year ended 30 June | 2019 | 2018 | 2017 | |||||||||
Total recordable injury frequency (1) | 4.7 | 4.4 | 4.2 |
|
Total recordable injury frequency (TRIF) performance increased by 7 per cent to 4.7 per million hours worked, compared to 4.4 per million hours worked in FY2018. This was due to an increase in injuries in both Minerals Australia and Minerals Americas.
High potential injury events
Year ended 30 June | 2019 | 2018 | 2017 | |||||||||
High potential injury events (2) | 50 | 54 | 61 |
|
High potential injuries declined by 7 per cent from FY2018 due to reductions at WAIO, Olympic Dam and Potash. High potential injury trends remain a primary focus to assess progress against our most important safety objective: to eliminate fatalities.
1.10.3 Health
Our goal is to protect the health and wellbeing ofimpacts on our workforce from potential occupational injury, now and into the future. We set minimum mandatory controls to identify and manage health risks for our employees and contractors. Our workplace health risks include occupational exposures to noise, silica, diesel particulate matter (DPM), coal mine dust, musculoskeletal stressors and mental health impacts. The effectiveness of our health controls is regularly reviewed and subjected to periodic audit to verify the controls are implemented and operating as designed.
Our periodic medical surveillance programs help us support early identification of potential occupational exposure illness and enable us to assist our people through illness management and recovery. In FY2019, we established key performance indicators that require a 90 per cent adherence to schedule for health surveillance activities, achieving 79 to 100 per cent across the Group. We also reviewed our medical testing programs through internal and external benchmarking with industry peers and standards. Improvement opportunities identified from the review are expected to be evaluated and the implementation of endorsed recommendations are expected to commence in FY2020, along with plans to further increase adherence to planned surveillance activities.
Occupational illness
The incidence of employee occupational illness in FY2019 was 4.38 per million hours worked, an increase of 5 per cent compared with FY2018. The reported incidence of contractor occupational illness was 1.62 per million hours worked, a decrease of 16 per cent compared with FY2018. The overall decrease in contractor illnesses was predominantly driven by the 23 per cent increase in hours worked in FY2019. We do not have full oversight of the incidence of contractor noise-induced hearing loss (NIHL) cases in many parts of BHP due to regulatory regimes and limited access to data. We continue to work with our contractors and regulatory agencies to resolve these issues.
The majority of our reported occupational illnesses are musculoskeletal illness. The improved identification and more effective control of causes of musculoskeletal stressors will be supported by the progressive implementation of the Standardised Work program. Standardised Work is a key foundational tool of the BHP Operating System that seeks to empower individuals to design work in a way that supports efficiency and ergonomics, where health and other risks are identified, and enables additional controls to be identified and incorporated.
Our continued focus on implementing our requirements for fit testing for hearing protection devices has supported a 6.7 per cent reduction in the NIHL illness rate.
66
We have seen an increase in the number of other illnesses reported, which include short-term,low-impactCOVID-19 conditions such as blisters, skin conditions (dermatitis/eczema), bites and stings, due to a small increase in cases across most Minerals Australia operations. The dermatitis/eczema cases arose from different work locations across Olympic Dam and could be attributed to the continued education campaign on the prevention and management of skin conditions, which encourages early reporting of signs and symptoms.
To a lesser extent, the increase was also driven by increases in mental stress conditions and heat stress cases at Olympic Dam in South Australia. These conditions are currently captured as ‘other illnesses’ but, with our strong focus on mental health, we plan to establish a stand-alone category for ‘mental stress conditions’ in FY2020. Across the Group, mental stress conditions continue to be reported in low numbers and the number of cases were not significantly different to FY2018. Through the BHP Mental Health Framework, we continue to seek to foster a work environment where our people feel comfortable to raise their experience of mental stress and to access appropriate support when needed.
Occupational exposures
We set internally specified occupational exposure limits (OELs) to manage exposures to DPM, silica, coal mine dust and other potentially harmful agents. For our most material exposures, our process to set those OELs involves periodic monitoring and evaluation of scientific literature, benchmarking against peers as well as engagement with regulators,OEL-setting agencies and expert independent advice. Our approach to monitor and review our internal OELs is designed to ensure they continue to be aligned with, or are more conservative than applicable regulated health limits.
For our most material exposures to DPM, silica and coal mine dust, we have committed to a five-year target to achieve a 50 per cent reduction in the number of workers potentially exposed (8) as compared to our baseline exposure profile (as at 30 June 2017 (9)) by 30 June 2022.
In Petroleum, the divestment of our Onshore US assets during FY2019 changed the exposure profile for the region as workplace exposures to silica and DPM are no longer present. Our baseline exposure profile for the Group for the five-year target was therefore adjusted to remove the baseline exposures attributed to the Onshore US assets.
In FY2019, planned exposure reduction projects were implemented across the Group, involving a collaborative effort from operational and maintenance teams, supported by the Health, Safety and Environment, and Supply and Technology teams. Many assets exceeded planned exposure reductions resulting in an overall reduction of 49 per cent (10) compared to the revised FY2017 baseline. Planned growth projects across the Group may result in an increase in some potential exposures over the short term; however, commitments to achieve planned exposure reductions over the five-year target period remain unchanged.
Coal mine dust lung diseases
As at 30 June 2019, 10 cases of coal mine dust lung diseases (CMDLD (11)) among our current employees were reported to the Queensland Department of Natural Resources, Mines and Energy. We continue to provide counselling, medical support and redeployment options (where relevant) for all 10 colleagues (seven of the 10 have been able to continue working).
During FY2019, one former BHP employee had a worker’s compensation claim accepted for CMDLD resulting in a total, as at 30 June 2019, of six former workers diagnosed with CMDLD since January 2016 (noting that no Australian coal mine worker had been diagnosed with CMDLD in the preceding two decades). In addition to these confirmed cases, as at 30 June 2019, there were six intimated worker’s compensation claims for CMDLD from current and former employees that had not yet been determined.Our Charter values guide our response and the support we offer, and we are actively reviewing how we can improve timeframes and processes for determination of claims.
To further protect the health of our people we remain committed to:
|
|
|
|
|
67
a reduction in potential exposure to silica in coal mine workers that exceeds a level 50 per cent lower than the current regulatory level by no later than 1 July 2021.
Mental health
BHP has prioritised the mental health of our people since 2015. We have subsequently made good progress with the implementation of our Group-wide Mental Health Framework.
In FY2019, we continued to embed programs and resources that support a healthy, thriving workforce. This included thepeer-led Resilience Program, in which more than 3,392 people had participated, as atdisruptions, the end of FY2019. We launched the inaugural BHP Mental Health Weektime period for relevant employees to raise awareness of BHP’s mental health resourcescomplete the additional risk-based anti-corruption training was extended from 30 June 2020 to 31 August 2020.
More information on ethics and tools, and encourage conversations about mental health. We conducted a global mental health risk assessment with internal and external stakeholders to help identify critical parts of our Mental Health Framework that promote a supportive work environment.business conduct is available at bhp.com/sustainability.
FY2019 was the third year the wellbeing category was included in our annual Engagement and Perception Survey. There was no change overall at the Group level, but we continue to evaluate the differences observed at the asset and function levels from the previous years’ results to inform local plans.
1.10.4 Protecting the environmentMinimising environmental impacts
There is growing pressure on and competition for environmental resources, such as land, biodiversity, water and air. Climateair; and climate change amplifies aspects of the sensitivities of our natural systems. Our operations and growth strategy depend on obtaining and maintaining the right to access these environmental resources. Our environmental performance and management of environmental impacts on the communities in which we operate are critical to creating social value. We seek to avoid, minimise and mitigate adverse environmental impacts at every stage in the life cycle of our operated assets in line with our defined risk appetite. However, we recognise our activities have an environmental footprint, and therefore, we also commit to making voluntary contributions to support environmental resilience across the regions in which we operate.
We have comprehensive governance, risk management, policies and processes that set the basis for how we manage risk and realise opportunities to achieve our environmental objectives. Our approach to environmental management is set out in theOur Requirements for Environment and Climate Change standard andOur Requirements our mandatory minimum performance requirements for Risk Management standards.risk management. These standards have been designed taking account of the ISO management system requirements, such as ISO14001 for Environmental Management. In FY2019, we began updating the
The Our Requirements for Environment and Climate Change standard outlines our Group-wide mandatory minimum requirements to deliver on our commitments and manage risk. It requires us to take an integrated, risk-based approach to the management of any actual or reasonably foreseeable operational impacts (which includes direct, indirect and cumulative impacts) on land, biodiversity, water and air. We establish and implement monitoring and review practices designed to ensure continued management of environment-related risk within our risk appetite through business planning and project evaluation cycles. In addition to the environment specific components, the standard also includes specific climate change-related requirements for our operated assets.
To support continual improvement in environmental performance, each of our operated assets is required to have an Environmental Management System (EMS) that aligns with ISO14001 standards and set target environmental outcomes for land, biodiversity, air and water resources that are consistent with the assessed risks and potential impacts. Target environmental outcomes are required to be approved by the relevant Asset President or equivalent and included in the life of asset plan. Verification of the EMS is either via ISO14001 certification, for those sites that currently hold ISO14001 certification, or internal assurance processes.
We released an updated version of the Our Requirements for Environment and Climate Change standard in FY2020, to reflect recent changes in BHP’s Risk Framework and otherOur Requirements standards, new Technical Standardsour Water Stewardship Position Statement, current public environment targets for climate change, water and biodiversity, and new technical standards for water. Our operated assets are required to have an implementation plan in place for new requirements contained in the updated version of the standard.
More information on our evolving climate changeenvironment approach, the Our Requirements for Environment and water stewardship programs.Climate Change standard and environmental management and governance processes is available at bhp.com/sustainability.
Responsibly managingLand and biodiversity
The nature of our activities means we have a significant responsibility for land and supporting biodiversity management. BHP owns or manages more than 8 million hectares of land and sea; however, less than 2 per cent of it is disturbed (physical or chemical alteration that substantially disrupts the pre-existing habitats and land cover) for our operational activities.
At each of our operated assets, we look to manage threats and realise opportunities to achieve our environmental objectives by applying the mitigation hierarchy (avoid, mitigate, rehabilitate and, where appropriate, apply compensatory measures) to any potential or adverse residual impacts on marine or terrestrial ecosystems.
BHP respects legally designated protected areas and commits to avoiding areas or activities where we consider the environmental risk is outside BHP’s risk appetite. These include:
We do not explore or extract resources within the boundaries of World Heritage-listed properties.
We do not explore or extract resources adjacent to World Heritage-listed properties, unless the proposed activity is compatible with the outstanding universal values for which the World Heritage property is listed.
We do not explore or extract resources within or adjacent to the boundaries of the International Union for Conservation of Nature (IUCN) Protected Areas Categories I to IV, unless a plan is implemented that meets regulatory requirements, takes into account stakeholder expectations and contributes to the values for which the protected area is listed.
We do not operate where there is a risk of direct impacts to ecosystems that could result in the extinction of an IUCN Red List Threatened Species in the wild.
We do not dispose of mined waste rock or tailings into a river or marine environment.
Our operated assets are required to have plans and processes in place that reflect local biodiversity risks and regulatory requirements. In FY2020, we undertook work to develop internal guidance on biodiversity-related elements of the Our Requirements for Environment and Climate Change standard, to support more consistent interpretation and application at an asset level. We have a five-year target to improve marine and terrestrial biodiversity outcomes by developing a framework by FY2022 to evaluate and verify the benefits of our actions, in collaboration with others. This willis intended to allow us to better monitor, avoid, reduce and offset the biodiversity impacts of our activities in a coordinated way.
We started work on development of the framework in FY2018 and completed initial phase pilot testing using data from three operating sites and a social investment project during FY2019. We are progressing this work with Conservation International and with Proteus, a voluntary partnership between the UN Environment World Conservation Monitoring Centre and 12 extractive industry companies. During FY2020, we continued to pilot initial stages of the methodology agreed with partners for framework development at a number of BHP operated assets and projects. We shared findings of our pilots as part of the Proteus-led framework development process and at industry forums. The next stage of framework development will be to take the individual site data and build this into a scorecard to track biodiversity status and trends at an asset and regional level. We intend to use the framework to track achievement of our longer-termlong-term biodiversity goal: ‘inin line with United Nations Sustainable Development GoalsUNSDGs 14 and 15, BHP will, by FY2030, have made a measurable contribution to the conservation, restoration and sustainable use of marine and terrestrial ecosystems in all regions where we operate’.operate.
More information on our approach to biodiversity and land management and current performance is available at bhp.com/sustainability.
Air emissions
The most significant air emissions across our portfolio of operated assets relate to emissions of greenhouse gases (GHG) and dust. For information relating to GHG emissions, refer to section 1.7.8 and bhp.com/climate.
We recognise the importance of managing and controlling the dust that mining operations can generate to minimise potential impacts on air quality, health and the environment. The updated version of the Our Requirements for Environment and Climate Change standard includes the requirement for operated assets that have identified the potential for a significant air-related impact on community wellbeing, to develop an air quality plan. The plan must consider in its development a stakeholder engagement strategy, dispersion modelling, targets, objectives and reporting.
In FY2020, we progressed a number of actions to improve dust management at our operated assets. At Western Australia Iron Ore (WAIO), we announced plans to invest up to a further A$300 million over five years to improve air quality and reduce dust emissions across our Pilbara operations. Operational dust control projects are proposed across the entire Pilbara activities chain, including actions such as moisture management systems, ore conditioning and monitoring infrastructure, and improvements to existing controls at mines and port facilities.
At our Mt Arthur Coal mine in the Hunter Valley, Australia, we recently implemented a comprehensive dust control system, which utilises an extensive network of real-time dust and meteorological monitors linked to our business information platform and informs the Integrated Remote Operations Centre (IROC) that controls all of the mining activities. The innovative approach and demonstrable effect on air quality was recognised by award of the 2019 Industry Excellence Award from the Clean Air Society of Australia and New Zealand.
In Chile, the Spence mine has developed an air quality strategy focusing on air quality monitoring, dust management controls, protecting our workforce and engaging stakeholders.
For more information on current initiatives to improve our dust management performance, see our ‘How strategic dust management is improving our air emissions’ case study at bhp.com.
Rehabilitation and closure
WeIn recognition of the potentially significant financial, environmental, climate-related and social risks associated with future closure of our operations, we are committed to implementing a planned approach tointegrating closure and rehabilitation into our planning, decision-making and activities through the entire life cycle of our operations. We do this by following ourassets.
BHP’s closure management process, detailed in theOur Requirements for Closure standard, taking into consideration our values, obligations, commitment to safety, cost risks/benefits and expectations of external stakeholders, and developing a closure management plan that delivers enduring environmental and social benefits.
The focusobjective is to aim to achieve an optimaldeliver optimised closure outcomeoutcomes for our operated assets in consultation with local communities and other stakeholders. Optimised closure outcomes are those that minimise adverse impacts and maximise post-closure value. We implement our objective by following the closure management process, which is designed to produce an optimised closure management plan that is integrated into our operational plans. In addition to compliance with legal requirements, our closure management process takes into consideration our values, commitment to safety, and technical and economic achievability. We develop site-specific closure management plans for our operated assets that are designed to deliver enduring environmental rehabilitation,and social benefits.
The closure outcomesoutcome for a site may include further local economic opportunities, recreational and/one or other community uses.
In November 2018, 1,176 hectaresa combination of rehabilitated subsidence with a post-miningalternative land use (including for enduring environmental and social benefits), ongoing management, relinquishment or responsible divestment. As part of mixed croppingthe closure management process, BHP operated assets are required to prepare and grazing at Gregory Crinum Mine (now soldmaintain a closure management plan that balances business and external stakeholder interests and meets the following closure objectives:
comply with our obligations, legal requirements and BHP mandatory minimum performance requirements for closure
achieve safe and stable outcomes
effectively manage risks (both threats and opportunities)
• | meet approved target environmental outcomes by following the Our Requirements for Environment and Climate Change standard |
progressively reduce obligations, including progressive closure of the area disturbed by our operational footprint
manage and optimise closure costs
Information about BHP’s financial provision related to Sojitz) was certified as complete. At the Norwich Park Mine in Queensland, a further 294 hectares of spoil dump was certified as complete for grazing in February 2019, bringing the total rehabilitated land area certified as complete to 1,470 hectares. In total, in FY2019, rehabilitation and closure strategiesliabilities is available in note 14 ‘Closure and rehabilitation provisions’ in section 5.
We apply BHP’s Risk Framework to our closure management process to appropriately identify and manage closure risks (both threats and opportunities) in our closure management plans. Our closure management plans are also required to include long-term monitoring to verify that any controls implemented are effective and performance standards are achieved and maintained after operations cease.
We regularly review our process to progressively close and rehabilitate areas that are no longer required for assets in Australia delivered just under 20,000 hectaresoperational purposes and update our closure management plans and practices as required with knowledge obtained from on-site experience across our business and leading practice from the global industry.
We report annually on the status of rehabilitated land.land disturbance and rehabilitation.
More information on our approach to closure is available at bhp.com/sustainability.
68
Contributing to a resilient environment
BHP recognises that we have a broader role to play in contributing to environmental resilience. We achieve this through our Social Investment Framework,social investment strategy and work with strategic partners and communities to invest in voluntary projects that contribute to the management of areas of national or international conservation significance.
Since 2011, weWe have committed more than US$7578 million to biodiversity conservation since 2011, through our alliance with Conservation International and other partners. We look for projects that can provide multiple benefits, improvesuch as contributing to water quality or quantity, nature-based solutions to climate change and local livelihoods or cultural benefits, as well as improvein addition to contributing to biodiversity conservation.
TowardsMore information on initiatives we have contributed to is available at bhp.com/sustainability.
Water
Access to safe, clean water stewardship
Water stewardship is about safeguarding our natural water resources for future generations. This requires collaboration at every level of society, be it communities, government, businessa basic human right, central to livelihoods and civil society, and we are committedessential to working with such stakeholders to ensure that fresh and marine water resources are conserved, become resilient and continue to supportmaintaining healthy communities and ecosystems, maintain cultural and spiritual values and sustain economic growth.
ecosystems. Water is also integral to what we do and is vital to the sustainability of our business. WeBHP cannot operate without it. We interact with water inadopted a number of ways including extracting water for activities such as ore processing, cooling, dust suppression and processing mine tailings; managing it to access ore through dewatering, and at our closed operations; providing drinking water and sanitation facilities, and discharging it back to the receiving environment. In addition, we interact with marine water resources through our offshore Petroleum business as part of the oil recovery process and port facilities and utilise marine water for desalination.
We recognise our responsibility to effectively manage our interactions and minimise impacts on water resources. Our work starts within our operations, where we must strive to build a foundation from which we can credibly collaborate with others toward solutions to shared water challenges. Responsible water interactions will ultimately make our business more resilient in the long term, and positively contribute to an enduring environment and social value.
Our Water Stewardship Strategy was adopted in FY2017 to improve our management of water, increase transparency and contribute to the resolution of shared water challenges. In FY2019, we developed our Water Stewardship Position Statement which is available at bhp.com/environment/water.
Our vision is for a water secure world by CY2030, consistent with the UNSDGs and our previously communicated CY2030 public goal for water. Communities, governments, business and civil society must work together to build a world where terrestrial and marine water resources are conserved and resilient, and continue to support healthy communities and ecosystems, maintain cultural and spiritual values and sustain economic growth.
We interact with water in a number of ways, including: extracting it for ore processing, cooling, dust suppression and processing mine tailings; managing it to access ore through dewatering, as part of the oil recovery process and at our closed operations; providing drinking water and sanitation facilities; ecosystem irrigation; discharging it back to the receiving environment; interacting with marine water resources through our port facilities and offshore Petroleum facilities; and utilising marine water for desalination.
We recognise our responsibility to effectively manage our interactions and minimise impacts on water resources. Effective water stewardship must begin within our operations. From there, we can more credibly collaborate with others toward solutions to shared water challenges. Water challenges that we face may include water scarcity or high variability in water supply due to climatic conditions or collective use or impacts within a catchment. These challenges need to be managed appropriately to minimise impacts to the environment, communities and BHP’s expressionongoing viability. We identify and assess opportunities to reduce stress on high-risk water resources and implement actions where appropriate. For example:
Queensland Coal is located in a region with highly variable rainfall. In any given year, we may need to manage an excess of commitmentwater or an insufficient water supply for operational needs, which may influence our projected production or costs. In FY2020, a number of intense rainfall events in the location of Queensland Coal resulted in capture of water volumes above that needed for operations. This excess water is managed to minimise impacts to the environment and advocacycommunity while maintaining operational continuity, with a number of options available including: storage for future use; transfer to other sites that require water; or discharge in line with legal requirements.
Escondida mine extracted groundwater from the Andean aquifers in Chile, where freshwater resources are scarce. In December 2019, we ceased extraction of groundwater for operational purposes (other than small quantities of groundwater extracted for pit dewatering to allow safe mining) 10 years earlier than originally scheduled.
WAIO operations commonly mine ore that is below the natural water table and must extract water (an activity known as ‘dewatering’) to mine safely. The extracted water is used to meet the mine’s water use requirements, but at most sites the dewatering volumes exceed use requirements. This surplus water is generally fresh to brackish in quality and is a recognised environmental, social and economic resource. In recent years, WAIO has developed large water infrastructure schemes to return most of this surplus water to groundwater systems. In line with increasing surplus water, WAIO has updated its long-term water strategy to optimise operational considerations as well as social value and environmental outcomes.
During FY2020, our internal focus was on strengthening our processes for water stewardship. Implementationrisk management, accountabilities and data. We progressed the implementation of the Position Statement will commenceour Group-wide standards for water management, water data and drinking water, with operated assets assessing compliance with these standards and, where necessary, developing an action plan to achieve full compliance. We progressed actions to further identify and assess water interactions and operational water-related risks, including catchment-level risks. These activities have resulted in FY2020.an improved understanding of our water-related risks.
OurWe made progress on our public target for water. In FY2017, we announced a five-year Group-widewater target and longer-term goal focused on water were revised in 2017. The Group-wide target is to reduceof reducing FY2022 freshwater withdrawal(12)(16) by 15 per cent from FY2017 levels. Itlevels(17) across our operated assets. Reducing the amount of fresh water we use is focused on the use of freshwaterimportant, as itthis is generally the most important water resource for thethat communities in which we operate and the environment.
Our longer-term goalenvironment most rely on. We developed this target based on each operated asset’s circumstances, the potential to reduce freshwater use and the asset’s level of contribution to BHP’s water target. In FY2020, freshwater withdrawal decreased 18 per cent (126,997 megalitres/annum) compared to FY2019 (155,570 megalitres/annum). The FY2020 result also represents a 19 per cent reduction on the adjusted FY2017 baseline, exceeding our 15 per cent reduction target. Progress on the target is primarily due to collaborate to enable integratedongoing reduction over a number of years, and from December 2019 the cessation of groundwater withdrawal for operational supply purposes from the Andean aquifers at Escondida. Other reductions in FY2020 include decreased surface water resource management in all catchments where we operate by FY2030. It is aligned to the UN Sustainable Development Goal 6 that seeks to ‘ensure availability and sustainable managementwithdrawal at Queensland Coal, increased sourcing of desalinated water and sanitation for all’.
Freshwater withdrawal increased 9 per cent in FY2019 compared to FY2018. However, overall werecovery of low-quality water from water storage facilities at our operated assets. We remain on track to attainsustain reductions to meet the 15 per cent reduction target by FY2022, with FY2019 withdrawals 1 per cent below the FY2017 adjusted baseline (13).in FY2022.
Transition to the ICMM Water Reporting Guidelines has continued in FY2019. Improvements in the quality of data, particularly at WAIO and our Queensland Coal assets, resulted in data changes that required restatements to FY2017 data which form part of the FY2017 baseline.Reductions in freshwater continued because of increased throughput of the desalination plant at Escondida and the subsequent reduced reliance on the region’s aquifers. The most material increase in water withdrawal was at WAIO, due to increases in water used for production and dust suppression.
Much of our initial collective action work is directed at supporting local integrated water resource management (IWRM) initiatives. During FY2019, we commenced the development of guidance on how to approach collective action in support of IWRM. Effective disclosure is fundamental to the success of IWRM initiatives and we have continued to collaborate with the CEO Water Mandate to support harmonisation of water accounting standards. We see this as a critical step to enhancing transparency and collaboration across all sectors for improved water governance. In line with our Water Stewardship Position Statement, we anticipate releasing the initial set of context-based, business-level targets by FY2022.
Where ‘withdrawal’ is defined as water withdrawn and intended for use (in accordance with ‘A Practical Guide to Consistent Water Reporting’, ICMM (2017)). |
The FY2017 baseline data has been adjusted to account for: the materiality of the strike affecting water withdrawals at Escondida in FY2017 and improvements to water balance methodologies at WAIO and Queensland Coal |
Our global freshwater withdrawals from FY2017 to FY2020 are shown in the following figure.
69
All water performance data presented in this Report are from operated assets during FY2020. For a year-on-year comparison of data related to operated assets and further analysis of our water data and performance, refer to section 6.6.5.
We have publicly reported our water metrics and progress on water specific targets for more than 15 years, since the establishment of the Minerals Council of Australia’s Water Accounting Framework (WAF) Input-Output Model. In FY2019 we transitioned our water reporting to align with the ICMM ‘A Practical Guide to Consistent Water Reporting’ (ICMM Guidelines), a mining sector framework to allow for comparable water data reporting across the mining and minerals sector. Although the ICMM Guidelines generally align with the WAF and the GRI, alignment to the ICMM Guidelines has resulted in some changes to the way we now report water data. A key change is the terminology we use: we now describe our water inputs as water withdrawals; and water outputs as water consumption and water discharges.
We report on the following water metrics, as further described in section 6.6 and in detail in the ICMM Guidelines and WAF:
water withdrawals (water intended for use by an operated asset) by source, quality and asset
water discharges (water returned to the environment) by destination, operated asset and quality
water consumption (water used by the operated asset) by the type of consumption (e.g. evaporation, entrainment)
water recycled/reused (water that is used more than once at the operated asset) by quantity and efficiency
water diversions (water actively managed by the operated asset but not used for any operational purposes) by quantity
The reported metrics are either measured directly, estimated or simulated. The WAF accuracy statement process is used to determine level of accuracy for each metric. During FY2020, we continued to focus on improving the robustness of water data in line with the ICMM Guidelines. We endeavour to directly measure water withdrawals, water consumption, water discharges, water diversion and water recycled/reused. This allows us to regularly track and monitor data quality and performance. Using the WAF accuracy statement approach as outlined in the ICMM guidance (see section 3.3 of the WAF), we evaluated that 80 per cent of withdrawal volumes and almost 70 per cent of reported discharge volumes are measured for a majority of sources for the majority of the year, therefore this data is considered to be at a high accuracy level. We simulate or estimate elements, such as evaporation and entrainment volumes, at all our operated assets as these are challenging to measure and vary over time due to seasonal climatic changes and product variability, which results from the changing characteristics of ore bodies (for example, moisture content and whether the ores are located below or above the water table). Estimation is used in some instances, such as for runoff at Queensland Coal, for quality categorisation. This focus on improvements in data quality and understanding, particularly at WAIO and Queensland Coal, has resulted in restatement of the FY2017 data that formed part of the FY2017 baseline.
We seek to minimise our withdrawal of high-quality fresh water, which is water with low levels of salinity, metals, pesticides and bacteria and is relatively neutral (ph. 6-8.5) and use lower quality or saline water instead. Seawater continues to be our largest source of water withdrawal, representing over half of total withdrawals, predominantly for desalination at Escondida. Groundwater is our most significant freshwater source, at approximately one-third of total water withdrawals, predominantly at WAIO. Surface water withdrawals, largely influenced by rainfall, are the primary freshwater source at Queensland Coal. Currently, more than 85 per cent of our water withdrawals consist of water classified as low-quality. The definitions for water quality types are provided in section 6.8.2 and a detailed description is available in section 2.4 of the WAF.
As we further strengthen our data quality and our understanding of the influencing factors on water-related risk within the water catchment in which we operate, we will continue to refine our approach to goal and target setting. In our Water Stewardship Position Statement, we committed to realising our CY2030 vision by setting public, context-based, operated asset-level targets that will follow on from our current five-year Group-wide freshwater withdrawal target. During FY2020, we commenced planning for a water resource situational analysis (WRSA) process (defined in section 6.8.2), which aims to establish a collective view on the shared water challenges within the regions or catchments in which we operate. The WRSA process will commence in FY2021 and will inform our post-FY2022 water targets, which will vary across our operated assets depending on the nature of our interactions with water and the shared water challenges within each region.
Beyond our operational activities, we have committed to engaging across communities, government, business and civil society with the aim of catalysing actions to improve water governance, increase recognition of water’s diverse values and advance sustainable solutions. We continue to collaborate with the CEO Water Mandate to support harmonisation of water accounting standards. We see this as a critical step to strengthening transparency and collaboration across all sectors for improved water governance, in line with our Water Stewardship Position Statement.
For detailsmore information on our approach to water stewardship, progress against our water strategy and water performance in FY2019, see our Sustainability Report 2019.FY2020, refer to section 6.6.5 and bhp.com/sustainability.
1.10.5 Engaging with communitiesMore information on environment is available at bhp.com/sustainability.
We believe we are successful when we work in partnership with communities to achieve long-term social, environmental and economic outcomes. To support this, we must consider social value1.7.7 Value chain sustainability
Promoting sustainability in our decision-makingvalue chain
As a leading global resources company, we strive to work with our customers, suppliers and other value chain participants to promote sustainable practices across the full life cycle of our products.
BHP’s value chain sustainability strategy takes a systems approach, designed to assess and work with communitiesothers to improve the sustainability impacts of our upstream supply chains, inbound and outbound logistics, and our products as they move through the value chain from extraction, processing and use. We can broadly categorise Value Chain Sustainability activities across our value chain as follows:
Responsible sourcing: Actions to integrate sustainability considerations into our inbound and outbound supply chains (including shipping)
Process stewardship: Actions to help ensure the sustainability performance of our operated assets meets the responsible sourcing expectations of the market
Product stewardship: Actions to influence the sustainability performance of our downstream value chain where we do not have operational control
Our Value Chain Sustainability strategy seeks to identify and improve performance across a presence. Social value is the sumwide range of our contributionrelevant issues, including people, environment and communities. In determining where to society underpinned by respectful and mutually beneficial partnerships, and working collectively to prioritise social,focus, we consider financial impact as well as environmental and economic outcomes.social materiality. Priority areas (see below) have been identified and are aligned with BHP’s social value priorities.
In FY2019,
Responsible sourcing
We encourage the suppliers we completed anin-depth reviewwork with to put sustainability at the heart of how we understand and support social value. The reviewtheir operations. We are focused on how we can improve our capacitysupport suppliers and service providers to connect to communities, understand their ambitions and work to empower these communities.
Engaging with communities
Our Code of Conduct and theOur Requirements for Communications, Community and External Engagementstandard govern our actionsadopt sustainable business standards in making a positive contribution to communities where we have a presence and minimising adverse impacts where these cannot be avoided.
Our community practitioners apply a range of systems, processes and tools across our operations to help us understand, plan, implement and evaluate our engagement activities. This includes social baseline analysis, social impact and opportunity assessments,health, safety, human rights, impact assessments, stakeholder mappinganti-corruption and community perception surveys. This information informsenvironmental protection that are in line with our own. Contractors working at our operated assets are required to comply with our health, safety and environment (HSE) standards. We also look for opportunities to minimise safety, health, human rights, environmental and climate impacts throughout our value chain.
We take a risk-based approach to community engagement, community developmentidentify potential suppliers for more in-depth assessment of their compliance against our requirements. The approach is based on a combination of questionnaires, due diligence and social investment activities that aim to be culturally sensitive and socially inclusive.third party data.
Supporting local economic growth
BHP proudly supportsIn FY2019, the growth of local businesses in the regions where we operate, through sourcing and promoting locally available products and services. Our assets develop local procurement plans that identify opportunities for local suppliers, including small businesses to deliver capacity building and employment creation initiatives. These initiatives are designed to be sustainable post BHP’s presence.
During FY2019, 14 per centfoundations of our external expenditureEthical Supply Chain and Transparency program were developed and tested through the completion of a pilot program. The full program was with local suppliers. An additional 82 per centlaunched in May 2020 and now forms the primary preventative control to manage the risk of our supply expenditure was located within the regions in which we operate.
Our expenditure with local suppliers in FY2019 was mostly in Trinidad and Tobago (57 per cent), the United States (31 per cent), Chile (14 per cent) and Australia (12 per cent).
Social investment
Through our long-standing commitment to investing not less than 1 per cent of ourpre-tax profit in social and environmental projects and donations, we generate social value through greater engagement with a broad set of stakeholders. Our contribution to sustainability challenges at the local, regional, national and global levels is a key element in managing current and future risk. It also provides an opportunity to build long-term reciprocal relationships with stakeholders.
We seek to develop strategic social investment partnerships by advocating collective action, bringing together key stakeholders to support the self-determination of communities, with a shared approach to solving local challenges and building local opportunities. We generate social value through our contribution to grass roots initiatives, such as community donations, employee volunteering, our Local Buying Program and BHP’s Matched Giving Program.
Our voluntary social investment in FY2019 totalled US$93.5 million(14), consisting of US$55.7 million in direct community development projects and donations, US$8.9 million equity share tonon-operated joint venture programs, a US$16.57 million donation to the BHP Foundation and US$4 million to the Matched Giving and community small grants programs. Administrative costs to facilitate direct social investment activities at our assets totalled US$6.27 million and US$2 million supported the operations of the BHP Foundation.
|
70
In FY2019, we commenced the management of our social investment contracts for community projects and donations through our Global Contract Management System. The new system enables an integratedend-to-end partnership management approach that is auditable, transparent and enhances our ability to communicate and report on our social investment activities.
1.10.6 Respecting human rights
We believe respecting human rights breach within BHP’s supply chain. The program applies to all suppliers of non-traded goods and contributingservices to the positive realisation of rightsBHP. This program is not only critical to the sustainable operation of our business, but also to our responsibility to work with our suppliers and contractors to manage risks that human rights abuses present through our value chain. We are committed to working with our suppliers to enhance their understanding of our Ethical Supply Chain and Transparency processes, which includes taking steps to encourage them to improve management of human rights risks (including modern slavery) among subcontractors and across their own supply chain.
At BHP, we take a collaborative approach with our suppliers to maintain our commitment to sustainable operations. As an example, we participate in the ICMM’s Innovation for Cleaner Safer Vehicles program, which aims to introduce GHG emission-free surface mining vehicles by 2040.
COVID-19
COVID-19 has brought with it a number of human rights challenges throughout the value chain. During the pandemic, the welfare of workforces and communities, in particular vulnerable populations, has been the primary challenge while ensuring business continuity. Seafarers are already particularly vulnerable workers globally, and the COVID-19 pandemic has exacerbated the challenges faced by these workers. During the pandemic, this workforce has faced the closure of borders and reduction in flight availability, resulting in some crew members being unable to join their vessel or to return home for extended periods. In the early stages of the pandemic, BHP and relevant regulatory authorities worked closely to enable humanitarian assistance to be provided to seafarers.
We responded, for example, by supporting the seafarers centre in Port Hedland, Australia, to reopen in conjunction with regulatory authorities and clarified and encouraged shore leave requirements (as put in place by the Australian state governments) to be upheld. In addition, we worked with appropriate authorities to support a process for the timely provision of medical attention to seafarers, including those with suspected COVID-19. We recognise that seafarer welfare continues to be impacted by the pandemic and we are working to identify how BHP can further contribute to support these vulnerable people.
Process stewardship
We support industry association programs and other initiatives that bring together participants in a product’s life cycle to improve sustainability performance. For example, we are members of the ICMM, apply the ICMM Mining Principles and participate in the ICMM Materials Stewardship Facility. In FY2020, we developed and implemented a plan to conform to the updated ICMM Mining Principles, which now include clearly articulated performance expectations and requirements for asset-level validation. We are members of Responsible Steel, participated in the London Metal Exchange’s consultation on responsible sourcing standards and participated in the development of the Copper Mark, a new assurance program for responsible copper production established by the International Copper Association. Our participation in these initiatives is aimed at ensuring the standards and thresholds are meaningful and drive a fundamental change in the industry.
Product stewardship
BHP encourages the responsible design, use, reuse, recycling and disposal of our products throughout our value chain, in line with the ICMM Mining Principles.
Our Sales and Marketing team works with our operated assets to maintain compliance with all product regulatory requirements in relevant markets. This includes assessing the hazards of the products of mining according to UN Globally Harmonised System of Hazard Classification and Labelling or equivalent relevant regulatory systems, and communicating through safety data sheets and labelling as appropriate.
Where possible, BHP also works directly with those involved in the processing and use of our products to improve environmental performance throughout the value chain, and to promote the sustainable use of our products. For example, we work with individual customers to design and test raw material blends that optimise environmental performance. We also collaborate on research with customers, industry bodies and academia to identify sustainable product and process improvements. We seek to improve traceability and transparency of products through piloting blockchain initiatives with industry consortia.
In July 2019, BHP committed to set public goals related to Scope 3 GHG emissions. During FY2020, we investigated BHP’s opportunities to influence GHG emissions reductions through an analysis of our value chain and consultation with suppliers, customers, investors and other stakeholders. As a result, we have set Scope 3 GHG emissions goals for CY2030.
For more information on our approach to value chain sustainability visit bhp.com/sustainability.
Case study: A focus on maritime sector emissions
We are prioritising support for emissions solutions in the maritime sector. Ocean freight is vital to our success as a reliable global supplier and is coming into focus as an area in which, in partnership with the shipping industry, progress can be made to reduce emissions. We are one of the largest dry bulk charterers in the world, procuring freight for approximately 250 million tonnes of iron ore, coal and copper and completing approximately 1,500 voyages each year.
The International Maritime Organisation (IMO) has set goals to reduce the carbon intensity of international shipping by 40 per cent by CY2030 and by 70 per cent by CY2050, as well as reducing the total annual GHG emissions from international shipping by at least 50 per cent by CY2050. We believe we can make an important contribution to bringing about change in the bulk carrier segment.
Our Maritime and Supply Chain Excellence team is taking a proactive role and seeking to drive change in the industry to increase the focus on safety, environmental sustainability, innovation and efficiency. BHP has continued to collaborate with RightShip,(18) the world’s leading maritime risk management organisation to use their GHG ratings system that encourages charterers to use ships designed for greater energy efficiency. In response, we have seen ship owners improve engine performance and reduce drag. In July 2019, we released the world’s first bulk carrier tender for LNG-fuelled transport for up to 10 per cent of BHP’s iron ore. Introducing LNG-fuelled ships into BHP’s maritime supply chain is expected to significantly reduce CO2 and NOx (nitrogen oxide) emissions and eliminate SOx (sulphur oxide) emissions along the busiest bulk transport routes globally.
More information on value chain sustainability is available at bhp.com/sustainability.
This year, we produced the BHP Climate Change Report 2020, aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The Report provides a more detailed discussion of our approach to identifying and managing climate-related risks (both threats and opportunities) and our progress on our public commitments in response to climate change. More information is available at bhp.com/climate.
Warming of the climate is unequivocal, the human influence is clear and physical impacts are unavoidable.
We believe the world must pursue the Paris Agreement goals, with increased levels of national and global ambition, to limit the impacts of climate change. Access to affordable and clean energy and the availability of natural resources for manufacturing are essential to meet sustainable development goals. At BHP, we advocate for actions in line with the Paris Agreement goals while recognising the challenge of achieving these goals is of global scale and historic complexity.
Portfolio analysis
The BHP Climate Change Report 2020 describes our latest portfolio analysis, including four scenarios: Central Energy View and Lower Carbon View which we use as inputs to our planning cases; a non-linear, higher temperature Climate Crisis scenario, and a 1.5°C Paris-aligned scenario.
(18) | RightShip is equally owned by BHP, Rio Tinto and Cargill. More information is available at rightship.com. |
There are inherent limitations with scenario analysis and it is difficult to predict which, if any, of the scenarios might eventuate. Scenarios do not constitute definitive outcomes for us. Scenario analysis relies on assumptions that may or may not be, or prove to be, correct and may or may not eventuate, and scenarios may be impacted by additional factors to the assumptions disclosed.
To stay within a carbon budget that keeps global warming to no more than 1.5°C, the 1.5°C scenario requires steep global annual emissions reductions, sustained for decades. This pathway to 2050 represents a major departure from today’s global trajectory.
Our updated portfolio analysis demonstrates that our business can continue to thrive over the next 30 years, as the global community takes action to decarbonise, even under a Paris-aligned 1.5°C trajectory. This modelling indicated that cumulative demand for copper, nickel and potash over the next 30 years in the 1.5°C scenario could not only exceed the last 30 years, but also our mid-planning case (Central Energy View). The modelling also showed strong cumulative demand for iron ore, metallurgical coal and natural gas and more modest demand for oil in the transition to a low carbon future over the next 30 years.
Opportunities to invest in commodities such as potash, nickel and copper, and our rigorous approach to capital allocation, provide a strong foundation for our business as the world takes the action to decarbonise, even for a 1.5°C world.
Transitioning the global economy over the next 30 years on a trajectory consistent with the Paris Agreement goals would limit potential global climate-related impacts, including physical climate change risks at our assets, and potentially generate opportunities to add significant value to our portfolio. The need to adapt would also grow as the global average temperature rises, suggesting that transitioning to a 1.5°C world could limit the costs associated with adaptation in many regions, compared to higher temperature trajectories. The 1.5°C scenario is an attractive scenario for BHP, our shareholders and the global community.
However, today’s signposts do not indicate that the appropriate measures are in place to drive decarbonisation at the pace nor scale required for the 1.5°C scenario. If we see the necessary changes in our signposts, we will adjust our planning cases accordingly. Given the long lead times for new investments, we will continue to stress test our decision making with updated strategic themes and scenarios to better understand emerging opportunities. We will also continue to advocate for actions in line with the Paris Agreement goals and seek partnerships to leverage our own investments in low emissions and negative emissions technologies and natural climate solutions, because we believe it is the right thing to do. We are committed to respecting internationally recognised human rights as set out in the Universal Declaration on Human Rights and the Voluntary Principles on Security and Human Rights and operating in a manner consistent with the UN Guiding Principles on Business and Human Rights and the 10 UN Global Compact Principles.
Human rights related to workplace health, safety and labour conditions, activities of security providers, land access and use, and water and sanitation are the most relevant to BHP’s business. Of equal importance are the rights of Indigenous peoples and other communities impacted by BHP’s operations.
Our Code of Conduct sets the standards of behaviour and human rights commitmentsdo for our people, as well asshareholders and our contractors, suppliersglobal community.
Operational GHG emissions and others who perform work for BHP. Theenergy consumption
BHP’s commitments inOur Code of Conduct are implemented through mandatory minimum human rightsto reduce operational GHG emissions
Short-term target: By FY2022, maintain emissions at or below FY2017 levels,(1) while we continue to grow our business
Medium-term target: Reduce emissions by at least 30 per cent from FY2020 levels(1) by FY2030
Long-term goal: Net-zero emissions by 2050(2)
Reducing our operational emissions is a key performance requirements in theOur Requirements standards and through our policy statements.
Human rights are also integrated into BHP’s Risk Framework through these standards. Using that Framework, human rights risks were assessed in functional, exploration and project risk assessments in FY2019. This included inputs into a risk assessment for exploration activities in Ecuador and a human rights and Indigenous peoples’ assessment for activities in Mexico.
We consolidated our existing human rights commitments and management approaches in FY2019 into a Group-wide policy statement. This action reflects Principle 16 of the UN Guiding Principles on Business and Human Rights. Our Human Rights Policy Statement (available on bhp.com) sets out the expectations of our people, business partners and other relevant parties to respect human rights.
A new globally consistent approach to human rights impact assessments in FY2019 was also developed in FY2019 to enable a more comprehensive understanding of our human rights exposures across our assets and functions. The new methodology will be mandated under theOur Requirements standards.
We are taking a multi-year, systemic approach to integrating human rights due diligenceindicator for our supply chain process. At the centre of our approach is engagement with our direct suppliers to assess and encourage continuous improvement in their own capacity to manage human rights risks (including modern slavery) in their subcontractors and broader supply chain.
Modern slavery
business. Our 2019 Modern Slavery Act Statement provides a detailed overview of our approach to managing human rights risks, in particular those relating to modern slavery and trafficking in our supply chain. It is prepared under the UK Modern Slavery Act (2015) and available online at bhp.com.
Australian legislation for modern slavery was passed in December 2018 and our first statement under this legislation is expected to be published for FY2020 by 31 December 2020.
1.10.7 Indigenous peoples
For BHP, Indigenous peoples are critical partners and stakeholders in many of our operations. We respect the rights of Indigenous peoples and the special connection they often have with the land, water and natural environment, and we understand that this connection can be spiritual, reaching beyond tangible objects or locations.
BHP’s Indigenous Peoples Policy Statement articulates our approach to engagement and support for Indigenous peoples and our commitment to the International Council of Mining and Metals Indigenous Peoples Position Statement. Our Indigenous Peoples Strategy guides the implementation of our Policy Statement.
In FY2019, each of our regions had an active Indigenous Peoples Plan that operationalised the Indigenous Peoples Strategy across our regions. Each plan is aligned with the Indigenous Peoples Strategy and prioritises the local and regional context and operational footprint and relevant Indigenous stakeholders.
In April 2019, BHP publicly released our FY2019–FY2023 South American Indigenous Peoples Plan in San Pedro de Atacama, Chile, which focuses on opportunities for advocacy and strengthening opportunities for Indigenous employment. The Plan is the first of its kind by a mining company in Chile.
71
BHP also contributes to and engages in programs and public policy to advance the interests of Indigenous peoples. After significant reflection and consultation with critical stakeholders, in January 2019, our CEO Andrew Mackenzie announced BHP’s support for the Uluru Statement from the Heart. As part of this support, we committed to a number of activities in support of the areas of Voice, Treaty and Truth; key themes from the Uluru Statement from the Heart.
72
1.10.8 Climate change
Our climate change strategy focuses on reducing our operational greenhouse gas (GHG) emissions, investing in low emissions technologies, promoting product stewardship, managing climate-related risk and opportunity, and working with others to enhance the global policy and market response.
Climate change is a global challenge that requires collaboration. Resources companies such as BHP, our customers and governments must play their part to meet this challenge.
Responding to climate change remains a priority governance and strategic issue for us. Our Board is actively engaged in the governance of climate change issues, including our strategic approach, supported by the Sustainability Committee. Management has primary responsibility for the design and implementation of our climate change strategy and our performance against our targets (outlined below) is reflected in senior executive and leadership remuneration. From 2021, the link between our targets and management remuneration will be strengthened to reinforce the strategic importance of action to reduce emissions.
Operational emissions
As a major energy consumer, managing energy use, ensuring energy security and reducingWe have set public GHG emissions at our operations are key components of our climate change strategy. We setreduction targets in order to hold ourselves accountable for these goals,since the 1990s and regularly review them as our strategy and circumstances change.
Our five-year GHG emissions reductioncurrent short-term target which took effect from 1 July 2017,for FY2022 is to maintain our total operational emissions in FY2022 at or below FY2017 levels(15)(1) while we continue to grow our business. Our target builds on our success in achieving our previous five-year target.
We have also set the longer-termlong-term goal of achievingnet-zero operational emissions by 2050 and our new medium-term target is to reduce operational GHG emissions inby at least 30 per cent from FY2020 levels(1) by FY2030. Building on our short-term target for FY2022, the latter half of this century, consistent with the Paris Agreement. In order to setFY2030 target sets the trajectory towards achieving that goal, in FY2020 we intend to develop a medium-term target for operational emissions.our long-term goal.
Operational emissions performance
Our combinedBHP has disclosed Scope 1 and Scope 2 emissions (operational emissions) in FY2019 totalled 14.7 million tonnes of carbon dioxide equivalent (CO2-e), 3 per cent below our FY2017 target baseline(16). This decrease is primarily duetotals based on an operational control approach to a change in the electricity emissions factorboundaries for Minerals Americas that resulted from the interconnection of Chile’s northern grid system, which is mainly fossil fuel-based, and southern grid system, whichmany years. In FY2020, BHP has a higher proportion of renewable energy.
We have disclosed operational emissions performance at the asset level for the first time in this year’s Report (seealso disclosed total emissions under a financial control approach and an equity share approach, providing more detail on emissions associated with our investments. Refer to section 6.5 Climate change data).
6.6.4 for our equity share and financial control emissions. BHP’s operational emissions targets continue to be measured against our GHG emissions based on an operational control, market-based methodology.
FY2017 and FY2020 baseline will be adjusted for any material acquisitions and divestments based on GHG emissions at the time of the transaction. Carbon offsets will be used as required. |
|
73
Operational greenhouse gas emissions (million tonnesCO2-e) (1)(2)
Year ended 30 June | 2019 | 2018 | 2017 | |||||||||
Scope 1 GHG emissions (3) | 9.7 | 10.6 | 10.5 | |||||||||
Scope 2 GHG emissions (4) | 5.0 | 5.9 | 5.8 | |||||||||
Total operational GHG emissions | 14.7 | 16.5 | 16.3 |
|
(2) | Carbon offsets will be used as required. |
Operational energy consumption by source (TWh) (1)(2)
Year ended 30 June | ||||||||||||||||
2020 | 2019 | 2018 | 2017 | |||||||||||||
Consumption of fuel | 31.6 | 31.6 | 31.9 | 31.1 | ||||||||||||
- Coal and coke | 0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||
- Natural gas | 5.8 | 6.6 | 8.6 | 9.2 | ||||||||||||
- Distillate/gasoline | 25.0 | 24.1 | 22.6 | 21.0 | ||||||||||||
- Other | 0.6 | 0.7 | 0.6 | 0.6 | ||||||||||||
Consumption of electricity | 10.1 | 9.6 | 9.6 | 7.8 | ||||||||||||
Consumption of electricity from grid | 8.9 | 8.5 | 8.5 | 6.6 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operational energy consumption | 42 | 41 | 42 | 39 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operational energy consumption from renewable sources (TWh) | 0.01 | 0.01 | 0.01 | 0.01 |
Year ended 30 June | ||||||||||||||||
Operational GHG emissions by source (million tonnes CO2-e) (1)(2)(3)(4) | 2020 | 2019 | 2018 | 2017 | ||||||||||||
Scope 1 GHG emissions (5) | 9.5 | 9.7 | 10.6 | 10.5 | ||||||||||||
Scope 2 GHG emissions (6) | 6.3 | 6.1 | 6.4 | 5.8 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operational GHG emissions | 15.8 | 15.8 | 17.0 | 16.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operational GHG emissions (adjusted for Discontinued operations) (7) | 15.8 | 15.3 | 15.3 | 14.6 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operational GHG emissions intensity (tonnes CO2-e per tonne of copper equivalent production) (8) | 2.0 | 2.4 | 2.4 | 2.2 | ||||||||||||
Percentage of Scope 1 GHG emissions covered under an emissions-limiting regulation (9) | 79 | % | 74 | % | 81 | % | 79 | % | ||||||||
Percentage of Scope 1 GHG emissions from methane | 19 | % | 19 | % | 21 | % | 20 | % | ||||||||
Scope 2 GHG emissions (location based) (6) | 5.1 | 5.1 | 6.1 | 6.0 |
Operational energy usage increased by 3 per cent from FY2019, on a Continuing operations basis. The increase is a result of increased production at WAIO, as well as increased energy usage at BHP Mitsubishi Alliance (BMA) and BHP Mitsui Coal (BMC) and Olympic Dam.
In FY2020, operational emissions (Scope 1 and Scope 2) increased by 8 per cent from the adjusted FY2017 baseline and 3 per cent from FY2019, on a Continuing operations basis. The increase is a result of increased production and energy usage at WAIO, as well as increased energy usage at BHP Mitsubishi Alliance (BMA), BHP Mitsui Coal (BMC) and Nickel West. While our annual emissions are currently higher than FY2017 levels, our asset-level emissions forecasts show we are on track to meet our FY2022 target, due primarily to implementation of renewable energy contracts in Chile in FY2022.
FY2018 and FY2019 GHG emissions have been restated due to a move from location-based (grid) emission factors to market-based emission factors (contract specific) at the Escondida and Pampa Norte (which includes Spence and Cerro Colorado) copper operations in Chile. The current electricity supply contracts are with coal and natural gas powered suppliers, and therefore the emissions intensity of the contracted supply is significantly higher than the grid average. The change in emission factors was made to make BHP’s reporting more consistent, as the market-based approach is the primary method of reporting when the relevant information is available.
More information on the calculation methodologies, assumptions and key references used in the preparation of our Scope 1 and Scope 2 emissions data can be found in the BHP Scope 1, 2 and 3 Emissions Calculation Methodology, available at bhp.com/climate. More information on our strategy to further reduce GHG emissions, including our investments in low emissions technology and natural climate solutions, is available in the BHP Climate Change Report 2020 at bhp.com/climate.
(1) | Unless otherwise noted, FY2017 and FY2018 data includes Continuing operations and Discontinued operations (Onshore US assets). Unless otherwise noted, FY2019 data includes Continuing operations and Discontinued operations (Onshore US assets) to 31 October 2018. Data in italics indicates that data has been adjusted since it was previously reported. FY2019 originally reported data that was restated is 5.0 million tonnes CO2-e for Scope 2 GHG emissions, 14.7 million tonnes CO2-e for total operational GHG emissions, and 2.2 tonnes CO2-e per tonne of copper equivalent production for operational GHG emissions intensity. |
(2) | Calculated based on an operational control approach in line with World Resources Institute/World Business Council for Sustainable Development guidance. Consumption of fuel and consumption of electricity refers to annual quantity of energy consumed from the combustion of fuel; and the operation of any facility; and energy consumed resulting from the purchase of electricity, heat, steam or cooling by the company for its own use. Over 99.9 per cent of BHP’s energy consumption and emissions occurs outside the UK offshore area (as defined in the relevant UK reporting regulations). UK energy consumption of 222,368 kWh and emissions of 52 tonnes CO2-e is associated with electricity consumption from our office in London. One TWh equals 1,000,000,000 kWh. |
(3) | BHP currently uses Global Warming Potentials (GWP) from the Intergovernmental Panel on Climate Change (IPCC) Assessment Report 4 (AR4) based on 100-year timeframe. |
(4) | Scope 1 and Scope 2 emissions have been calculated based on an operational control approach (unless otherwise stated) in line with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard. BHP Scope 1, 2 and 3 Emissions Calculation Methodology, available at bhp.com/climate. |
(5) | Scope 1 refers to direct GHG emissions from operated assets. |
Scope 2 refers to indirect GHG emissions from the generation of purchased or acquired electricity, |
Our FY2019 GHG emissions intensity was 2.2 tonnes of CO2-e per tonne of copper equivalent production (FY2018: 2.3 tonnes of CO2-e). Our FY2019 energy intensity was 22 gigajoules per tonne of copper equivalent production (FY2018: 21 gigajoules)(17).
(7) | Excludes Onshore US assets, which were divested in FY2019. |
(8) | Copper equivalent production has been calculated based on FY2020 average realised product prices for FY2020 production, FY2019 average realised product prices for FY2019 production, FY2018 average realised product prices for FY2018 production, and FY2017 average realised product prices for FY2017 production. Production figures used are consistent with energy and emissions reporting boundaries (i.e. BHP operational control) and are taken on 100 per cent basis. |
(9) | Scope 1 emissions from BHP’s facilities covered by the Safeguard Mechanism administered by the Clean Energy Regulator in Australia and the distillate and gasoline emissions from turbine boilers at the cathode plant at Escondida covered by the Green Tax legislation in Chile. |
Investing in low emissions technologies
Defining a pathway tonet-zero GHG emissions for our long-life assets requires planning for the long term and a deep understanding of the development pathway for low emissions technologies (LETs).
Our LET strategy is threefold. First, we work to adapt mature technologies such as light electric vehicles, in order to integrate them safely and effectively into our operations. Second, in the medium term, we create road maps for development and adoption of LETs that support our goal ofnet-zero emissions, which may include trials and demonstrations of technology in our production environments. Finally, we look for early stage LETs that hold high potential for future results. For these emerging technologies, we seek opportunities for collaboration, research and other ways to accelerate their development and adoption.
Our LET strategy has been developed to address BHP’s key sources of operational GHG emissions. Emissions from electricity use make up 43 per cent of our operational emissions(18). This includes the power we generate ourselves as well as the power we buy from grids around the world. Our strategy seeks to accelerate the transition to lower carbon sources of electricity while balancing cost, reliability and emissions reductions.
Emissions from fuel and distillate make up 42 per cent of our operational emissions, much of which is from diesel used in moving material (for example, haul trucks). Our strategy is to accelerate andde-risk technologies and innovations that can transition operations over time to alternate fuels and greater electrification of mining equipment and mining methods.
Fugitive methane emissions from our petroleum and coal assets make up 15 per cent of our operational emissions. Our strategy is to pursue innovation in mitigation technologies for these emissions, which are among the most technically and economically challenging to reduce.
Scope 3 emissions
While reducingWe recognise the importance of taking action to support efforts to reduce emissions across our operational emissions is vital,full value chain, as the emissions from our value chain (Scope 3 emissions)customers’ use of our products are significantly higher than those from our own operations. We work with our customers, suppliers and other value chain participantsoperated assets.
During FY2020, we investigated BHP’s opportunities to seek to influenceenable emissions reductions across the life cyclethrough an analysis of our products.
As we work to develop an integrated product stewardship strategy in FY2020 we intend to look to identify additional opportunities to work with others in our value chain to influence emissions reductions. We also intend toand consultation with suppliers, customers, investors and other stakeholders. As a result, we have set public goals related to Scope 3 emissions.GHG emissions goals for CY2030, supported by an annual action plan and aligned to a long-term vision of decarbonisation of the steel and maritime sectors, in line with the Paris Agreement goals.
For more information, refer to the BHP Climate Change Report 2020 at bhp.com/climate.
Scope 3 emissions performance
The most significant contributions to Scope 3 emissions in our value chain come from the downstream processing and use of our products, in particular emissions emanating from the steelmaking process (the processing and use of our iron ore and metallurgical coal). In FY2019coal in steelmaking. Our analysis indicates that in FY2020, emissions associated with the processing of ournon-fossil fuel commodities (iron ore to steel; copper concentrate and cathode to copper wire) were 305210.8–327.8 million tonnes of CO22--e.e. Emissions associated with the use of our fossil fuel commodities (metallurgical and energy coal, oil and gas) were 233 million tonnes130.5-205.0 Mt CO2-e.Refer to footnote (1) on the following page for an explanation of CO2-e.why a degree of overlap in reporting boundaries occurs, due to our involvement at multiple points in the life cycle of the commodities we produce and consume. A significant example of a boundary overlap is between iron ore and metallurgical coal that results in a portion of metallurgical coal emissions being double counted across these two categories in the higher end estimate number. This means that the emissions reported under each Scope 3 category should not be added up, as to do so would give an inflated total figure. For this reason, we do not report a total Scope 3 emissions figure.
|
|
This year, we have also included a lower end estimate of the Scope 3 emissions from the combustion of metallurgical coal that avoids the double counting of the emissions arising from iron and steel production. We have included the lower-end number in the estimate of our Scope 3 emissions, in part to reflect the different ways of calculating Scope 3 emissions, particularly when there is an overlap. The inclusion of two numbers also reflects the different uses for reported Scope 3 emissions. The first, larger number is suitable as a proxy for an assessment of carbon risk to the portfolio. The lower number, calculated to avoid double counting, provides a more useful input into an assessment of the total Scope 3 emissions associated with our value chains.
74More information on the calculation methodologies, assumptions and key references used in the preparation of Scope 3 emissions data can be found in the BHP Scope 1, 2 and 3 Emissions Calculation Methodology, available at bhp.com/climate.
Scope 3 greenhouse gasGHG emissions by category (million tonnes CO2-e) (1)-e) (1)(2)
Year ended 30 June | 2019 | 2018 | 2017 | |||||||||
Upstream | ||||||||||||
Purchased goods and services (including capital goods) | 17.3 | 8.2 | 7.7 | |||||||||
Fuel and energy related activities | 1.3 | 1.4 | 1.4 | |||||||||
Upstream transportation and distribution (3) | 3.6 | 3.6 | 3.2 | |||||||||
Business travel | 0.1 | 0.1 | 0.1 | |||||||||
Employee commuting | <0.1 | <0.1 | <0.1 | |||||||||
Downstream |
| |||||||||||
Downstream transportation and distribution (4) | 4.0 | 5.0 | 2.8 | |||||||||
Processing of sold products (5) | 304.7 | 322.6 | 313.7 | |||||||||
– Iron ore to steel | 299.6 | 317.4 | 309.5 | |||||||||
– Copper to copper wire | 5.1 | 5.2 | 4.2 | |||||||||
Use of sold products | 232.7 | 253.8 | 254.1 | |||||||||
– Metallurgical coal | 111.4 | 112.3 | 105.5 | |||||||||
– Energy coal | 67.0 | 71.0 | 72.1 | |||||||||
– Natural gas | 28.3 | 36.4 | 38.3 | |||||||||
– Crude oil and condensates (6) | 23.3 | 29.6 | 33.1 | |||||||||
– Natural gas liquids | 2.8 | 4.5 | 5.1 | |||||||||
Investments (i.e. ournon-operated assets) (7) | 3.1 | 1.7 | 1.9 |
Year ended 30 June | ||||||||||||||||
2020 | 2019 | 2018 | 2017 | |||||||||||||
Upstream | ||||||||||||||||
Purchased goods and services (including capital goods) | 16.9 | 17.3 | 8.2 | 7.7 | ||||||||||||
Fuel and energy related activities | 1.3 | 1.3 | 1.4 | 1.4 | ||||||||||||
Upstream transportation and distribution (2) | 3.8 | 3.6 | 3.6 | 3.2 | ||||||||||||
Business travel | 0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
Employee commuting | 0.2 | <0.1 | <0.1 | <0.1 | ||||||||||||
Downstream | ||||||||||||||||
Downstream transportation and distribution (3) | 4.0 | 4.0 | 5.0 | 2.8 | ||||||||||||
Investments (i.e. our non-operated assets) (4) | 3.9 | 3.1 | 1.7 | 1.9 | ||||||||||||
Processing of sold products (5) | ||||||||||||||||
Iron ore processing (6) | 205.6-322.6 | 197.2-299.6 | 201.2-317.4 | 194.1-309.5 | ||||||||||||
Copper processing | 5.2 | 5.1 | 5.2 | 4.2 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total processing of sold products | 210.8-327.8 | 202.3-304.7 | 206.4-322.6 | 198.3-313.7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Use of sold products | ||||||||||||||||
Metallurgical coal (6) | 33.7-108.2 | 34.7-111.4 | 35.0-112.3 | 32.5-105.5 | ||||||||||||
Energy coal (7) | 56.4 | 67.0 | 71.0 | 72.1 | ||||||||||||
Natural gas (7) | 20.6 | 28.3 | 36.4 | 38.3 | ||||||||||||
Crude oil and condensates (7) | 17.9 | 23.3 | 29.6 | 33.1 | ||||||||||||
Natural gas liquids (7) | 1.9 | 2.8 | 4.5 | 5.1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total use of sold products | 130.5-205.0 | 156.0-232.7 | 176.5-253.8 | 181.1-254.1 | ||||||||||||
|
|
|
|
|
|
|
|
(1) |
|
(2) |
|
Includes product transport where freight costs are covered by BHP, for example under Cost and Freight (CFR) or similar terms, as well as purchased transport services for process inputs to our operations. |
Product transport where freight costs are not covered by BHP, for example under Free on Board (FOB) or similar terms. |
(4) | For BHP, this category covers the Scope 1 and Scope 2 emissions (on an equity basis) from our assets that are owned as a joint venture but not operated by BHP. |
(5) | All iron ore production is assumed to be processed into steel and all copper metal production is assumed to be processed into copper wire for end use. Processing of nickel, zinc, gold, silver, ethane and uranium oxide is not currently included, as production volumes are much lower than iron ore and copper and a large range of possible end uses apply. Processing/refining of petroleum products is also excluded as these emissions are considered immaterial compared to theend-use product combustion reported in the ‘Use of sold products’ category. |
(6) | Scope 3 emissions reported under the ‘Processing of sold products’ category include the processing of our iron ore to steel. This third party activity also consumes metallurgical coal as an input, a portion of which is produced by us. For the higher-end estimate, we account for Scope 3 emissions from combustion of metallurgical coal with all other fossil fuels under the ‘Use of sold products’ category, such that a portion of metallurgical coal emissions is accounted for under two categories. The low-end estimate apportions the emission factor for steel between iron ore and metallurgical coal inputs. The low-end estimate for iron ore only accounts for BHP’s Scope 3 emissions from iron ore and does not account for BHP’s or third party coal used in the steelmaking process. Scope 3 emissions from BHP’s coal are captured in the ‘Use of sold products’ category under metallurgical coal. |
(7) | All crude oil and condensates are conservatively assumed to be refined and combusted as diesel. Energy coal, Natural gas and Natural gas liquids are assumed to be combusted. |
Climate Investment Program
BHP will invest at least US$400 million over the five-year life of the Climate Investment Program (CIP), announced in July 2019. The CIP will invest in emissions reduction projects across our operated assets and value chain. It is a demonstration of our commitment to taking a product stewardship role in relation to our full value chain. Initial investments will focus on reducing emissions at our Minerals (Australia and Americas) operated assets and addressing Scope 3 emissions in the steelmaking sector, particularly emerging technologies that have the potential to be scaled for widespread application. During FY2020, potential CIP projects have requested approximately US$350 million over five years. Establishing a robust pipeline is critical to drive prioritisation of the best projects across our operated assets and value chain, and to ensure that our emissions targets can be met alongside safety, production and cost targets.
Natural climate solutions
Investing in natural ecosystems is a cost-effective and immediately available solution to mitigate climate change. BHP works to support the development of market mechanisms that channel private sector finance into projects that increase carbon storage or avoid GHG emissions through conservation, restoration and improved management of landscapes and wetlands, such as REDD+(1). Our REDD+ strategy was broadened in FY2020 to include investments in reforestation, afforestation and ‘blue’ carbon – the carbon stored in coastal and marine ecosystems (e.g. mangroves, tidal marshes and seagrasses). We focus on project support, governance and market stimulation for carbon credits generated by these projects.
In CY2020, BHP established our Carbon Offset strategy that describes how we propose that a quantity of carbon offsets be procured and from the mid-2020s onwards retired voluntarily at regular intervals. While we will prioritise emissions reductions within our operated assets to meet our medium-term target, by including offsets as an element of our climate change strategy, BHP will also continue to support a range of projects that offer sustainability co-benefits, including support for local communities and biodiversity conservation.
For more information, refer to the BHP Climate Change Report 2020 at bhp.com/climate.
|
Scope 3 emissions reporting necessarily requires a degree of overlap in reporting boundaries due to our involvement at multiple points in the life cycle of the commodities we produce and consume. A significant example of this is that Scope 3 emissions reported under the ‘Processing of sold products’ category in the table above include the processing of our iron ore to steel. This third party activity also consumes metallurgical coal as an input, a portion of which is produced by us. For reporting purposes, we account for Scope 3 emissions from combustion of metallurgical coal with all other fossil fuels under the ‘Use of sold products’ category, such that a portion of metallurgical coal emissions is accounted for under two categories.
75
This is an expected outcome of emissions reporting between the different scopes defined under standard GHG accounting practices and is not considered to detract from the overall value of our Scope 3 emissions disclosure. This double counting means that the emissions reported under each category should not be added up, as to do so would give an inflated total figure. For this reason, we do not report a total Scope 3 emissions figure. Further details of the calculation methodologies, assumptions and key references used in the preparation of our Scope 3 emissions data can be found in the associated Scope 3 calculation methodology document available online at bhp.com/climate.
Accelerating the development of carbon capture and storage
We are working in partnership with others across our value chain to accelerate the development of technologies with the potential to reduce emissions from the processing and use of our products. Carbon capture and storage (CCS) is a key low emissions technology with the potential to play a pivotal role in reducing emissions from industrial processes, such as steel production, as well as emissions from the power sector and from oil and gas production.
While we recognise progress is required in developing policy frameworks to support the wider deployment of this technology, our CCS investments and partnerships focus on mechanisms to reduce costs and accelerate development timeframes. Our investments include activities aimed at knowledge sharing from commercial-scale projects, development of sectoral deployment road maps and funding for research and development at leading universities and research institutes.
For further information, refer to our Sustainability Report 2019, available online at bhp.com.
Supporting the development of climate change solutions
In July 2019, our CEO Andrew Mackenzie announced that BHP’s Board had approved a new Climate Investment Program that will invest in technologies to reduce emissions, and research and development of potential future solutions.
The Program will build on BHP’s existing program of investing in low emissions technologies and carbon capture and storage. It includes a total investment amount of US$400 million over five years from FY2020. Investments will target operational emissions reduction and potential reductions of Scope 3 emissions, including from the processing and use of our products.
The Program will target mature and disruptive technologies, designed to achieve both near-term emissions outcomes and longer-term, higher-risk goals. We expect technology investment to be critical in meeting our short- and medium-term targets for operational emissions reduction, our long-term goal of operationalnet-zero emissions, and our goals for addressing Scope 3 emissions. The Program will also drive investment in nature-based solutions.
Contributing to the global response
Climate change is a global challenge that requires collaboration. We prioritise working with others to enhance the global policycollaboration, and market response.
Promoting market mechanisms to reduce global emissions
In addition to measures to reduce our emissions, we support the development of market mechanisms that reduce global GHG emissions through projects that generate carbon credits.
Our climate change strategy includes a focus on reducing emissions from deforestation through support for REDD+, the UN program that aims to reduce emissions from deforestation and forest degradation. For example, in partnership with the International Finance Corporation (IFC) and Conservation International (CI) we developed afirst-of-its-kind US$152 million Forests Bond, issued by the IFC in 2016. We provide a price-support mechanism for the bond, which supports the Kasigau Corridor REDD project in Kenya. During FY2019, we purchased additional carbon credits from the Kasigau Corridor project.
In partnership with CI and Baker McKenzie, we developed the Finance for Forests (F4F) initiative in FY2018, which aims to share our experiences to help encourage replication of these investments and provide a suite of innovative financial mechanisms to channel private sector investment in REDD+.
Supporting the development of effective climate and energy policy
Industryindustry has a key role to play in supporting policy development. We engage with governments and other stakeholders to contribute to the development of an effective, long-term policy framework that can deliver a measured transition to a lowerlow carbon economy. We prioritise working with others to enhance the global policy and market response and support the development of market mechanisms that reduce global GHG emissions through projects that generate carbon credits.
We believe that polices to spur rapid action should be implemented in an equitable manner to address competitiveness concerns and achieve lowest cost abatement.
76
We believe an effective policy framework should include a complementary set of measures, including a globally consistent price on carbon, support for low emissions technologyand negative emissions technologies and measures to build resilience. We are a signatory to the UNFCCC ‘Paris Pledge’ (which brings together cities, regions, companies and investors in support of the Paris Agreement) and the World Bank’s Putting‘Putting a Price on CarbonCarbon’ statement, and a partner in the Carbon Pricing Leadership Coalition, a global initiative that brings together leaders from industry, government, academia and civil society with the goal of putting in place effective carbon pricing policies. Our CEO Andrew Mackenzie has also been appointed to the World Bank’s High-Level Commission on Carbon Pricing and Competitiveness.
We also advocate for a framework of policy settings that will accelerate the deployment of CCS. We arecarbon capture, utilisation and storage and/or carbon capture and storage (CCUS). Modelling of 2°C and 1.5°C scenarios consistently highlight the critical role of low emissions and negative emissions technologies. This is why BHP is committed to catalysing action to accelerate CCUS commercialisation at scale and acceptable cost and is a member of the Global CCS Institute and the UK Government’s Council on Carbon Capture Usage and Storage.
Industry association membershipreview
BHP is a member of industry associations around the world. We believe industry associations havecan perform a number of functions that can lead to better outcomes on policy, practice and standards.
Over the capacity to play a key role in advancing the development of standards, best practices and constructive policy that are of benefit to members, the economy and society. We also recognisepast five years, there ishas been increasing stakeholder interest in the nature and role of industry associations and the extent to which the positions of industry associations on key issues are aligned with those of member companies.
We were one of the first major companies to review our alignment with the advocacy positions on climate and energy policy takenplayed by industry associations in public policy debates, particularly in the context of climate change policy. We published our first industry association review in 2017, which sought to whichidentify ‘material differences’ between BHP and our member associations on climate change policy. We repeated this exercise in 2018 and 2019. For the latter, we belong,have broadened our methodology to capture additional organisations and to shareprovide an assessment of the findingsextent of overall alignment between BHP and outcomesour association memberships on climate change policy. Outcomes from our 2019 review are set out in our 2019 Industry Association Review Report available at bhp.com.
Following that 2019 review, we commenced a process to understand how we could further enhance our overall approach to industry associations to ensure we maximise the value of this review publicly. Our initial review wasour memberships. We have also taken further steps to address investor expectations around climate change advocacy by industry associations by engaging with a broad range of stakeholders from around the world, including investors, civil society groups, community groups and industry associations. As a result of that feedback, we decided to make the following key changes to our approach to industry associations:
• | We developed and published our Global Climate Policy Standards(1), which are intended to provide greater clarity on how our climate change policy positions should be reflected in our own advocacy and that of associations to which we belong. |
We announced our intention to work with the various associations that represent the minerals sector in December 2017.Australia to develop and agree a protocol on policy advocacy, the purpose of which would be to define the policy areas on which the associations advocate, having regard to their jurisdictional responsibilities.
We continueannounced our intention to monitorwork with key associations in Australia to develop and publish an annual advocacy plan, the climatepurpose of which is to provide stakeholders with greater transparency on the policy priorities and energy policy positionsactivities of the associations.
We made a number of enhancements to our own disclosure of our industry association memberships, and to keep our memberships of industry associations that hold an active position on climate and energy policy under review. A further review of our industry associations was commenced during FY2019.
Moreprovide more information on our approach tomaterial association memberships, disclose in ‘real time’ if a relevant association substantially departs from our climate change policy standards, and update our industry associations, including our updated register of material differences on climate and energy policy, is available online at bhp.com.association review process.
(1) | https://www.bhp.com/our-approach/operating-with-integrity/industry-associations-bhps-approach/ |
Managing risk and opportunity
We recognise the physical andnon-physical impacts of climate change may affect our assets, productivity, the markets in which we sell our products and the communities in which we operate. Risks related to the potential physical impacts of climate change include acute risks resulting from increased severity of extreme weather events and chronic risks resulting from longer-term changes in climate patterns.Non-physical In order to strengthen our approach to adapting to actual or potential physical impacts of climate change, BHP undertook a series of assessments and engagements in FY2020. These included a questionnaire for our operated assets, industry benchmarking assessment, internal policy review and extensive engagements across BHP. We take a risk-based approach to adaptation, including consideration of the potential vulnerabilities of our operated assets, investments, portfolio, communities, ecosystems and our suppliers and customers across the value chain.
Transition risks arise from a variety of policy, regulatory, legal, technological, market and marketother societal responses to the challenges posed by climate change and the transition to a lowerlow carbon economy.
A broader discussion of our climate-related risk factors and risk management approach is provided in the risk factors set out in section 1.5.4, as part of our Task Force on Climate-related Financial Disclosures (TCFD)-aligned disclosures throughout this Report,well as described below.
Adapting toin the physical impacts of climate change
We take a risk-based approach to adapting to the physical impacts of climate change. We work with globally recognised agencies to obtain regional analyses of climate science to inform resilience planning at an asset level and improve our understanding of the potential climate vulnerabilities of our operations and communities where we operate.
Our operations are required to build climate resilience into their activities through compliance with theOur Requirements for Environment andBHP Climate Changestandard. We also require new investments to assess and manage risks associated with the forecast physical impacts of climate change. As well as this ongoing business resilience planning, we continue to look Report 2020 at ways we can contribute to community and ecosystem resilience.
Evaluating the resilience of our portfolio
We consider the impacts of climate change in our strategy process. We recognise the world could respond in a number of different ways to address climate change. We use a broad range of scenarios to consider how divergent policy, technology, market and societal outcomes could impact our portfolio, including low plausibility, extreme shock events. We also continually monitor a range of data sources to identify climate change-related developments that would serve as a call to action for us to reassess the resilience of our portfolio.
Our investment evaluation process includes an assessment ofnon-quantifiable risks, such as those that could impact the people and environment that underpin our contribution to social value. The process has also incorporated market and sector-based carbon prices for more than a decade.
Our Climate Change: Portfolio Analysis (2015) and Climate Change: Portfolio Analysis – Views after Paris (2016) reports, which are available online at bhp.com/climate, describe in more detail how we have used scenario analysis to evaluate the resilience of our portfolio to both an orderly and a more rapid transition to a 2°C world. We will update our portfolio analysis in FY2020, evaluating the potential impacts of a broader range of scenarios including a transition to well below 2°C.
77
We are committed to keeping our stakeholders informed of the potential impact of climate change on our business and continue to review and consider developing best practices and evolving stakeholder expectations.climate.
Engagement and disclosure
Our climate change strategy is supported by active engagement with our stakeholders, including investors, policymakers andnon-governmental organisations, and with peer companies where appropriate.
We periodically holdone-on-one and group meetings with investors and their advisers to explain our approach to climate change. In FY2019, our climate-related investor engagement included meetings held in Australia, the United Kingdom, the Netherlands and the United States.
We also seek input and insight from external experts, such as the BHP Forum on Corporate Responsibility (FCR). The FCR, which is composed of civil society leaders and BHP executives, has played a critical role in the development of our position on climate change. During FY2019, the FCR met twice, with one of the meetings including discussion of the review of our climate change strategy.
Informed by this engagement, we regularly review our approach to climate change in response to emerging scientific knowledge, changes in global climate policy and regulation, developments in low emissions technologies and evolving stakeholder expectations.
Climate-related financial disclosures
BHP was one of the first companies to align our climate-related disclosures with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). We believe the TCFD recommendations represent an important step towards establishing a widely accepted framework for climate-related financial risk disclosure and we have been a firm supporter of this work. Our Vice President of Sustainability and Climate Change, Dr Fiona Wild, is a member of the Task Force.
We are committed to continuing to work with the TCFD and our peers in the resources sector to support the wider adoption of the TCFD recommendations and the development of more effective disclosure practices within the sector.
As responding toMore information on climate change is available at bhp.com/climate as well as in the BHP Climate Change Report 2020.
Engaging with communities
At the centre of our approach to engaging and building social value is our commitment to respecting stakeholders. We believe we are successful when we have established meaningful long-term relationships that understand local cultures and their priorities, and when we have supported resilient and diversified local economies with benefits that continue beyond the life of our assets.
Our engagement approach seeks to develop and maintain open, honest relationships built on trust. Only with these attributes can we understand the real and perceived impacts of our activities and how we can partner with communities to contribute to long-term social value.
Our Code of Conduct and the Our Requirements for Community standard govern our actions and aspiration to make a positive contribution to communities where we have a presence and minimise adverse impacts where these cannot be avoided.
Community and human rights are Group Risks under our Risk Framework. In FY2020, we undertook work to update and align the Community risk profile with the Risk Framework. The Community risk profile now captures risk events linked to business activities, for example the impact of business transformation, community dependency on BHP and a human rights breach within our operated assets or value chain; and external factors, including changing societal expectations, community unrest and protests, and the impacts on communities of an integraleconomic downturn. We have a suite of systems, processes and tools to help us understand, plan, implement and evaluate our engagement activities and to ensure all these activities are conducted in a culturally sensitive and socially inclusive manner. These include social baseline analysis, social impact and opportunity assessments, human rights impact assessments, stakeholder mapping and community perception surveys.
In FY2020, all our operated assets had stakeholder engagement management plans in place. These engagement plans and our engagement activities are based on an understanding and analysis of the local context. As an example of our engagement activities, in FY2020, our BMA team in Queensland met quarterly through community consultative committees and special reference groups to discuss community preparedness related to innovation and technology. In Chile, through multi-stakeholder dialogue tables we engaged with Indigenous communities on environmental and technical information, and the implementation of Indigenous peoples plans.
Aligned with our internal standards, social impact and opportunity assessments were conducted in the United States, Chile and Trinidad and Tobago in FY2020. Primary findings across our Chilean operated assets included the impacts on Indigenous peoples, community health and marine water quality with opportunities to promote local sustainable development, diversify economic activity and improve the quality and access to education. Across North America and Trinidad and Tobago impacts identified were those on fisheries and wildlife and coastal environments affecting livelihoods, with opportunities to support capacity development, and education and employment outcomes.
We are committed to enabling communities to express their views, experiences, concerns and complaints related to us and our activities. Throughout FY2020, community members’ primary concerns as reported by our operated assets through their engagement with communities were related to jobs and youth unemployment, local community development and the environment. More information on community concerns across the regions can be found at bhp.com/sustainability.
In FY2020, we received 114 community complaints globally across our operated assets with the majority of complaints relating to odour and noise. This is an 18 per cent decrease in complaints received compared to FY2019. We did not record any significant community incidents in FY2020, therefore meeting our five-year public target of no significant community events between FY2017 and FY2022.(19) In FY2020, there were no protest events or project delays as a result of community concerns, community or stakeholder resistance or protest, or armed conflict in relation to BHP’s operations. Our planned review of asset-level complaints and grievance mechanisms at our operated assets, for global consistency and to ensure they meet the standards required under the UN Guiding Principles on Business and Human Rights was delayed as a result of COVID-19. Our community teams focused on the response to the pandemic during this period and the review is now planned to be completed in FY2021.
(19) | A significant event resulting from BHP operated activities is one with an actual severity rating of four and above, based on our internal severity rating scale (tiered from one to five by increasing severity) as defined in our mandatory minimum performance requirements for risk. |
In FY2020, we had no reported artisanal or small-scale mining on or adjacent to our operations. As part of our commitment to respecting human rights, BHP recognises water access, sanitation and hygiene as human rights and acknowledges the traditional, spiritual and cultural connections to water, as outlined in our Water Stewardship Position Statement. Engaging with communities on water risks is an integral component of our water stewardship work. We continued to strengthen our engagement with stakeholders on water-related risks (both threats and opportunities) in FY2020 at the community and catchment levels.
More information is available at bhp.com/environment/water.
Social investment
Social investment is one of the tools in our overall approach to contributing to the creation of social value. Social investment is our voluntary contribution towards projects or donations with the primary purpose of contributing to the resilience of the communities where we have a presence and the environment, aligned with our broader business priorities. We have a long-standing commitment to invest not less than 1 per cent of pre-tax profits(20) in voluntary social and environmental initiatives. Using research and through a collaborative approach, we work with our diverse range of stakeholders to understand and identify social needs and existing resources through which we can design our social investment to create meaningful outcomes for communities. We partner with appropriate organisations to deliver our social investment initiatives, including our employee Matched Giving Program.
Aligned with the UNSDGs, our Social Investment Framework underpins our voluntary social investment approach and provides a consistent framework for our local, regional, national and global investments. The framework and Social Investment Strategy are reviewed regularly, most recently in FY2020, to ensure we evolve our focus with that of communities, understand their ambitions and create enduring positive outcomes.
Our voluntary social investment in FY2020 totalled US$149.63 million, consisting of US$113.83 million in direct community development and environment projects and donations, US$12.03 million equity share to non-operated joint venture social investment programs, a US$12 million donation to the BHP Foundation(21) and US$1.85 million under the Matched Giving Program. Administrative costs to facilitate direct social investment activities totalled US$8.58 million and US$1.33 million supported the operations of the BHP Foundation.
Our FY2020 social investment increased by 60 percent compared with FY2019 as a result of a higher 1 per cent commitment (calculated on a three year rolling average) and our investments to support the COVID-19 response and recovery efforts across our locations.
In line with our Social Investment Framework, we support projects that enhance human capability and inclusion through increasing the number of people with improved health and wellbeing, access to quality education and vocational training, and enhanced livelihood opportunities. Through our social investment contribution, more than 427,000 students participated in community projects and 1,747 people received job-related training through our community partners. More than 840 scholarships were awarded, including 465 to young Indigenous peoples and 436 to young women.
We aim to contribute to enduring environmental and social benefits in addition to the dedicated work of our HSE team through biodiversity conservation, water stewardship and climate change mitigation and adaptation. Through our social investments 12,300 hectares of land was managed for conservation.
We aim to contribute to good governance with a focus on reducing corruption, enhancing transparency and strengthening institutions. Through our investments, almost 770 non-government and community-based organisations and more than 790 small businesses participated in capacity building activities, and 143 of these were Indigenous organisations. In addition, 21 organisations we partner with received dedicated anti-corruption training.
Crisis response and disaster relief
FY2020 saw challenges to the health and livelihoods of communities across the world. We work closely with communities to understand where our efforts to support response and resilience initiatives are best placed during an emergency event. For information about our social investment initiatives in response to the social unrest in Chile, the Australian bushfires, the COVID-19 pandemic and the Black Lives Matter movement, refer to section 1.4.6 and bhp.com/sustainability.
Local economic growth
We support the growth of local businesses in the regions where we operate and are committed to sourcing and promoting locally available products and services. Our operated assets develop local procurement plans that identify opportunities for local suppliers, including small businesses, to deliver capacity building and employment creation initiatives. These initiatives are designed to be sustainable post BHP’s presence in the region.
(20) | Our voluntary social investment is calculated as 1 per cent of the average of the previous three years’ pre-tax profit. |
(21) | The BHP Foundation is a charitable organisation established and funded by BHP, which works in partnership with internationally recognised institutions, think tanks and non-government organisations to address some of the most critical sustainable development challenges facing society that are directly relevant to the resources sector. |
During FY2020, 12 per cent of our total external expenditure was with local suppliers. An additional 84 per cent of our supply expenditure was located within the regions in which we operate.
Our expenditure with local suppliers in FY2020 was mostly in Chile (15 per cent), Australia (11 per cent), the United States (9 per cent) and Trinidad and Tobago (2 per cent). These percentages are of our total external expenditure within that context.
In addition to procuring locally, where possible, we employ local people (refer to section 1.6.1) and support broader regional and national economies by paying taxes and royalties.
Human rights
We are committed to respecting internationally recognised human rights as set out in the Universal Declaration on Human Rights and the Voluntary Principles on Security and Human Rights, and operating in a manner consistent with the UN Guiding Principles on Business and Human Rights and the UNGC Ten Principles.
Our Code of Conduct sets the standards of behaviour and commitments for our people, as well as our contractors, suppliers and others who perform work for BHP (when under relevant contractual obligations). Our Human Rights Policy Statement sets out our expectations of our people, business partners and other relevant parties to respect human rights. The commitments in Our Code of Conduct and Human Rights Policy Statement are implemented through mandatory minimum performance requirements in the Our Requirements standards.
We recognise we have the potential to directly impact, contribute to or be linked to human rights impacts on people. This is through our active operations, closed and legacy assets, value chain activities and relationships with business partners. We continued to work collaboratively with stakeholders in FY2020 to understand the rights most at risk by our activities and to build awareness across our functions and operated assets about respecting rights.
Human rights is a Group Risk within the Environment, climate change and community Group Risk category under our Risk Framework. In FY2020, we revised human rights risk assessments for our Global Asset Services office in Manila and completed a human rights risk assessment at a major Australian project. The application of our risk identification, assessment and management processes in FY2020 considered potential scenarios, including security, supply chain, and labour conditions, which may lead to a breach of human rights. Also in FY2020, we continued our pilot of a globally consistent methodology for human rights impact assessments (HRIA) across several locations, including legacy sites, and work commenced on HRIAs for WAIO and in Minerals Americas. Although HRIAs may identify potential impacts to be considered in human rights assessments, they are separate processes from those risk assessments and include engagement with external stakeholders.
As a result of the need to cease face-to-face engagement with communities during the COVID-19 pandemic, the HRIA conducted for WAIO did not include a site visit or focus group engagement activities. Recognising that the standard HRIA process requires inclusion of these engagement practices with external stakeholders, we have conducted interviews through web-conferencing and included additional questions in the WAIO community perception survey to inform the HRIA with the perspectives of community members, suppliers and other key stakeholders. Our operated assets are required to complete HRIAs at least every three years (and review them whenever there are changes that may affect the impact) and we plan to complete them across our operated assets during FY2021.
In FY2020, no resettlements or physical or economic displacement of families and communities occurred as a result of the activities of our operated assets.
Our risk of an actual or perceived failure to prevent or mitigate an adverse human rights impact linked to BHP’s supply chain (directly or indirectly), including maritime activities, was reviewed in FY2020. For more information, refer to our Modern Slavery Statement FY2020 available at bhp.com.
Relevant internal practitioners worked closely with our Commercial function to include human rights in the program of work to design and implement our Value Chain Sustainability strategy (refer to section 1.7.7). This looked at opportunities to leverage relationships with customers, suppliers and operations,business partners to enhance recognition of human rights across their activities alongside other sustainability issues, including climate change and environment.
In FY2020, we released our TCFD-aligned disclosureshuman rights training video, available for people across our workforce and business partners. Human rights training is currently mandated for our Corporate Affairs team including Community and Indigenous Affairs, Government Relations and Communications teams and the Procurement and Maritime and Supply Chain Excellence teams in our Commercial function. The training is made available within BHP’s internal training system and publicly available at bhp.com.
Modern slavery
In FY2020, BHP participated in multi-industry forums to work towards reporting under the new Australian modern slavery legislation. Our Modern Slavery Statement FY2020, prepared under the UK Modern Slavery Act (2015) and the Australian Modern Slavery Act (2018), is available at bhp.com. The Statement outlines BHP’s detailed approach to understanding and identifying and managing modern slavery and human trafficking risks in our supply chain and own operations.
Indigenous peoples
We recognise and respect the rights of Indigenous peoples and acknowledge the connection they have to the natural environment, which can be found throughouttangible and intangible. We recognise our activities impact on Indigenous peoples and we are committed to working together to ensure BHP is an enabling partner with Indigenous peoples with a genuine understanding of their views and interests.
BHP’s Indigenous Peoples Policy Statement articulates our approach to engagement and support for Indigenous peoples and our commitment to the ICMM Position Statement on Indigenous Peoples and Mining. Our Indigenous Peoples Strategy guides the implementation of our Policy Statement.
We commenced a review of our Indigenous Peoples Policy Statement and Strategy in early FY2020. This review involved consultation with Indigenous leaders and analysis of leading practice to understand changes in policy and practice since our approach was articulated in 2014. We plan to publish updated guidance in FY2021. In FY2020, we met our public target to have active Regional Indigenous Peoples Plans in place across relevant regions. Each plan includes our approach to governance, economic empowerment and social and cultural support with Indigenous stakeholders globally and has been developed to respect Indigenous rights, align with respective regulatory requirements and reflect local Indigenous stakeholder needs.
Aligned with the economic empowerment pillar of our Regional Indigenous Peoples Plan for South America, in FY2020 we conducted employability studies across Indigenous communities and completed an Indigenous employee identification survey of our workforce. In FY2020 in Minerals Australia we saw a 28 per cent growth in BHP’s direct spend with Indigenous businesses across our operated assets, increasing to AU$98 million of which AU$42.4 million was with BHP Considered Traditional Owner businesses. We also increased by 44 per cent the number of Indigenous businesses we directly procured from in Minerals Australia and the number of BHP Considered Traditional Owner businesses(22) by 37 per cent.
We strive for a sustainable approach to our operations and to work in partnership with Indigenous communities to ensure they benefit from our presence over the long term, and that each stage of development is informed by their views. Our relationships are based on regular and extensive discussions on a range of issues including our extractive activities and broader support for Indigenous peoples, including employment and local procurement opportunities. We seek to avoid or minimise impacts to cultural heritage, through planning and ongoing consultation with Indigenous communities. Our processes provide opportunities for Indigenous stakeholders to identify those sites, places, structures and objects that are culturally or traditionally significant and to be consulted and engaged in relation to decisions regarding the protection and management of those sites.
In October 2019, BHP submitted an application for a government approval related to Aboriginal heritage sites at our South Flank project under construction in the Pilbara region of Western Australia. The approval was granted in May 2020 following extensive consultation with the Traditional Owners, the Banjima people. Nonetheless, consistent with our approach to cultural heritage, BHP confirmed in June 2020 that it would not disturb the sites covered by the approval without further consultation with the Traditional Owners. BHP supports the Western Australian Government’s current process to reform and update its cultural heritage legislation. BHP has made submissions to the Government in support of this Report. reform.
In Chile, our Indigenous affairs and environment teams work closely with Indigenous stakeholders to identify sites of cultural significance, as outlined in the Minerals Americas Indigenous Peoples Plan. As part of the approvals for the Cerro Colorado environmental assessment, we have cultural heritage monitoring commitments that we execute in partnership with the relevant Indigenous communities and these continued to be monitored during FY2020.
More information on community is available at bhp.com/sustainability.
(22) | Refers to any business, formal collaboration or joint venture that is at least 50 per cent owned by an Aboriginal Traditional Owner(s) from one of the lands or waters upon which BHP holds interests in connection with its mining businesses specific to this contract’s asset, unless otherwise defined in a native title agreement or other formal agreement. |
Case study: Sustainability at Escondida and Spence
Continued sustainability improvements at our Escondida and Spence copper operations in Chile in FY2020 have placed them on track to be 100 per cent powered by renewable energy sources by mid-2020s and have eliminated the extraction of groundwater from operational supply purposes at Escondida 10 years ahead of schedule.
Minerals Americas secured four renewable power agreements for the operations during the year, to replace two coal-based power purchase agreements, which accounted for 8 per cent of Chile’s power demand.
The table below showsrenewable power contracts will displace 3 million tonnes of CO2 per year from 2022 and reduce 70 per cent of Minerals Americas’ greenhouse gas emissions, equivalent to the annual emissions of around 700,000 combustion engine cars.
The contracts will also reduce power costs despite the US$780 million provision in BHP’s December 2019 half-year financial results related to the early termination of the existing coal-based power purchase agreements. In August 2020, as part of the project optimisation, Escondida and Spence negotiated more competitive terms for the early termination. Taking this into account, the new contracts offer a 22 per cent power unit cost reduction from FY2022 onwards.
With the growing use of desalination, Escondida ceased groundwater extraction for operational supply purposes from the high Andean aquifers during the year, a move that had been originally scheduled for FY2030. By investing in desalination capability to shift from groundwater to seawater usage, we are taking pressure off the Atacama Desert water resources surrounding the mines. This is important because, with the expected gradual decline of grades at Escondida and Spence over the coming years, the mines will need more water and power to maintain production.
These initiatives demonstrate how BHP can deliver both social value and financial value – by securing more sustainable power sources, eliminating groundwater usage and reducing operating costs.
More information on how Escondida is breaking the water-energy nexus, see our disclosurescase study at bhp.com.
1.7.10 Tailings storage facilities
Ensuring the integrity of our tailings storage facilities (TSFs) is a primary focus across our operations. Our aspiration is to eliminate the risk of catastrophic TSF failure at our operations and we are working with others and sharing our progress in an effort to make this Reporta reality.
In 2015, following the tragic failure of the Fundão dam at Samarco, BHP immediately initiated a Dam Risk Review to assess the management of significant TSFs both active and inactive. Following the Brumadinho event, BHP established a Tailings Taskforce that reports to the Executive Leadership Team and the Board’s Sustainability Committee. The Tailings Taskforce is accountable for accelerating our short-, medium- and long-term strategies and working to ensure best practice is embedded. In FY2021, upon completion of its current mandate, the Tailings Taskforce will conclude and transfer ownership to the Centres of Excellence which will continue to support and sustain the program of work for BHP.
Governance
Over the past year, work progressed on our continuous improvement and assurance of our operated TSFs. We commenced an update to our standard that governs how we approach TSF failure risks, including business planning, risk assessments and management of change. This standard, along with our standards on risk management, requires us to take a risk-based approach and sets out key considerations, such as working with our communities and external stakeholders and building our emergency management plans.
In FY2020, critical work progressed on the governance and controls of our TSF risk. We completed a Priority Group Risk Review of TSF failure risks across some of our highest-rated consequence sites, based on the Canadian Dam Association (CDA) classification system, with findings and recommendations reported to the Risk and Audit Committee and Sustainability Committee (further information on the Priority Group Risk Review process is provided in section 1.5.4). The Tailings Taskforce has continued with reviews of TSF failure risks across our assets with findings incorporated into risk remediation plans. These processes partner leading industry experts with our technical leads to review and enhance BHP’s global tailings governance framework. This process was in addition to other governance activities, including Dam Safety Reviews, Independent Tailings Review Boards and project specific Independent Peer Reviews. Our Risk Appetite Statement was updated to include a qualitative statement for the new Planning and Technical Group Risk category, which covers TSF failure risks. Key risk indicators (KRIs) were set by management to help monitor performance against our risk appetite, including KRIs that monitor data relating to dam integrity and design, overtopping/flood management and emergency response planning.
We are currently expanding our capability of a satellite monitoring program to better manage geotechnical risk through the use of remote monitoring technologies, including interferometric synthetic aperture radar (InSAR) (ground deformation monitoring technology). InSAR technology can detect critical changes/movements related to potential dam failure risks early and monitor these changes over time. This control is intended to enable identification, analysis, monitoring and management of ground displacements or other indicators associated with tailings and water storage facilities.
We are also progressing a simplified and formalised global database for all BHP TSF information. This database will integrate and centralise our data collection to enhance data preservation, security and reliability. This key governance control is intended to produce data efficiency gains and improved oversight of our global TSFs. For example, we expect to be able to respond more quickly and easily to stakeholder requests by maintaining a dynamic and efficient TSF database.
More information on our management of TSFs and global governance strategy is available at bhp.com.
Strategy
Our short-term strategy is focused on improving KRI performance in line with defined targets. Asset-based studies at our operated assets are being conducted on how to seek to reduce and mitigate potential downstream impacts particularly focused on population at risk (PAR). This is resulting in a diverse range of options to mitigate the PAR risk at our TSF sites. For example we have created physical barriers (such as the diversion wall at our Whaleback site) and the ongoing relocation of a legacy tailings facility from historic underground copper mining at our Miami Avenue site within our legacy asset portfolio. The diverse nature of our sites requires unique solutions and this work continues as a priority for FY2021.
Our medium- and long-term strategies focus on progressing the development of technologies to improve tailings management storage and working to ultimately eliminate the risk of catastrophic TSF failure. These asset-specific strategies have started with concepts for dewatering, stabilisation, reprocessing and reuse of tailings. We will work to identify key initiatives around the reprocessing and reuse of tailings by assessing technology options on cost, feasibility and the ability to support the elimination of tailings production.
Transparency
We support more detailed transparency and integrated disclosure around TSF management and will work with our industry partners to help make sure the disclosure is consistently applied and informs better TSF stewardship. We support and have contributed to the development of the new Global Industry Standard on Tailings Management, which has been developed as an international standard for safer tailings management, co-convened with the ICMM, the UN Environment Programme and the Principles for Responsible Investing. We are assisting the ICMM Tailings Working Group to contribute to improvements in tailings storage management across the mining industry. We are participants in other tailings working groups, including those associated with the Canadian Dam Association, Australasian Institute of Mining and Metallurgy, Minerals Council of Australia, Society for Mining, Metallurgy and Exploration, and Fundación Chile. We have also participated in the Investor Mining and Tailings Safety Initiative, an investor-led engagement convening institutional investors active in extractive industries, including major asset owners and asset managers.
BHP’s operated and non-operated tailings portfolio
The classifications described herein align to the TCFD recommendationsCanadian Dam Association’s classification system. It is important to note the TSF classification is a risk management tool. It reflects the modelled, hypothetical most significant possible failure and whereconsequences without controls. It does not reflect the relevant information can be found.current physical stability of the dam and it is possible for dam classifications to change over time, for example, following changes to the operating context of a dam. As such, this data represents the status of the portfolio as of June 2020. The dam classification informs the design, surveillance and review components of risk management and, therefore, dams that will likely have a greater level of consequence as a result of failure will have more rigorous requirements than dams that will have a lesser level of consequence.
LocationIn total, we have 70 TSFs(1) at our operated assets, 29 of TCFD-aligned disclosureswhich are of upstream design. Of the 70 operated facilities, we have four classified as extreme and a further 16 classified as very high. Thirteen of our operated facilities are active. The substantial inactive portfolio (57) at our operated assets is due largely to the number of historic tailings facilities associated with our North American legacy assets portfolio.
There are nine TSFs at our non-operated joint ventures, which are all located in the Americas. There are two active tailings facilities: Antamina in Peru, which is of downstream/centreline construction and Cantor TSF at Cerrejón in Colombia, which is of downstream construction. In addition, there are seven inactive facilities. These include: two upstream facilities at Samarco (Germano) in Brazil that are being decommissioned following the February 2019 rulings by the Brazilian Government on upstream dams in Brazil; three upstream inactive facilities and one inactive modified centreline facility at Resolution Copper in the United States; and one downstream inactive facility at Bullmoose in Canada.
submission. |
78
(2) | ||||||
The following classifications align to the | ||||||
dam. | ||||||
(3) | For the purpose of this chart, ANCOLD and other classifications have been converted to their CDA equivalent. Hamburgo and Island Copper tailings facilities are not considered dams and are, therefore, not subject to classification: Hamburgo TSF at Escondida is an inactive facility where tailings were deposited into a natural depression; and Island Copper TSF in Canada, acquired in the 1980s, is also an inactive facility. Tailings at Island Copper were deposited in the ocean under an approved licence and environment impact assessment. This historic practice ceased in the 1990s. We have since committed to not dispose of mine waste rock or tailings in river or marine environments. SP1 TSF and SP2/3 TSF in Australia are currently undergoing detailed studies to understand their CDA classification. |
79
(4) | Other includes dams of a design that combines upstream, downstream and centerline, and the two non-dam tailings facilities of Hamburgo TSF in Chile and Island Copper TSF in Canada. |
(5) | Inactive includes facilities not in operational use, under reclamation, reclaimed, closed and/or in post-closure care and maintenance. |
The Fundão dam failure
On 5 November 2015, the Fundão tailings dam operated by Samarco Mineração S.A. (Samarco) failed. Samarco is a non-operated joint venture (NOJV) owned by BHP Billiton Brasil Ltda (BHP Brasil) and Vale S.A. (Vale), with each having a 50 per cent shareholding.
A significant volume of tailings (39.2 million cubic metres (m3) of water and mud-like waste resulting from the iron ore beneficiation process) was released. Tragically, 19 people died – five community members and 14 people who were working on the dam when it failed. The communities of Bento Rodrigues, Gesteira and Paracatu de Baixo were flooded. A number of other communities further downstream in the states of Minas Gerais and Espírito Santo were also affected by the tailings, as was the environment of the Rio Doce basin.
Our businessesresponse and support for Fundação Renova
More than four years into the recovery process, we remain committed to the remediation of and compensation for the impacts to the people and the environment in the Rio Doce region, in a challenging and complex operating context.
The Framework Agreement entered into between Samarco, Vale and BHP Brasil and the relevant Brazilian authorities in March 2016 established Fundação Renova, a not-for-profit, private foundation that has developed and is implementing 42 remediation and compensatory programs to restore the environment and re-establish affected communities. As well as remediating the impacts of the dam failure, Fundação Renova is implementing a range of compensatory actions aimed at leaving a lasting, positive legacy for the people and environment of the Rio Doce.
BHP Brasil provides support to Fundação Renova’s operations through representation on the Board of Trustees and Board Committees, providing technical expertise and regular peer engagement on issues such as safety, risk management, human rights and compliance.
While restart of Samarco’s operations remains a focus and is expected to provide a positive effect on livelihoods in impacted communities, restart will only occur, among other considerations, if it is safe, and has the support of the community. Samarco has a valid operation licence and there are no further legal restrictions to operate.
In relation to the COVID-19 pandemic, some actions were taken to reduce labour in the field for filtration plant construction and operational readiness activities without a significant impact on the restart schedule. Samarco worked to re-establish a normal roster regime while respecting all the measures and controls implemented as a result of COVID-19, such as social distancing, use of masks, access control, temperature scanning and packed meals distribution, with the aim for restarting operations in FY2021.
Fundação Renova
Fundação Renova’s staff of approximately 660 people is supported by about 7,100 contractors. Its CY2020 budget is R$4.7 billion.
It has an extensive governance structure which includes representatives from the Brazilian Federal and State Governments, local municipalities and environmental agencies. On 25 June 2018, Samarco, Vale and BHP Brasil signed a Governance Agreement to include other parties to the supervision bodies and governance of Fundação Renova, i.e. the Public Prosecutors’ Office and the Public Defence Office. The Governance Agreement established local commissions to enable the active participation of the affected people in the decision-making process, by submitting proposals and recommendations for works to be performed by Fundação Renova.
By June 2020, a network of 21 local commissions had been established along the Rio Doce.
Resettlement
One of Fundação Renova’s priority social programs is the relocation and rebuilding of the communities of Bento Rodrigues, Paracatu de Baixo and Gesteira. A key to the success of this program is the participation of affected community members, their technical advisers, State Prosecutors, municipal leaders, regulators and other interested parties.
The process of collective resettlement involves designing new towns on land that has been chosen by the community, to be as close as possible to the previous layout. It requires attending to the wishes and needs of the families and communities, while also meeting permitting requirements.
In Bento Rodrigues, the public school, other public buildings and infrastructure are under construction and, as of June 2020, 35 of the 222 homes were under construction. Progress has been slower than anticipated primarily due to delays in the permitting process. The full return to regular numbers of field staff and construction capacity is uncertain and dependent on the evolving nature of the pandemic, safety protocols implemented to prevent exposure to COVID-19 on site and any restrictions imposed by authorities in the region.
By June 2020, construction of infrastructure and public buildings in Paracatu de Baixo was under way and eight of the 96 planned houses were under construction.
In December 2018, land was purchased for the resettlement of 37 families of Gesteira following a protracted negotiation with the landowner. The urban plan is being designed with the community. Families of Gesteira also have the option of a ‘letter of credit’ so they can choose to buy a property elsewhere.
In addition to these three community resettlements, 14 families from the rural area chose to rebuild their houses on their previous property, and of these, eight houses have been rebuilt and delivered to the families.
A total of 126 families have chosen not to join the collective resettlement of their previous community. Fundação Renova is assisting them and 46 properties have been purchased for these families (as of June 2020).
Financial assistance and compensation
Fundação Renova had paid R$2.5 billion in indemnification and financial aid up to June 2020.
Fundação Renova has distributed about 14,750 financial assistance cards to those whose livelihoods were impacted by the dam failure, including registered and informal commercial fisherfolk who had their activities affected due to the imposition of fishing restrictions in the Rio Doce in Minas Gerais and ban along the coast of Espírito Santo. The monthly payments are designed to provide support to affected people and their families pending the re-establishment of conditions that enable them to resume their economic activities.
Fundação Renova is also undertaking a substantial mediated compensation program to fairly compensate all individuals impacted by the dam failure. It comprises two key components:
More than 270,000 people participated in the water damages program to compensate for temporary water interruption and were paid a total of approximately R$280 million.
The general damages component covers all other impacts, including loss of life, injury, property, business impacts, loss of income and moral damages. More than 10,000 families have been paid a total of approximately R$910 million.
Compensation represents approximately 32 per cent of Fundação Renova’s R$4.7 billion CY2020 budget.
Of the 19 fatalities, 16 families have been fully indemnified and one partially. The remaining two families are still in legal negotiations.
Other socio-economic programs
Fundação Renova continues to implement a wide range of socio-economic programs in areas such as health and social protection, education, small business development, economic diversification, Indigenous peoples and traditional communities (i.e. sand-gold miners):
Fundação Renova is working on two fronts in the area of health: (i) conducting a human health risk assessment to quantify potential risk associated with the environmental impact of the Fundão dam failure prior to conducting the epidemiological and toxicological studies, as recommended by the Health Technical Chamber and Sub-Secretariat of Health Surveillance and Security and (ii) supporting the public management of municipalities by strengthening existing municipal structures in clinical care and social protection.
Fundação Renova seeks to foster the local economy on the following fronts:
encouraging local employment opportunities in its own workforce and through its contractors
promoting the economic diversification of municipalities, especially those that rely on mining
encouraging mechanisms to stimulate economic development
restoring productive capacity to micro and small companies
Actions to protect and restore the quality of life of Indigenous peoples and traditional communities aim to repair and compensate for the social, cultural, environmental and economic impacts.
Fundação Renova has listening, dialogue and social participation as guiding practices for its actions with the affected communities. More than 110,000 people have attended collective meetings.
Additional compensatory actions are underway to construct new water and sewage treatment facilities and improve existing ones that were impacted by Fundão failure. Rio Doce was an industrial river before November 2015, with inadequate and inefficient water and sewage treatment. Raw sewage was, and continues to be, discharged directly into the river.
Environmental remediation
Fundação Renova successfully concluded works to stabilise the impacted land areas by June 2019. The riverbanks and floodplains were vegetated, river margins stabilised and, in general, water and sediment qualities returned to historic conditions. Long-term remediation work is continuing with landowners and regulators to re-establish agricultural production and riparian margins with native vegetation.
The tailings have low concentrations of trace metals; however, the background concentrations of some elements are elevated in the area due to natural conditions or previous human activity. BHP has continued working with Fundação Renova to make sure robust data is collected, the assessment methodologies are consistent with Brazilian and international standards, and clear causes for any potential health impacts are identified so that health authorities have accurate information to support their decision-making.
Results from water and sediment quality, aquatic habitat and fish surveys demonstrate that the river ecology downstream of the Candonga reservoir and along the coast has recovered from any tailings-related impacts. Upstream of the Candonga reservoir, sediment volumes in the river channel have slowed the recovery of habitats and aquatic fauna diversity and abundance compared to downstream of the reservoir. However Fundação Renova’s work is intended to support natural system dynamics of the river to enhance the recovery of habitats and aquatic ecology
In December 2019, Fundação Renova successfully and safely removed the Linhares barrier in the Pequeno River, allowing the free flow of water between the river and the Juparanã lake.
Relevant legal proceedings: Key decisions on the fishing bans in Espírito Santo, Minas Gerais and other priority areas
In 2016, the Federal Court of Linhares imposed a ban on fishing activities in the coastal area of the state of Espírito Santo. The request to revoke the injunction was denied on 10 July 2020.
In April 2020, Fundação Renova challenged the precautionary conservation restriction preventing fishing for native fish species in the Rio Doce in Minas Gerais state. To date, the restriction remains in place.
Since January 2020, the 12th Federal Court of Belo Horizonte has opened discussion over 12 enforcement proceedings linked to the R$20 billion and R$155 billion public civil claims. These enforcement proceedings seek to expedite the remediation process related to the Fundão dam failure. The claims for these proceedings are mostly related to programs provided for in the Agreements and actions executed by Fundação Renova. Issues covered by these 12 new proceedings include environmental recovery, human health, food safety regarding fish and agricultural products irrigated with Rio Doce water and ecological risk assessment, resettlement of affected communities, infrastructure and development, registration and indemnities, resumption of economic activities, water supply for human consumption and hiring of technical advisers to impacted people among other key delivery areas.
Key decisions expected for resettlement
On 8 January 2020, the Mariana Court extended the deadline for final delivery of the collective resettlements of Bento Rodrigues and Paracatu de Baixo works, enforceable by potential fines for non-compliance, until 27 February 2021. BHP Brasil, Vale and Samarco appealed this decision given the factors impacting delays that are outside of the control of Fundação Renova. A final ruling is pending.
BHP Group Limited, BHP Group Plc and BHP Brasil are involved in legal proceedings relating to the Samarco dam failure. For more information on the significant legal proceedings in which BHP is currently involved, refer to section 6.6.
Progress on our commitments
Following the investigation into the causes of the dam failure, Samarco and its shareholders implemented specific actions to help prevent a similar event from occurring, including a plan to decommission the Germano dam.
Due to legislative changes in Brazil, Samarco is currently progressing plans for the accelerated decommissioning of its upstream tailings dams (the Germano dam complex). Plans for the decommissioning are at a basic design level. Funding for CY2020 and CY2021 was approved by the BHP Board in April 2020, including for initial buttressing services, spillway construction and regrading activities. Preliminary works started in April and a small impact on schedule has been experienced due to COVID-19.
For information on our ongoing management of tailings dams, refer to section 1.7.10. More information on the health, safety and environmental performance at our NOJVs is available at bhp.com.
(1) | Non-operated joint venture. |
The Minerals Australia asset group includes operated assets in Western Australia, Queensland, New South Wales and South Australia.
Copper asset
Olympic Dam
Overview
Located 560 kilometres north of Adelaide, Olympic Dam is one of the world’s most significant deposits of copper, gold, silver and uranium.
Olympic Dam is made upconsists of underground and surface operations and operates a fully integrated processing facility from ore to metal. Ore mined underground is hauled by an automated train system to crushing, storage and ore hoisting facilities, or trucked directly to the surface via declines.
The processing plantmetallurgical complex consists of two grinding, circuits in which high-quality copper concentrate is extracted from sulphide ore through a flotation extraction process. Olympic Dam has a fully integrated metallurgical complex with a grinding and concentrating circuit,leach circuits, a hydrometallurgical plant incorporating solvent extraction circuits for copper and uranium, a copper smelter, a copper refinery and a recovery circuit for precious metals.
Key developments during FY2019FY2020
Olympic Dam began operating its thirdachieved solid underground mine performance in FY2020 with strong development metres, as well as record annual gold production. Underground development into the Southern Mine Area progressed to plan over the year, and provided access ramp or decline, opening upto higher copper grade ore. Preparatory work was undertaken in the southern mine area. The new decline, known asSeptember 2019 quarter related to the Kalta decline, supports productivity and potential growth atreplacement of the mine as it improves traffic flow for Olympic Dam’s underground trucking fleet.
BHP’s research and development trials into heap leaching technology were successfully completed. Heap leaching works by drip-feeding acid through a large stockpile (or heap) of ore to leach out metals. The program, which began in 2012, was conductedrefinery crane with the support ofphysical replacement and commissioning expected to be completed in the South Australian Government and confirmed the viability of the technology.March 2021 quarter.
Looking ahead
In November 2018, BHP announced a discovery 65 kilometres southeast of Olympic Dam. A potential new iron oxide, copper and gold mineralised system was uncovered as part of our ongoing copper exploration program. The resultsPreparations are stillwell advanced for the next Smelter Campaign Maintenance to be executed early in an early phase and more geological information is required.
FY2022. Olympic Dam has a range of future growth options to considerunder consideration as part of its sustained, long-term growth strategy, includingfrom incremental debottlenecking through to large scale investments. A third phase of exploration drilling on the Brownfield Expansion project.
The Brownfield ExpansionOak Dam project has been completed with additional geotechnical and geo-metallurgical data collected to assist in the potential to resultunderstanding of the deposit. Further drilling will be conducted in production growing at Olympic Dam to approximately 240–300 kilotonnes per annum (ktpa).
80FY2021, which will inform our next steps with the project.
Iron oreOre asset
Western Australia Iron Ore
Overview
Western Australia Iron Ore (WAIO) is an integrated system of four processing hubs and five mines connected by more than 1,000 kilometres of rail infrastructure and port facilities in the Pilbara region of northern Western Australia.
WAIO’s Pilbara reserve base is relatively concentrated, allowing development to be planned around integrated mining hubs that are connected to the mines and satellite orebodies by conveyors or spur lines. This approach enables the value of installed infrastructure to be maximised by using the same processing plant and rail infrastructure for a number of orebodies.
The oreOre is crushed, beneficiated (where necessary) and blended at each processing hub – Newman operations, Yandi, Mining Area C and Jimblebar – to create high-grade lump and fines products. Iron ore products are then transported along the Port Hedland–Newman rail line to the Finucane Island and Nelson Point port facilities at Port Hedland.
There are four main WAIO joint ventures (JVs): Mt Newman, Yandi, Mt Goldsworthy and Jimblebar. BHP’s interest in each of the joint ventures is 85 per cent, with Mitsui and ITOCHU owning the remaining 15 per cent. The joint ventures are unincorporated, except Jimblebar.
BHP, Mitsui and ITOCHU are also participants in the POSMAC JV, a joint venture with a subsidiary of POSCO that involves the sublease of parts of one of WAIO’s existing mineral leases. The ore from the POSMAC JV is sold to the Mt Goldsworthy JV.
All ore is transported by rail on the Mt Newman JV and Mt Goldsworthy JV rail lines to the port facilities. WAIO’s port facilities at Nelson Point are owned by the Mt Newman JV and Finucane Island is owned by the Mt Goldsworthy JV.
Key developments during FY2019FY2020
Construction of the US$3.6 billion (100 per cent basis) South Flank project started in July 2018 and by the end of FY2019FY2020 was overall 76 per cent complete.
WAIO achieved record production in FY2020 of 248 million tonnes (Mt) (compared to 238 Mt in FY2019), with higher volumes reflecting record production at Jimblebar and Yandi. Weather impacts from Tropical Cyclone Blake and Tropical Cyclone Damien were offset by strong performance across the supply chain, with significant improvements in productivity and reliability following a series of targeted maintenance programs over the past four years.
We continue to be a low-cost iron ore producer with cost reductions and volume creep enabled through the BHP Operating System, debottlenecking initiatives across the supply chain, and technology and improvements in our maintenance strategies.
WAIO continues to focus on operating safely, implementing a series of preventative measures designed to minimise the spread of COVID-19. To meet border controls introduced by the Western Australian Government, more than 30 per cent complete.900 employees and contractors in business critical roles have temporarily relocated to Western Australia, including the majority of people in specialist roles who are based interstate, such as train drivers and train load out operators. These employees remain in Western Australia.
In October 2019, BHP submitted an application for a government approval related to Aboriginal heritage sites at our South Flank project under construction in the Pilbara region of Western Australia. The approval was granted in May 2020 following extensive consultation with the Traditional Owners, the Banjima people. Nonetheless, consistent with our approach to cultural heritage, BHP confirmed in June 2020 that it would not disturb the sites covered by the approval without further consultation with the Traditional Owners. BHP supports the Western Australian Government’s current process to reform and update its cultural heritage legislation. BHP has made submissions to the Government in support of this reform.
Looking ahead
South Flank remains on track to deliver first ore in CY2021 and is expected to produce 80 million tonnes per annum (Mtpa), replacing volumes from Yandi, as Yandi reaches its end of economic life in theearly-to-mid 2020s. mine life.
For more information about South Flank, refer to section 6.4.6.5.
WAIO production was broadly unchanged in FY2019 comparedcontinues to FY2018. This was a positive result given the production impacts, including a train derailment in November 2018focus on productivity and Tropical Cyclone Veronica in March 2019.
Jimblebar had record production of 58.5 million tonnes (Mt) in FY2019, compared to 55.8 Mt in FY2018.
A range of cost and improvement initiatives contributed to productivity, including changes to maintenance planning, materials handling and truck fleet utilisation.
Looking ahead
South Flank is expected to reach its peak construction workforce of around 3,000 people as the project moves into the second full year of construction.
81
Within WAIO, our focus will remain ondebottlenecking, while transitioning critical supply chain stability, quality improvementprojects to deliver strong returns and operating discipline.
In addition to equipment productivity, prioritisationoperational stability. Underpinning this success will be the embedment of resource recovery optimisation and stable supply of high-quality product to market will continue. There will also be a focus on embedding our transformation programs, into the WAIOlabour productivity and operational efficiencies across our business. For example, the BHP Operating System is currently being deployed at Port, in the Perth Repair Centre and at Jimblebar and will soon be deployed at Mining Area C, Nickel West’s Mt Keith operations and our Integrated Remote Operations Centre during FY2020.
CoalMetallurgical coal assets
Our metallurgical coal assets in Australia consist ofopen-cut and underground mines. At ouropen-cut mines, overburden is removed after blasting, using either draglines or truck and shovel. CoalThe metallurgical coal (also called steelmaking coal) is then extracted using excavators or loaders and loaded onto trucks to be taken to stockpiles or directly to a beneficiation facility.
At our underground mine, steelmaking coal is extracted by either longwall or continuous miner. The coalIt is then transported to stockpiles on the surface by conveyor.
CoalSteelmaking coal from stockpiles is crushed and, for a number of the operations, washed and processed through a coal preparation plant. Domestic coalIt is transported to nearby customers via conveyor or rail, while export coal isthen transported to ports on trains. Single and multi-user rail and port infrastructure is used as part of the steelmaking coal supply chain.
Queensland Coal
Overview
Queensland Coal comprises the BHP Mitsubishi Alliance (BMA) and BHP Mitsui Coal (BMC) assets in the Bowen Basin in Central Queensland, Australia.
The Bowen Basin’s high-quality metallurgicalsteelmaking coals are ideally suited to efficient blast furnace operations. The region’s proximity to Asian customers means it is well positioned to competitively supply the seaborne market.
Queensland Coal has access to key infrastructure in the Bowen Basin, including a modern, multi-user rail network and its own coal loading terminal at Hay Point, located near the city of Mackay. Queensland Coal also has contracted capacity at three other multi-user port facilities – the Port of Gladstone (RG Tanna Coal Terminal), Dalrymple Bay Coal Terminal and Abbot Point Coal Terminal.
BHP Mitsubishi Alliance (BMA)
BMA
BMA is Australia’s largest coal producer and supplier of seaborne metallurgical coal. It is owned 50:50 by BHP and Mitsubishi Development.
BMA operates seven Bowen Basin mines (Goonyella Riverside, Broadmeadow, Daunia, Peak Downs, Saraji, Blackwater and Caval Ridge) and owns and operates the Hay Point Coal Terminal near Mackay. BMA also owns Norwich Park Mine, which is in care and maintenance. With the exception of the Broadmeadow underground longwall operation, BMA’s mines areopen-cut, using draglines and truck and shovel fleets for overburden removal.
BHP Mitsui Coal (BMC)BMC
BMC owns and operates twoopen-cut metallurgical coal mines in the Bowen Basin – South Walker Creek Mine and Poitrel Mine. BMC is owned by BHP (80 per cent) and Mitsui and Co (20 per cent).
82
South Walker Creek Mine is located on the eastern flank of the Bowen Basin, 35 kilometres west of the town of Nebo and 132 kilometres west of the Hay Point Port facilities. Poitrel Mine is situated southeast of the town of Moranbah and beganopen-cut operations in October 2006.
Key developments during FY2019FY2020
BMA completed the saleQueensland Coal achieved record underground coal mined at Broadmeadow of the Gregory Crinum Mine2.43 Mt (compared to Sojitz Corporation on 27 March 2019. In addition to the sale of the mine to Sojitz, BMA has provided Sojitz funding for rehabilitation of existing areas of disturbance2.12 Mt in FY2019) and record annual production at the site.
For BMA, the construction of the Caval Ridge Southern Circuit (CRSC) projectof 4.35 Mt (compared to 3.97 Mt in the Bowen Basin was completed with the first conveyingFY2019) and Poitrel of coal4.13 Mt (compared to 4.07 Mt in October 2018. The CRSC project includes an11-kilometre overland conveyor system that transports coal from Peak Downs Mine to the coal handling preparation plant at the nearby Caval Ridge Mine, enabling utilisation of the latent capacity of the Caval Ridge coal handling preparation plant.FY2019).
The introduction of productivityProductivity initiatives targeting system hours, the haul cycle, payload, our trucking strategy and enabling activities were initiatedintroduced in FY2019 to improvepre-strip productivity across the Queensland Coal business. By further improving our productivity in truck and shovel operations, we expect to accelerate the rate at which coal is uncovered and ensure a continuous feed for ourto the wash plants.
Theplants remained on track, with FY2020 focused on improvements in payload and cycle times. Through the Integrated Remote Operations Centre, has been focusedwe continued to build on ultra-classthe ultra class truck utilisation improvements, optimising truck allocation and minimising process delays with in-shift, real-time operational performance management and increased integration through the useoutbound supply chain.
With a continued focus on safety in FY2020, Queensland Coal achieved its lowest ever total recordable injury frequency rate and BMA achieved a step change across lead and lag indicators attributed to the implementation of analyticskey work programs enabling alignment of health and technology to optimiseon-circuit trucks. This has minimised process delayssafety procedures across all operations and through effective refuelling, meal breaks and shift change practices and embedded improvementsinvestment in the24-hour mine planning process. implementation of more than 120 additional hard controls.
Looking ahead
ForQueensland Coal will continue to focus on safety with BMA continued delivery of initiativesfurther embedding the programs and improved operating discipline through the site-level integrated operational plans are expected to support delivery of productivity improvement. In the medium term, trucking performance is expected to improve to benchmark rates, as well as the realisation of transformation initiative benefits, through leveraging latent coal handling preparation plantstandards implemented in FY2020, and logistics capacity.
BMA’s safety performance requires significant improvement. With three fatalities over the last four years, BMA is focusing its efforts to drive a change in safety through the consistent application of improved safety standards, increasing the standardisation of work, improving the quality of task-based risk assessments and decreasing fatal risk exposure throughfurther investment in hard controls.
BMC will work to continue to improve the quality ofimproving safety outcomes through field leadership, hazard reporting and risk management at boththe South Walker Creek and Poitrel Mines, and the Red Mountain coal handling preparation plant. We
For BMA, strong asset-level alignment of operating discipline and integrated operational plans ensure we focus on maximising value through the supply chain. This will be achieved by focusing on bottleneck processes to smooth coal flows leveraging latent coal handling preparation plant and logistics capacity. Medium-term plans remain focused on lifting trucking performance to benchmark rates thereby leveraging the benefits of our transformation program and achieving results in the areas implemented.
Autonomous trucks are being implemented at two Queensland Coal sites. Daunia with 34 autonomous trucks and Goonyella Riverside with 86 autonomous trucks. Deployment at both sites is expected to be completed early in CY2022.
BMC will also plan to focus on improving truck and shovel productivity to ensure optimal utilisation of ourthe coal handling preparation plants. BMC will reopen Ramp 10 at Poitrel to increase available mining areas, target delivery of the Mulgrave Resource Area 2C project at South Walker Creek to release lower strip ratio resources in the medium term,plants, and continue to prioritise lowlow-capital debottlenecking opportunities. BMC will plan to mitigate short-term COVID-19-related price impacts by reducing high cost production and capitalde-bottlenecking opportunities.
83 expenditure, but retain the ability to respond should higher prices emerge.
New South Wales Energy Coal
Overview
New South Wales Energy Coal (NSWEC) consists of the Mt Arthur Coalopen-cut energy coal mine in the Hunter Valley region of New South Wales, Australia. TheHistorically, the site produceshas produced coal for domestic and international customers in the energy sector.sector, but has shifted to international customers only from the second half of FY2020.
Key developments during FY2019FY2020
In October 2018, BHP awarded Thiess a mining services contract to completeend-to-end mining services in the Ayredale and Roxburgh pits (referred to as Mt Arthur South) over five years. Thiess was identified as the preferred contractor, with expertise in existing operations at the southern area of the main pit and terrace mining techniques demonstrated at nearby operations. Under the new contract, Thiess is appointed statutory mine operator of Mt Arthur South, with scope including vegetation clearing, mine planning, drill and blast, overburden and coal mining.
BHP will remain mine and lease holder of Mt Arthur South and Mt Arthur North, and mine operator of Mt Arthur North.
Looking ahead
During FY2020, NSWEC is transitioningtransitioned to a strategy of optimising product quality. Volume is expected to decreaseThis has resulted in a reduction in volumes and unit costs toan increase in the short term. We expect that benefits of the multiple elevated roadways project and continued improvements to truck and shovel productivity will lead to lower unit costs in the medium term.short term, but overall increased realised value. Production volumes were also impacted by unfavourable weather impacts from December 2019 to February 2020, partially offset by strong performance in the June 2020 quarter driven by record truck utilisation
Truck productivity improvements were delivered in the second half of FY2020, enabling a step-change improvement across our mining fleets. Annualised truck hours improved by 20 per cent, cycle times reduced by 10 per cent and payload increased by 3 per cent, supported by maintenance strategies and practices that enabled equipment availability in excess of 90 per cent.
In FY2020, BHP completed an optimisation of the NSWEC outbound supply chain commercial arrangements through a partial divestment of shares and stapled capacity at the Newcastle Coal Infrastructure Group terminal. The total export capacity of the asset remains unchanged and the transaction has facilitated a more competitive cost position.
Looking ahead
NSWEC continues to plan for the most productive path through steeply dipping resources (the monocline) and securing the required regulatory approval to continue operations post FY2026. Work is underway to review mine planning and operating alternatives to structurally reduce costs in the near term and ensure a viable mining operation which is resilient during low price cycles.
Nickel West
84
Overview
Nickel West is a fully integratedmine-to-market nickel business. All nickel operations (mines, concentrators, a smelter and refinery) are located in Western Australia. The integrated business adds value throughout our nickel supply chain, with the majority of Nickel West’s current production sold as refined metal in the form of powder and briquettes.
Low-grade disseminated sulphide ore is mined from the largeopen-pit operation at Mt Keith. The ore is crushed and processedon-site to produce nickel concentrate. High-grade nickel sulphide ore is mined at the Cliffs, and Leinster underground mines and Rocky’s Rewardopen-pit mine. The ore is processed through a concentrator and dryer at Leinster. Nickel West’s concentrator plant infacility at Kambalda processes concentratematerial purchased from third parties through its dryer, with its mill currently on care and maintenance.parties.
The three streams of nickel concentrate come together at the Nickel West Kalgoorlie nickel smelter. The smelter uses a flash furnace to smelt concentrate to produce nickel matte. Nickel WestThe Kwinana nickel refinery then refines granulated nickel matte from the Kalgoorlie smelter into premium-grade nickel powder and briquettes containing 99.8 per centhigh-grade refined nickel. Nickel matte and metal are exported to overseas markets via the Port of Fremantle.
Key developments in FY2019FY2020
The Nickel West made significantresource transition involving the construction of three new mines continued to progress during FY2020, with two of these mines now in FY2019 on its transition to become a leading supplierfull production.
The Mt Keith satellite mine (Yakabindie) entered production in December 2019 and is now the primary source of feed to the battery materials market, selling more than 70 per cent of itsMt Keith concentrator.
The Venus underground mine transitioned to full production in September 2019, with ore hoisted to this sectorthe Leinster concentrator.
Leinster B11 (the first block cave to be developed by BHP, located beneath the Leinster underground mine) proceeded in FY2019. In addition, it was announced that Nickel West will be retained inline with expectations, with development ore hoisted to the BHP portfolio.Leinster concentrator.
Construction of a nickel sulphate plant at the Kwinana Nickel Refinery is underway. Stage 1 is expected to produce up to 100 ktpa of nickel sulphate.
In FY2019, Nickel West signed an agreement withto acquire the traditional ownersHoneymoon Well development project on 19 June 2020 and the remaining 50 per cent interest in the Albion Downs North and Jericho exploration joint ventures, located approximately 50 kilometres from Mt Keith. Completion of the land surroundingagreement is subject to a number of conditions, including government and used bythird party approvals.
Looking ahead
We continue to focus on finalising Nickel West’s operations inresource transition. Leinster B11 block cave is expected to commence the northern Goldfields. In addition to formalising BHP’s relationship withundercut phase during the Tjiwarl people, the agreement provides support for the Mt Keith Satellite mine development, which will supply additionalfirst half of FY2021, providing increasing quantities of ore to the Mt Keith concentrator. Work has begun onLeinster concentrator as the Mt Keith Satellite mine development with excavation of the northern pit (Six Mile Well) and construction of the haul road.
Work has commenced at our underground Venus Mine near Leinster and work on the new main ventilation shaft and pastefill plant are progressing well. Nickel West will operate the underground infrastructure for the Venus mine.
Development on the undercut for Leinster B11 (block cave) is proceeding in line with expectations, with key underground infrastructure recommissioned and in use.
Looking aheadproject progresses to full caving.
Nickel West also offers a number of development options and potential enhancements to its resource position through exploration and processing innovation. Our short-term focusThese opportunities are being explored in parallel with incremental debottlenecking opportunities at the concentrators and the Kalgoorlie nickel smelter.
Nickel West is the upstream segmentexpected to complete construction of the nickel value chain through increased exploration activities in Western Australia and continuing nickel mine development in the northern Goldfields.
First production from the nickel sulphate plant located at the Kwinana Nickel Refinery is expectednickel refinery in the first half of CY2020.
First ore from the Mt Keith Satellite project is expected by the end of CY2019. Additional capacity from the project will be matched to meet the Mt Keith mill requirements.
We expectFY2021, with first production ore from the Leinster B11 undercutproduct due in the second half of CY2020, pending external approvals.
85FY2021. This stage (Stage 1) is expected to produce approximately 100 ktpa of nickel sulphate.
Case study:
South Flank update
BHP continues to be committed to creating shared value for local economies in the places in which we operate. Our investment in South Flank is also an investment in Western Australian-based businesses. By the end of June 2019, we had awarded more than A$3.3 billion of work on South Flank – 78 per cent of which is Australian-based work, including 37 per cent that is Pilbara based and 39 per cent that is based in the rest of Western Australia.
Two of these local operators, Monadelphous and Clough, deliver significant structural, mechanical, process, electrical and instrumentation works for South Flank. When operational, South Flank will be the largest producing iron ore mine BHP has ever developed, integrating the latest advances in autonomous-ready fleets and digital connectivity.
Monadelphous, an Australian engineering group headquartered in Perth, has been contracted to expand an existing stockyard within the rail loop, resulting in the creation of 600 jobs. We have worked with Monadelphous for more than 20 years on construction and maintenance projects.
Similarly, Clough, a Western Australian engineering and construction business celebrating 100 years of local operation in CY2019, has been contracted to construct the South Flank ore handling plant and coarse ore stockpile. BHP expects more than 600 ongoing operational roles over the life of the25-year mine.
86
The Minerals Americas asset group includes projects, operated assets andnon-operated joint ventures in Canada, Chile, Peru, the United States, Colombia and Brazil.
Operated assets
Copper
Our operated copper assets in the Americas, Escondida and Pampa Norte are open-cut mines. At these mines, overburden is removed after blasting, using truck and shovel. Ore is then extracted and further processed into high-quality copper concentrate or cathodes. Copper concentrate is obtained through a grinding and flotation process, while copper cathodes are produced through a leaching, solvent extraction and electrowinning process. Copper concentrate is transported to portsthe port via pipeline, while cathodes are transported by either rail or road. From the port,ports, copper is exported to our customers around the world.
For the majority of the June 2020 quarter, our Chilean assets operated with a reduction in their operational workforces of approximately 35 per cent to incorporate measures in response to COVID-19. We have implemented a comprehensive plan for COVID-19, including various hygiene and health controls and a proactive testing regime for people before entering sites and boarding transportation.
We will continue to maintain operational measures that protect the health and wellbeing of our workforce while COVID-19 remains a major health risk, in line with Our Charter values. As a result, we anticipate continuing to operate our Chilean assets with a reduced workforce until these controls can be relaxed.
Escondida (Chile)
Overview
We own 57.5 per cent of the Escondida mine, a leading producer of copper concentrate and cathodes located in the Atacama Desert in northern Chile. Escondida’s two pits feed three concentrator plants, as well as two leaching operations (oxide and sulphide).
Key developments during FY2019FY2020
Escondida copper production in FY2019 decreasedFY2020 increased by 64 per cent to 1,1351,185 kilotonnes (kt), as a consequencesupported by record average concentrator throughput of an371 kilotonnes per day (ktpd), which offset expected 12 per centgrade decline, in copper grades, partially offset by a record level of ore milled reflecting a full year of operationstoppages associated with three concentrators.the social unrest and COVID-19 impacts.
The Escondida Water Supply Expansion (EWSE) project progressed according to schedule during FY2019was completed on time and is expected to deliver its first waterbudget in December 2019. Following the first halfcompletion of FY2020. Thethe EWSE project, comprisesEscondida has eliminated water drawdown from aquifers for operational supply 10 years ahead of its FY2030 target.
The Centre of Integrated Operations (CIO) was inaugurated in July 2019 in BHP’s Santiago office and has since provided remote control services to the expansionmine and process areas of the Escondida Water Supply conveyance systemand Spence. The CIO enables an operation that is safer and more productive by 1,300 litres per secondreducing people on-site and the desalination water production by 800 litres per second. This project is keyallowing them to enabling Escondida achieve its production plans while also reducing its reliance on groundwater sources. The proportion of desalinated waterwork in use at Escondida at the end of FY2019 was 40 per cent.a collaborative space.
On 17 August 2018, Escondida successfully completed negotiations with Union N°1 and signed a new collective agreement, effective for 36 months from 1 August 2018. On 17 April 2019, Escondida reached an agreement with an intercompany union that includes 105 workers that were formerly part of Union N°1.
Looking ahead
Production of between 1,160940 and 1,2301,030 kt is expected for FY2020, reflectingFY2021, with a further upliftdecline in ore milled and higher recoveries atcopper grade of concentrator feed of approximately 4 per cent. Lower volumes reflect the cathode process.
Escondida plansneed to continue to unlock latentbalance mine development and production requirements, with processing capacity throughat concentrators and leaching plants, as a result of a reduced operational workforce due to COVID-19. It is expected that production levels are likely to be impacted in FY2022 as a result of reduced operational workforce and material movement in FY2021. Guidance of an annual average of 1,200 kt of copper production over the maximisation of concentrator throughput, increased use of the cathode circuit and improvements in mine fleet performance. This will be enabled by focusing on continuous improvement and leveraged by the implementation of thenext five years remains unchanged.
The BHP Operating System deployment and the Maintenance Centreautomated truck trial initiatives are expected to be completed in FY2021. In addition, Escondida will be undertaking studies on different material handling technologies to build an integrated suite of Excellence. We will also implementmaterial handling projects that aims to combine innovative and disruptive technology projectsand equipment solutions to enhance our decision makingincrease mine productivity and automate key activities. improve costs competitiveness.
We expect these initiatives will allow Escondida to operate with a medium-term unit cost of less than US$1.151.10 per pound despite the continuation of grade decline and the increasing water costs as we progress toward our goal to cease freshwater usage altogether by CY2030.costs.
87
Pampa Norte (Chile)
Overview
Pampa Norte consists of two wholly owned assets in the Atacama Desert in northern Chile – Spence and Cerro Colorado. Spence and Cerro Colorado produce high-quality copper cathodes through leaching, solvent extraction and electrowinning processes.
Key developments during FY2019FY2020
Pampa Norte copper production for FY2019FY2020 decreased by 72 per cent to 247243 kt, mostlymainly due to a fire event in the electrowinning plant at Spence in September 2018, which had a production impact of 18 kt. This was partially offset by a 1914 per cent increasedecline in production at Cerro Colorado due to higher throughput and recoveries.stacked ore grade.
The Spence Growth Option (SGO) to construct a 95 kilotonnes per day (ktpd)ktpd ore concentrator and the outsourcing of a 1,000 litre per second desalination plant progressed accordingis 93 per cent complete. As a result of measures put in place to schedule and atreduce the endspread of FY2019 had an overall progress of 60 per cent. The project is expected to incrementally increase copper production capacity by approximately 185 ktpa, withCOVID-19, first production is now expected between December 2020 and March 2021. The commissioning of the desalination plant and capitalisation of the associated US$600 million lease (approximate) will now occur in the first half of FY2021. For more information about SGO, refer to section 6.4.
In July 2018, Compañía Minera Cerro Colorado and its Supervisors and Staff Union signed a new collective agreement for 36 months, effective from 1 July 2018. In September 2018, Cerro Colorado and the Operators and Maintainers Union N°1 signed a new collective agreement for 36 months, effective from 1 September 2018.
On December 2018, BHP terminated the sale agreement of Cerro Colorado to the private equity manager, EMR Capital, as the financing conditions were not met by the buyer. BHP will continue to operate Cerro Colorado.6.5.
Looking ahead
Production at Pampa Nortefor FY2021 is expected to be between 230240 and 250270 kt, in FY2020, despitereflecting the reduced operational workforce due to COVID-19, the start-up of the SGO project and expected 11grade decline of approximately 7 per cent decline incent.
SGO will produce first copper grades across both operations. Plansbetween December 2020 and March 2021 and plans are on track to redesign the approach to operations at Spence to optimally balance the requirements of the concentrate and cathodes processes, as well as changes in the loading and hauling fleet following completionprocesses. The first batch of the SGO. Spence will introduce a new Ultra-Classultra-class truck fleet overarrived at Spence in FY2020 and the medium term, with the firstremaining units are expected to arrive during FY2020. This change, along with technology enabled solutions,in the next two years. The BHP Operating System deployment at Spence started in January 2020 and is expected to leadcontinue during FY2021. Similar to reduced healthEscondida, Spence will be undertaking studies on various material handling technologies, such as automated trucks, trolley assistance and safety risksin-pit crushers and operating costs.conveyors to increase mine productivity and improve cost competitiveness.
Production atOn 1 July 2020, Cerro Colorado is expectedannounced it had started a four-month process to remain relatively stable during FY2020. The commissioningadjust its mine plan to reduce throughput and costs to achieve improved cash returns and ensure viable mining operations for the remaining period of a recovery optimisation project is expected to be completed duringits current environmental licence, which expires at the first halfend of FY2020.
88CY2023.
Potash
Potash is a potassium-rich salt mainly used in fertiliser to improve the quality and yield of agricultural production. As an essential nutrient for plant growth, potash is a vital link in the global food supply chain. The demands on that supply chain are intensifying; there will be more people to feed in future, as well as rising calorific intake comprising more varied diets. The strains this will place on finite land supply mean sustainable increases in crop yields will be crucial and potash fertilisers will be critical in replenishing our soils.
Jansen Potash Project (Canada)
Overview
BHP holds exploration permits and mining leases covering approximately 9,600 square kilometerskilometres in the province of Saskatchewan, Canada. The Jansen Potash Project is located approximately 140 kilometerskilometres east of Saskatoon. We currently own 100 per cent of the Project.
Jansen’s large resource endowment provides the opportunity to develop it in stages, with anticipated initial capacity of between 4.3 and 4.5 Mtpa for Jansen Stage 1, with sequenced brownfield expansions of up to 12 Mtpa (4 Mtpa per stage).
Key developments during FY2019FY2020
HavingFocus in FY2020 was on safely excavatedinstalling new work platforms, called Galloways, into the two7.3-metre diameter service and production shafts to their full depths in August 2018, focus turned to preparingenable the temporary liners forinstallation of the final watertight composite concrete and steel liners and removingfrom a depth of approximately 900 metres. At the two shaft boring roadheader (SBR) machines that excavatedend of FY2020, the shafts. The SBRs were removed from the shafts in April 2019.current scope of work was 86 per cent complete.
The service shaft and production shaft are 1,005 metres and 975 metres deep, respectively. Jansen is intended to mine the Lower Patience Lake potash formation, which lies between 935 metres and 940 metres.
Looking ahead
Future work will include installingcontinuing to install the watertight composite concrete and steel final liners from a depthliners. In June 2020, final shaft lining work for the Jansen Potash Project, which was reduced to focus on one shaft as part of approximately 800 metres upwardsour COVID-19 response plan to reduce our on-site interprovincial workforce, was resumed in both shafts. We expectBHP continues to assess the impacts of COVID-19 and the temporary reduction in construction activity. Timing for completion of the shafts continues to be completed in the first half of CY2021 and we continue to assess how to reduce risk and unlock value as we conclude this work. At the end of FY2019, the current scope of work was 84 per cent complete. under review.
We will continue the selection of a port option on the North American west coast from which Jansen’s potash would be exported. As with all decisions relating to the deployment of capital, the next steps of the Project will be assessed in line with our Capital Allocation Framework.
Non-operated minerals joint ventures
BHP holds interests in companies and joint ventures that we do not operate. Ournon-operated minerals joint ventures (NOJVs) include Antamina (33.75 per cent ownership), Resolution Copper (45 per cent ownership), Cerrejón (33.33 per cent ownership) and Samarco (50 per cent ownership).
For more information on Samarco and Fundação Renova, refer to section 1.8.
We engage with our NOJV partners and operator companies through our NOJV team, which seeks to sustainably maximise returns through managing risk. While NOJVs have their own operating and management standards, we seek to enhance governance processes and influence operator companies to adopt international standards (within the limits of the relevant joint venture agreements).
89
Since the creation of the NOJV team, our focus has been to reinforce strong practices in governance, risk management and value optimisation. Our achievements
During the COVID-19 pandemic, BHP supported some of the work by the operator at certain of our NOJVs to date include:address risks associated with the pandemic, including temporary shutdowns and restart. Subject matter experts from NOJV partners (including BHP) provided input to relevant NOJV operators in relation to HSE, communications and community engagement issues during the pandemic.
Governance: We continue to work in our NOJV boards and committees to improve governance practices and standards, benchmarking against best practice. In collaboration with our shareholder partners,Throughout FY2020, we identify and implement annual governance improvement plans for each operator company.
Risk management: Our FY2019 strategy continued to focus on understandingpositively influencing the NOJV operator’s risk management processes and influencing themNOJVs to align with international standards (including ISO 31000). This included analysing and challenging completeness of their risk profilesprofile and prioritising management of those risks.
The NOJV team also continued to support the NOJVs to improve their operating performance and cost competitiveness in a challenging environment, delivering significant capital optimisation across the Antamina, Cerrejón and Resolution joint ventures and strengthening the capital returns from each of the operations.
More information on the health, safety and environment performance at our NOJVs is available in our Sustainability Report 2019, available online at bhp.com.
Non-operated minerals joint ventures
Copper
Antamina (Peru)
Overview
We own 33.75 per cent of Antamina, a large,low-cost copper and zinc mine in north central Peru. Antamina is a joint venture between BHP (33.75 per cent), Glencore (33.75 per cent), Teck Resources (22.5 per cent) and Mitsubishi Corporation (10 per cent), and is operated independently by Compañía Minera Antamina S.A. Antaminaby-products include molybdenum and silver.
Key developments during FY2019FY2020
Antamina continues to focus its efforts on safety and health improvements. Copper production for FY2019 increasedFY2020 decreased by 615 per cent to 147125 kt withand zinc decreasingdecreased by 1810 per cent to 9888 kt reflecting higherlower copper head grades and lower zinc head grades,the impact of operating with a reduced workforce following a six-week shutdown during the June 2020 quarter in line with the mine plan. Throughout FY2019,response to COVID-19.
During FY2020, Antamina progressed studies to debottleneck the operationcontinued with a strong focus on evaluating new technologiesdeveloping a robust technology roadmap to secure a more sustainable operation in the long term and to maintain cost competitiveness. The three-year Antamina Union Agreement was signedhas progressed studies to debottleneck the operation through mine mechanisation projects and the first phase is expected to be completed in June 2019, expiring on 31 July 2021.the next three years.
Antamina announced its intent to submit its Modified Environmental Impact Assessment (MEIA) for its life extension project from CY2028 to CY2036, which includes extension of current approved tailings capacity, additional waste dumps and new pit design.
Antamina’s operations were suspended between 13 April and 26 May 2020 due to COVID-19 implications. Strict controls were applied during the demobilisation to safeguard the health of workers and local communities. At the end of FY2020, its operations were at a ramp-up stage, while complying with government COVID-19 requirements and applying sector international standards for health and safety.
During the COVID-19 emergency, Antamina intensified its contribution to local communities, helping the Regional Government to strengthen its capabilities to cope with the pandemic, providing medical equipment, launching initiatives for local farmers and entrepreneurs to support the local economy (through the program Reactiva Ancash), and distributing food aid.
Looking ahead
Copper production of between 120 and 140 kt, and zinc production of between 140 and 160 kt is expected for FY2021.
Antamina remainswill remain focused on improving productivity and reducing unit cash costs. Copper productioncosts by identifying new technologies and innovative solutions in line with the technology roadmap. In addition, Antamina will continue to embed a culture of approximately 135 ktdiversity and zinc production of approximately 110 ktinclusion in its strategy and monitor the MEIA process, seeking final approval in a reasonable timeframe and community engagement. Once the MEIA process is expected in FY2020.finalised, it is anticipated Antamina will update its reserve and resource statement to reflect an approved life extension to CY2036.
Resolution Copper (United States)
Overview
We holdBHP holds a 45 per cent interest in the Resolution Copper project in the US state of Arizona, which is operated by Rio Tinto (55 per cent interest). Resolution Copper is one of the largest undeveloped copper projects in the world and has the potential to become the largest copper producer in North America. The Resolution Copper deposit lies more than 1,600 metres beneath the surface. Resolution Copper is working with regulators and the community to plan the development of the resource and obtain the necessary permits.
Key developments during FY2019FY2020
90
Restoration ofThe shaft No. 9 sinking project involves deepening the historic No. 9 shaft, originally constructed in 1971, was successfully completed safely and on budget in December 2018. The second phase of the project is to deepen the shaft from its current depth at 1,460 metres below the surface to a final depth of 2,086 metres and linklinking it with the existing No. 10 shaft via development activities underground. This project is on track with respect to schedule and budget. In December 2019, it passed the one-mile (1,600 metre) mark with zero safety events; a major milestone for shaft sinking works in the United States.
During FY2019,The multi-year National Environmental Policy Act permitting process and community engagement are progressing positively. The US Forest Service released the Draft Environmental Impact Statement on 9 August 2019 and the comment period closed on 7 November 2019.
Resolution project continued to move forward to identify the best development pathway for the project. The multi-year National Environmental Policy Act (NEPA) permitting process and community engagement are progressing positively. Ourproject as the PFS-A study progressed. BHP’s share of project expenditure for FY2019FY2020 was US$85103 million.
Looking ahead
We remain focused on supporting Resolution Copper on optimising the Resolution Copper project and working with the operator, Rio Tinto, to develop the project in a manner that creates sustainable benefits for all stakeholders. The next key milestones for the project will take place in the June 2020 quarter with the completion of a final version of the environmental impact study and in the December 2020 quarter with the completion of the selection phase. A single preferred investment alternative is yet to be selected.
Coal
Cerrejón (Colombia)
Overview
We have aone-third 33.33 per cent interest in Cerrejón, which owns, operates and markets (through an independent company) one of the world’s largestopen-cut energy coal mines, located in the La Guajira province of Colombia. Cerrejón alsois an equal partnership joint venture with Anglo American and Glencore. Cerrejón has lease agreements for several mining areas and owns and operates integrated rail and port facilitiesfacilities. Coal product is marketed through which the majority of its productionan independent company and is exported mainly to European, North American and South American customers.customers; a minor proportion is exported to Asia.
Cerrejón’s coal assets consist ofn makes anopen-cut mine with several pits. Overburden is removed after blasting, using truck and shovel. Coal is then extracted using excavators or loaders and loaded onto trucks to be taken to stockpiles.
Coal from stockpiles is crushed, of which a certain portion is washed and processed through the coal preparation plant. Export coal is transported important contribution to the port via a150-kilometre railway.Colombian economy and to the region of La Guajira, employing local people, contributing through taxes and royalties and investing in social and environmental initiatives. Cerrejón is also working with local Indigenous groups to address concerns raised by them in relation to the impacts of Cerrejón’s operations on their communities.
Key developments during FY2019FY2020
FY2019FY2020 concluded with stable safety and operational performance at Cerrejón. Production declined 13by 23 per cent to 9,230 kt7 Mt in FY2019,FY2020, due to severe weather impactsa temporary shutdown and workforce reduction during the COVID-19 pandemic and focus on higher-quality products due to market adjustment. Cerrejón reduced its operational costs by 15 per cent, which allowed it to remain cash flow neutral in spite of the decline in coal price.
Cerrejón supported the local community of La Guajira during the COVID-19 emergency by providing drinking water, food parcels and medical equipment, including the donation of a lower volume plan comparedlaboratory to carry out COVID-19 molecular testing in the community. Cerrejón continues to engage with FY2018.communities and ensure its stakeholders are informed about the protocols and controls they have in place to keep the workforce and communities safe.
Looking ahead
Cerrejón is focused on stability of throughput with current installed capacity, targeting higher calorific value coal and securing the necessary permitsmarket diversification. Production is expected to access ore reserves.be approximately 7 Mt in FY2021.
Iron Ore
91
Iron ore
Samarco (Brazil)
BHP Billiton Brasil LimitadaLtda (BHP Brasil) and Vale S.A. (Vale) each have a 50 per cent shareholding in Samarco Mineração S.A. (Samarco), the owner of the Samarco iron ore mine in Brazil.
Overview
As a result of the tragic failure of the Fundão dam at Samarco in November 2015, operations at Samarco remain suspended.
Samarco comprises a mine and three concentrators located in the state of Minas Gerais and four pellet plants and a port located in Anchieta in the state of Espírito Santo. Three400-kilometre pipelines connect the mine site to the pelletising facilities.
Samarco’s main product is iron ore pellets. Prior to the suspension of operations, the extraction and beneficiation of iron ore were conducted at the Germano facilities in the municipalities of Mariana and Ouro Preto. Front end loaders were used to extract the ore and convey it from the mines. Ore beneficiation then occurred in concentrators, where crushing, milling, desliming and flotation processes produced iron ore concentrate. The concentrate would leave the concentrators as slurry and be pumped through the slurry pipelines from the Germano facilities to the pelletising plants in Ubu, Anchieta, where the concentrate was processed into pellets. The iron ore pellets were then heat treated. The pellet output was stored in a stockpile yard before being shipped out of the Samarco-owned Port of Ubu in Anchieta.
All geotechnical structures within the Germano facilities, including tailings dams, are monitored 24 hours a day by Samarco, using more than 650800 pieces of monitoring and safety equipment, including cameras, weather forecast stations, drones and accelerometers. In addition, sirens are installed along the river up to 10080 kilometres downstream of Samarco. Geotechnical engineers and technicians monitor data from the instrumentation in an Integrated Monitoring Control Room,integrated monitoring control room, undertake daily field inspections and perform monthly third party audits.
Key developments during FY2019FY2020
The new Santarém dam was commissionedSamarco operations restart consists of three main pillars: Alegria Sul pit tailings disposal system, LOC (corrective operational licence) issuance and is operating as planned and drainage preparation commenced at the bottom area of the Fundão Valley, which is part of the Degraded Area Recovery Plan. Thefiltration plant construction together with operations readiness activities. Alegria Sul pit tailings disposal system implementation commenced and services completion is expectedwas completed in September 2019. The LOC was issued on 25 October 2019. US$44 million for BHP Billiton Brasil Ltda’s share was approved to fund the restart of production at Samarco from a single concentrator in the second half of CY2020 or early CY2021 (BHP mid-view is January 2021). The funds will be used for the first phase of installation of tailings filtration infrastructure and operational readiness activities. Work related to the construction of the filtration plant and operations readiness activities have been slowed as a result of a reduced workforce as part of our COVID-19 response without a significant impact on the restart schedule.
BHP Brasil and Vale approved the filtration plant and operational readiness activities investment in November 2019 and dam decommissioning program investment for CY2020–2021 was approved in April 2020.
Following Vale’s Brumadinho dam tragedy on 25 January 2019, Brazil’s National Mining Agency (ANM) announced a requirement for all upstream construction tailings dams to be decommissioned by various dates, depending on their size. The relevant deadlineAs required under the regulatory requirements, a dam decommissioning conceptual design was filed with the ANM in August 2019 and a basic design was filed with the ANM in December 2019. Field works started in April 2020 for the program, which includes the decommissioning of the Germano Main Pitpit dam and Germano main dam (including the main dam and the Sela, Tulipa and Selinha saddle dykes) to guarantee the long-term stability of the structures, as well as final regrading of the impoundment area and, finally, environmental rehabilitation.
Construction of a new retaining dam, following the failure of the Fundão dam, is September 2025now complete and was the last structure to be built in the Fundão valley to ensure the remaining tailings would not be remobilised. Further work relating to the starting dyke for the future tailings and waste piles is now incorporated into the Germano Main Dam is September 2027.decommissioning program. This work will be completed by Samarco has hired STANTEC, an international consulting company, to develop a detailed designfollowing transfer of the decommissioning plan for the Germano facilities, to be submitted by December 2019.
92
In May 2019, Brazil’s National Sanitary Surveillance Agency (ANVISA) attested to the safe consumption in certain quantities of fish and crustaceansprogram from the Doce River basin and coastal region, within daily limits of 200 grams per adult and 50 grams per child. Given the significant impacts of the fishing bans on the livelihoods of commercial and subsistence fisherfolk and the social cohesion within their communities, BHP Billiton Brasil has continued providing technical support to Fundação Renova to accelerate the collection of data to address the concerns of regulators and the community. This includes analysis of the safety of fish for human consumption and the status of fish populations to support lifting of the fishing bans that currently remain in place.September 2019.
Looking ahead
The developmentSamarco business plan considers an operations restart with one concentrator and tailings filtering, which changes the tailings disposal from the use of tailings dams to disposal of the coarse portion of the tailings in dry stack piles and the disposal of slimes in a previously mined out pit. Samarco is focused on completing the filtration plant construction for dry stacking and completing operational readiness activities. All filters are now installed and the electrical and mechanical installation services are progressing.
As part of the dam decommissioning plan forprocess, the Germano facilitiespit dam gallery plugging and the Germano main dam preliminary services have started. Samarco is the highest priority for Samarco. The plan will include the design of downstream reinforcement, a surface drainage management systemlooking ahead to complete Germano main dam toe ground replacement, initial regrading and instrumentation and monitoring systems. Restart of Samarco’s operations also remains a focus, provided it is safe, economically viable and has the supportinitial excavation of the community. Activities required for the granting of licences by state and federal authorities are complete or near completion. These include completion of the Alegria Sul pit tailings disposal system and the construction of a new filtration plant.spillway in FY2021.
Conventional petroleum
BHP has owned oil and gas assets since the 1960s. We have a world-class portfolio of high-margin conventional assets located in the US Gulf of Mexico, Australia, Trinidad and Tobago, and Algeria, as well as appraisal and exploration options in Mexico, Deepwaterdeepwater Trinidad and Tobago, Westernwestern Gulf of Mexico, Eastern Canada and Barbados. Our conventional petroleum business includes exploration, appraisal, development and production activities. We produce crude oil and condensate, gas and natural gas liquids (NGLs) that are sold on the international spot market or delivered domestically under contracts with varying terms, depending on the location of the asset.
United StatesOur conventional petroleum business responded effectively to COVID-19, despite global market impacts in the second half of FY2020 as petroleum demand reduced due to collapsing transport activity. As always, the safety of our people came first and additional measures were put in place across each of our assets and projects to protect the health and safety of our workforce. All assets remained in operation as a result of these measures and through partnering with our communities, suppliers and contractors. Despite supply chain delays, all projects currently in execution remain on track to meet first production guidance.
United States
Gulf of Mexico
Overview
Our US Gulf of Mexico assets are large, long-life and expandable.
We operate two fields in the US waters of the Gulf of Mexico – Shenzi (44 per cent interest) and Neptune (35 per cent interest).
We holdnon-operating interests in two other fields – Atlantis (44 per cent interest) and Mad Dog (23.9 per cent interest).
All our producing fields are located between 155 and 210 kilometres offshore from the US state of Louisiana. We also own 25 per cent and 22 per cent, respectively, of the companies that own and operate the Caesar oil pipeline and the Cleopatra gas pipeline. These pipelines transport oil and gas from the Green Canyon area, where our US Gulf of Mexico fields are located, to connecting pipelines that transport product onshore.
Key developments during FY2019FY2020
The Mad Dog Phase 2 project, located in the Green Canyon area inof the deepwater US Gulf of Mexico, successfully progressed through FY2020 and remains on track for first production in CY2022. Mad Dog Phase 2 is an extension of the existing Mad Dog field.field and is one of the largest discovered and undeveloped resources in the Gulf of Mexico. The Mad Dog Phase 2 project is in response tobuilds on the successful Mad Dog South appraisal well, which confirmed significant hydrocarbons in the southern portion of this field. The project includesfield, and will include a new floating production facility with the capacity to produce up to 140,000 gross barrels of crude oil per day from up to 14 production wells. Production is expected to begin in CY2022.
93
On 13 February 2019, the BHP Board approved the development of theThe Atlantis Phase 3 project, also located in the US Gulf of Mexico. TheGreen Canyon area, remained on schedule and on budget, achieving first production in July 2020. This project includes a subsea tie back of eight new production wells andaccessing infill resource opportunities identified through seismic imaging. Atlantis Phase 3 is expected to increase production by an estimated 38,000 gross barrels of oil equivalent per day at its peak.
For more information on Mad Dog Phase 2 and Atlantis Phase 3, refer to section 6.4.6.5.
Australia
Overview
Bass Strait
We have produced oil and gas from Bass Strait (50 per cent interest) for overmore than 50 years. Our operations are located between 25 and 80 kilometres off the southeastern coast of Australia. The Gippsland Basin Joint Venture, operated by Esso Australia (a subsidiary of ExxonMobil), participated in the original discovery and development of hydrocarbons in the basin. The Kipper gas field under the Kipper Unit Joint Venture (32.5 per cent interest), also operated by Esso Australia, has brought online additional gas and liquids production that are processed via existing Gippsland Basin Joint Venture facilities.
The majority of our Bass Strait crude oil and condensate production is sold to local refineries in Australia. Gas is piped onshore to the Gippsland Joint Venture’s Longford processing facility, from where we sell our share of production to domestic retailers and end users. Liquefied petroleum gas (LPG) is dispatched via pipeline, road tanker or sea tanker. Ethane is dispatched via pipeline to a petrochemical plant in western Melbourne.
North West Shelf
We are a joint venture participant in the North West Shelf project (12.5–16.67 per cent interest), located approximately 125 kilometres northwest of Dampier in Western Australia. The North West Shelf project supplies gas to the Western Australian domestic market and liquefied natural gas (LNG) to buyers primarily in Japan, South Korea and China.
North West Shelf gas is piped from offshore fields to the onshore Karratha Gas Plant for processing. LPG, condensate and LNG are transported to market by ship, while domestic gas is transported by theDampier-to-Bunbury and Pilbara Energy pipelines to buyers.
We are also a joint venture partner in four nearby oil fields – Cossack, Wanaea, Lambert and Hermes – produced through the Okha floating production, storage andoff-take (FPSO) facility (16.67 per cent interest) – Cossack, Wanaea, Lambert and Hermes.. All North West Shelf gas and oil joint ventures are operated by Woodside Energy Limited (Woodside).
Pyrenees
BHP operates six oil fields inthe Pyrenees which areFPSO facility, located offshore aroundapproximately 23 kilometres northwest ofoff Northwest Cape, Western Australia. The facility produces from six offshore fields. We had an effective 6362.36 per cent interest in the fields as at 30 June 20192020 based oninception-to-date production from two permits in which we have interests of 71.43 per cent and 40 per cent, respectively. The development uses a FPSO facility.
Macedon
We are the operator of Macedon (71.43 per cent interest), an offshore gas field located around 75 kilometres west of Onslow, Western Australia and an onshore gas processing facility located around 17 kilometres southwest of Onslow.
94
The operation consists of four subsea wells, with gas piped onshore to the processing plant. After processing, the gas is delivered into a pipeline and sold to the Western Australian domestic market.
Minerva
BHP operates the Minerva Joint Venture (90 per cent interest), a gas field located 11 kilometres south-southwest of Port Campbell in western Victoria. The operation consists of two subsea wells, with gas piped onshore to a processing plant. After processing, the gas is delivered into a pipeline and sold domestically.
On 3 September 2019, the Minerva gas field reached end-of-field life and production ceased at the Minerva gas plant. On 1 May 2018, BHP entered into an agreement for the sale of its interests in the onshore gas plant with subsidiaries of Cooper Energy and Mitsui E&P Australia Pty Ltd. The agreement which is conditional on completion of regulatory approvals and assignments, providesprovided for the transfer of the plant and associated land after the cessation of current operations processing gas from the Minerva gas field. Following Minerva’send-of-field life, the wells will be plugged and abandoned.The sale was completed on 5 December 2019.
Key developments during FY2019
North West Shelf – Greater WesternFlank-B
The Greater WesternFlank-B project was sanctioned by the Board in December 2015 and represents the second phase of development of the core Greater Western Flank fields, behind the Greater WesternFlank-A development. It is located to the southwest of the existing Goodwyn A platform. The development comprises six fields and eight subsea wells. First production was achieved during the December 2018 quarter ahead of schedule and under budget.FY2020
Scarborough
In the March 2020 quarter, BHP holdsand Woodside (operator) agreed to align participating interests across the WA-1-R and WA-2-R titles resulting in BHP holding a 2526.5 per centnon-operated interest in Scarborough(WA-1-R) andeach title. BHP also holds a 50 per centnon-operated interest in Jupiter North Scarborough and Thebe titles(WA-61-R and WA-62-RWA-63-R) andWA-63-R),in the greater Scarborough area located offshore northwest Australia. OpportunitiesScarborough offers material growth potential in Western Australia and opportunities to develop the Scarborough gas field are being actively studied, includingprogressing.
BHP and Woodside also signed a non-binding Heads of Agreement to progress the potential to utilise available capacity at nearby onshore LNG processing facilities.
Woodside becameScarborough gas development during the operator of theWA-1-R lease in March 2018 following its acquisition of Esso’s working interest in the title. BHP has an option to acquire a further 10 per cent interest inWA-1-R from Woodside on equivalent terms to its Esso transaction. This option may be exercised at any time prior to the earlier of 31 December 2019 andquarter. Among other terms, this includes agreement on a competitive tariff for gas processing through the date the Scarborough Joint Venture approves entry into thefront-end engineering and design phase of the developmentPluto LNG facility. In March 2020, Woodside announced deferral of the Scarborough gas field.development to the second half of CY2021. A final investment decision by BHP continuesis expected to evaluate the option as we progress our assessment of the Scarborough development opportunity.align with this revised timing.
Bass Strait West Barracouta
The Bass StraitTwo new West Barracouta project was approved duringwells were completed under budget in the December 2018June 2020 quarter. The A$200 million investment (whichConstruction on production infrastructure linking the West Barracouta development to the existing Barracouta field is BHP’s share)currently underway. First gas is expected to producein CY2021.
North West Shelf Greater Western Flank
A final investment decision was reached for Greater Western Flank Phase 3 (GWF-3) and Lambert Deep in January 2020. This four well tie back will take advantage of existing infrastructure and first gas in CY2021, and help offset Bass Strait production decline and deliver competitive returns. The project includes a two well brownfield subsea tieback to existing Gippsland Basin Joint Venture facilities and is expected to supply the Australian domestic market.in CY2023.
95
Other conventional petroleum assets
Overview
Trinidad and Tobago
BHP operates the Greater Angostura field (45 per cent interest in the production sharing contract), an integrated oil and gas development located offshore 40 kilometres east of Trinidad. The crude oil is sold on a spot basis to international markets, while the gas is sold domestically under term contracts.
Algeria
Our Algerian asset comprises an effective 29.329.2 per cent interest in the RODRhourde Ouled Djemma (ROD) Integrated Development, which consists of the ROD, SF SFNESif Fatima – Sif Fatima North East (SF SFNE) and four satellite oil fields that pump oil back to a dedicated processing train. The oil is sold on a spot basis to international markets. ROD Integrated Development is jointly operated by Sonatrach and ENI.
United Kingdom
On 30 November 2018, BHP completed the sale of our interests in the Bruce and Keith oil and gas fields in the United Kingdom to Serica Energy UK Ltd, with an effective date of 1 January 2018.
For more information, refer to section 1.13.1.
Key developments during FY2019FY2020
Building on our existing position in the region, Ruby is an offshore shallow water oil and gas development in Trinidad and Tobago that wouldwill consist of five production wells tied back into existing operated processing facilities. The BHP is the operator (68 per cent interest) and the project hasBoard approved its development on 8 August 2019 with an expected investment of US$283 million (which is BHP’s(BHP share). The project was approved by the BHP Board on 8 August 2019 with firstFirst production is targeted in CY2021. The relevant operating agreement requires at least two partiesproject is estimated to have the capacity to produce up to 16,000 gross barrels of oil per day and 6580 million gross standard cubic feet of natural gas per cent of the working interest to approve the investment.
Unconventional petroleum
Onshore US
The Onshore US sales process was completed on 31 October 2018, with the net proceeds of US$10.4 billion. The Fayetteville Onshore US gas assets were sold to a company owned by Merit Energy Company. BHP’s interests in the Eagle Ford, Haynesville and Permian Onshore US oil and gas assets were sold to BP America Production Company, a subsidiary of BP Plc.day.
For more information on Ruby, refer to note 27 ‘Discontinued operations’ in section 5.
966.5.
The purpose of theBHP’s Commercial function is to optimisemaximises commercial and social value creation and minimiseminimises costs across ourthe end-to-end supply chain. The function is organised around our core value chain activities – Sales and Marketing; Maritime and Supply Chain Excellence; Procurement; and Warehousing Inventory and Logistics and Property – supported by short- and long-term market insights, strategy and planning activities, and close partnership with our assets.
Our Operating Model enables us to provide improved service levels to our assets and deliver optimised commercial outcomescustomers, by embeddingharnessing deep functionalsubject matter expertise, simpler processes and market insights.centralisation of standardised activities. By embracing our strategicend-to-end supply chain mandate and influencingpartnership with our suppliers and customers, to partner with BHP, the Commercial function also creates social value through supply chain integrity, community and sustainability focus.
Sales and Marketing
Sales and Marketing creates value by connectingconnects BHP’s resources to market through commercial expertise, optimised sales and operations planning, deep customer insights and proactive risk management. They present a single face to markets across multiple assets, thereby allowingwith a view to realising maximum value for our assets to focus on their operations.products.
Maritime and Supply Chain Excellence
Maritime and Supply Chain Excellence is accountable formanages BHP’s enterprise-wide transportation strategy and chartering ocean freight (toto meet BHP’s inbound and outbound transportation needs).needs. They work to ensure consistent safety standards across BHP’s maritime supply chain and lead the industry toward a safer and more sustainable global ecosystem. The team maintains a strong focusfocuses on supply chain excellence and on sourcing marine freight coverage at the lowest available cost.
Procurement
Our global Procurementsub-functions purchase all the goods and services that are used by our projects, our assets and functions. Procurement works with our business to optimise equipment performance, reduce operating costcosts and improve working capital. They manage supply chain risk and develop sustainable relationships with global suppliers and local businesses in our communities.the communities in which we operate.
Warehousing Inventory and Logistics and Property
Warehousing Inventory and Logistics and Property is accountable for the design and operation ofoperate our inbound supply chain networks for the delivery of spare parts, operating supplies and consumables to enable our assets to achieve superior performance.consumables. They design and operate our office workspaces globally to provide a collaborative and productive work environment for our employees and contractors.globally.
Market Analysis and Economics
Our Market Analysis and Economics team is responsible for developing the Company’sdevelops BHP’s independent view on the outlook for commodity demand and commodity prices. The team works closely with our Procurement, Maritime, and Sales and Marketingsub-functions to help optimiseend-to-end commercial value. The team also works closelyvalue, and with the Finance and External Affairs functions to help identify and respond tolong-run strategic changes in our operating environment.
Commercial: Strategically located close to our key markets and Assets
97
1.121.10 Summary of financial performance
We prepare our Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. We publish our Consolidated Financial Statements in US dollars. All Consolidated Income Statement, Consolidated Balance Sheet and Consolidated Cash Flow Statement information below has been derived from audited financial statements.Financial Statements. For more information, refer to section 5.
Unless otherwise stated, comparative financial information for FY2017, FY2016 and FY2015 has been restated to reflect the sale of the Onshore US assets, as required by IFRS 5/AASB 5‘Non-current Assets Held for Sale and Discontinued Operations’. Consolidated Balance Sheet information for these periods has not been restated as accounting standards do not require it.
Information in this section has been presented on a Continuing operations basis to exclude the contribution from Onshore US assets, and assets that were demerged with South32 in FY2015, unless otherwise noted. Details of the contribution of the Onshore US assets to the Group’s results are disclosed in note 2728 ‘Discontinued operations’ in section 5.
Year ended 30 June US$M | 2019 | 2018 | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||||||||||||
Consolidated Income Statement (section 5.1.1) | ||||||||||||||||||||||||||||||||||||||||
Revenue (1) | 44,288 | 43,129 | 35,740 | 28,567 | 40,413 | 42,931 | 44,288 | 43,129 | 35,740 | 28,567 | ||||||||||||||||||||||||||||||
Profit from operations | 16,113 | 15,996 | 12,554 | 2,804 | 12,887 | 14,421 | 16,113 | 15,996 | 12,554 | 2,804 | ||||||||||||||||||||||||||||||
Profit/(loss) after taxation from Continuing operations | 9,520 | 7,744 | 6,694 | (312 | ) | 7,306 | 8,736 | 9,520 | 7,744 | 6,694 | (312 | ) | ||||||||||||||||||||||||||||
Loss after taxation from Discontinued operations | (335 | ) | (2,921 | ) | (472 | ) | (5,895 | ) | (4,428 | ) | – | (335 | ) | (2,921 | ) | (472 | ) | (5,895 | ) | |||||||||||||||||||||
Profit/(loss) after taxation from Continuing and Discontinued operations attributable to BHP shareholders (Attributable profit/(loss)) (2) | 8,306 | 3,705 | 5,890 | (6,385 | ) | 1,910 | 7,956 | 8,306 | 3,705 | 5,890 | (6,385 | ) | ||||||||||||||||||||||||||||
Dividends per ordinary share – paid during the period (US cents) | 220.0 | 98.0 | 54.0 | 78.0 | 124.0 | 143.0 | 220.0 | 98.0 | 54.0 | 78.0 | ||||||||||||||||||||||||||||||
Dividends per ordinary share – determined in respect of the period (US cents) | 235.0 | 118.0 | 83.0 | 30.0 | 124.0 | 120.0 | 235.0 | 118.0 | 83.0 | 30.0 | ||||||||||||||||||||||||||||||
Basic earnings/(loss) per ordinary share (US cents) (2)(3) | 160.3 | 69.6 | 110.7 | (120.0 | ) | 35.9 | 157.3 | 160.3 | 69.6 | 110.7 | (120.0 | ) | ||||||||||||||||||||||||||||
Diluted earnings/(loss) per ordinary share (US cents) (2)(3) | 159.9 | 69.4 | 110.4 | (120.0 | ) | 35.8 | 157.0 | 159.9 | 69.4 | 110.4 | (120.0 | ) | ||||||||||||||||||||||||||||
Basic earnings/(loss) from Continuing operations per ordinary share (US cents) (3) | 166.9 | 125.0 | 119.8 | (10.2 | ) | 119.6 | 157.3 | 166.9 | 125.0 | 119.8 | (10.2 | ) | ||||||||||||||||||||||||||||
Diluted earnings/(loss) from Continuing operations per ordinary share (US cents) (3) | 166.5 | 124.6 | 119.5 | (10.2 | ) | 119.3 | 157.0 | 166.5 | 124.6 | 119.5 | (10.2 | ) | ||||||||||||||||||||||||||||
Number of ordinary shares (million) | ||||||||||||||||||||||||||||||||||||||||
– At period end | 5,058 | 5,324 | 5,324 | 5,324 | 5,324 | 5,058 | 5,058 | 5,324 | 5,324 | 5,324 | ||||||||||||||||||||||||||||||
– Weighted average | 5,180 | 5,323 | 5,323 | 5,322 | 5,318 | 5,057 | 5,180 | 5,323 | 5,323 | 5,322 | ||||||||||||||||||||||||||||||
– Diluted | 5,193 | 5,337 | 5,336 | 5,322 | 5,333 | 5,069 | 5,193 | 5,337 | 5,336 | 5,322 | ||||||||||||||||||||||||||||||
Consolidated Balance Sheet (section 5.1.3) (4) | ||||||||||||||||||||||||||||||||||||||||
Total assets | 100,861 | 111,993 | 117,006 | 118,953 | 124,580 | 104,783 | 100,861 | 111,993 | 117,006 | 118,953 | ||||||||||||||||||||||||||||||
Net assets | 51,824 | 60,670 | 62,726 | 60,071 | 70,545 | 52,246 | 51,824 | 60,670 | 62,726 | 60,071 | ||||||||||||||||||||||||||||||
Share capital (including share premium) | 2,686 | 2,761 | 2,761 | 2,761 | 2,761 | 2,686 | 2,686 | 2,761 | 2,761 | 2,761 | ||||||||||||||||||||||||||||||
Total equity attributable to BHP shareholders | 47,240 | 55,592 | 57,258 | 54,290 | 64,768 | 47,936 | 47,240 | 55,592 | 57,258 | 54,290 | ||||||||||||||||||||||||||||||
Consolidated Cash Flow Statement (section 5.1.4) | ||||||||||||||||||||||||||||||||||||||||
Net operating cash flows (5) | 17,871 | 18,461 | 16,804 | 10,625 | 19,296 | 15,706 | 17,871 | 18,461 | 16,804 | 10,625 | ||||||||||||||||||||||||||||||
Capital and exploration expenditure (6) | 7,566 | 6,753 | 5,220 | 7,711 | 13,412 | 7,640 | 7,566 | 6,753 | 5,220 | 7,711 | ||||||||||||||||||||||||||||||
Other financial information | ||||||||||||||||||||||||||||||||||||||||
Net debt | 9,215 | 10,934 | 16,321 | 26,102 | 24,417 | 12,044 | 9,446 | 11,605 | 17,201 | 25,590 | ||||||||||||||||||||||||||||||
Underlying attributable profit (7) | 9,124 | 8,933 | 6,732 | 1,215 | 7,109 | 9,060 | 9,124 | 8,933 | 6,732 | 1,215 | ||||||||||||||||||||||||||||||
Underlying EBITDA (7) | 23,158 | 23,183 | 19,350 | 11,720 | 19,816 | 22,071 | 23,158 | 23,183 | 19,350 | 11,720 | ||||||||||||||||||||||||||||||
Underlying EBIT (7) | 17,065 | 16,562 | 13,190 | 5,324 | 13,296 | 15,874 | 17,065 | 16,562 | 13,190 | 5,324 | ||||||||||||||||||||||||||||||
Underlying basic earnings per share (US cents) (7) | 176.1 | 167.8 | 126.5 | 22.8 | 133.7 | 179.2 | 176.1 | 167.8 | 126.5 | 22.8 | ||||||||||||||||||||||||||||||
Underlying Return on Capital Employed (per cent) (7) | 16.9 | 15.9 | 14.2 | 9.8 | 2.4 |
(1) | FY2018 and FY2017 have been restated to reflect the impact of the accounting standard, IFRS 15 Revenue from Contracts with Customers, which |
(2) | Includes Loss after taxation from Discontinued operations attributable to BHP shareholders. |
(3) | For more information on earnings per share, refer to note 7 ‘Earnings per share’ in section 5. |
98
(4) | The Consolidated Balance Sheet for FY2018 includes the assets and liabilities held for sale in relation to Onshore US as IFRS 5/AASB 5‘Non-current Assets Held for Sale and Discontinued Operations’ does not require the Consolidated Balance Sheet to be restated for comparative periods. |
(5) | Net operating cash flows are after dividends received, net interest paid and net taxation paid and includes Net operating cash flows from Discontinued operations. |
(6) | Capital and exploration expenditure is presented on a cash basis and represents purchases of property, plant and equipment plus exploration expenditure from the Consolidated Cash Flow Statement in section 5 and includes purchases of property, plant and equipment plus exploration expenditure from Discontinued operations. For more information, refer to note |
(7) | We use |
1.12.2
(8) | With effect from 1 July 2019, the net debt definition includes the fair value of derivative financial instruments used to hedge cash and borrowings. Prior period comparatives have been restated to reflect the change in net debt calculation. As a result of the adoption of IFRS 16 ‘Leases’ from 1 July 2019, the current period ‘Total Interest bearing liabilities’ includes all leases under the new definition. The Group elected to apply the modified retrospective transition approach, with no restatement of comparative periods. Refer to note 38 ‘New and amended accounting standards and interpretations’ in section 5. Vessel lease contracts that are priced with reference to a freight index, which did not meet the definition of a lease under IAS 17, now meet the definition of a lease under IFRS 16. These contracts are measured at each reporting date based on the prevailing freight index. The freight index has historically been volatile which creates significant short-term fluctuation in these liabilities. Continued volatility throughout FY2020 has meant that as of 1 January 2020, the Group excludes these liabilities from its net debt calculation. |
The following table expands on the Consolidated Income Statement in section 5.1.1, to provide more information on the revenue and expenses of the Group in FY2019.FY2020.
Year ended 30 June | 2019 US$M | 2018 US$M Restated | 2017 US$M Restated | 2020 US$M | 2019 US$M | 2018 US$M | ||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||
Revenue (1) | 44,288 | 43,129 | 35,740 | 42,931 | 44,288 | 43,129 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Other income | 393 | 247 | 662 | 777 | 393 | 247 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Employee benefits expense | (4,032 | ) | (3,990 | ) | (3,694 | ) | (4,055 | ) | (4,032 | ) | (3,990 | ) | ||||||||||||
Changes in inventories of finished goods and work in progress | (496 | ) | 142 | 743 | 326 | (496 | ) | 142 | ||||||||||||||||
Raw materials and consumables used | (4,591 | ) | (4,389 | ) | (3,830 | ) | (5,509 | ) | (4,591 | ) | (4,389 | ) | ||||||||||||
Freight and transportation | (2,378 | ) | (2,294 | ) | (1,786 | ) | (1,981 | ) | (2,378 | ) | (2,294 | ) | ||||||||||||
External services | (4,745 | ) | (4,786 | ) | (4,037 | ) | (4,404 | ) | (4,745 | ) | (4,786 | ) | ||||||||||||
Third party commodity purchases | (1,069 | ) | (1,374 | ) | (1,060 | ) | (1,139 | ) | (1,069 | ) | (1,374 | ) | ||||||||||||
Net foreign exchange gains/(losses) | 147 | 93 | (103 | ) | 603 | 147 | 93 | |||||||||||||||||
Fair value of derivatives | (422 | ) | (8 | ) | (208 | ) | ||||||||||||||||||
Government royalties paid and payable | (2,538 | ) | (2,168 | ) | (1,986 | ) | (2,362 | ) | (2,538 | ) | (2,168 | ) | ||||||||||||
Exploration and evaluation expenditure incurred and expensed in the current period | (516 | ) | (641 | ) | (610 | ) | (517 | ) | (516 | ) | (641 | ) | ||||||||||||
Depreciation and amortisation expense | (5,829 | ) | (6,288 | ) | (6,184 | ) | (6,112 | ) | (5,829 | ) | (6,288 | ) | ||||||||||||
Impairment of assets | (264 | ) | (333 | ) | (193 | ) | (494 | ) | (264 | ) | (333 | ) | ||||||||||||
Operating lease rentals | (405 | ) | (421 | ) | (391 | ) | ||||||||||||||||||
Lease costs | (675 | ) | (405 | ) | (421 | ) | ||||||||||||||||||
All other operating expenses | (1,306 | ) | (1,078 | ) | (989 | ) | (2,034 | ) | (1,298 | ) | (870 | ) | ||||||||||||
|
|
| ||||||||||||||||||||||
Expenses excluding net finance costs | (28,022 | ) | (27,527 | ) | (24,120 | ) | (28,775 | ) | (28,022 | ) | (27,527 | ) | ||||||||||||
|
|
| ||||||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (546 | ) | 147 | 272 | (512 | ) | (546 | ) | 147 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Profit from operations | 16,113 | 15,996 | 12,554 | 14,421 | 16,113 | 15,996 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net finance costs | (1,064 | ) | (1,245 | ) | (1,417 | ) | (911 | ) | (1,064 | ) | (1,245 | ) | ||||||||||||
Total taxation expense | (5,529 | ) | (7,007 | ) | (4,443 | ) | (4,774 | ) | (5,529 | ) | (7,007 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Profit after taxation from Continuing operations | 9,520 | 7,744 | 6,694 | 8,736 | 9,520 | 7,744 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||
Loss after taxation from Discontinued operations | (335 | ) | (2,921 | ) | (472 | ) | – | (335 | ) | (2,921 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Profit after taxation from Continuing and Discontinued operations | 9,185 | 4,823 | 6,222 | 8,736 | 9,185 | 4,823 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Attributable tonon-controlling interests | 879 | 1,118 | 332 | 780 | 879 | 1,118 | ||||||||||||||||||
Attributable to BHP shareholders | 8,306 | 3,705 | 5,890 | 7,956 | 8,306 | 3,705 | ||||||||||||||||||
|
|
|
|
|
|
(1) | Includes the sale of third party products. |
Profit after taxation attributable to BHP shareholders increaseddecreased from a profit of US$3.7 billion in FY2018 to a profit of US$8.3 billion in FY2019.FY2019 to a profit of US$8.0 billion in FY2020.
Revenue of US$44.342.9 billion increaseddecreased by US$1.21.4 billion, or 3 per cent, from FY2018.FY2019. This increasedecrease was primarily attributable to lower average realised prices for coal, petroleum and copper, and lower volumes due to natural field decline at Petroleum and lower grade at Escondida and Spence, combined with planned maintenance across a number of our assets. This was partially offset by higher average realised prices for iron ore, petroleum and metallurgical coal, and higher sales volumes at WAIO as a result of record production at JimblebarWAIO, record average concentrator throughput at Escondida and the expiry of the Wheelarra Joint Venture. This was partially offset by lower average realised prices for copper and thermal coal, the impact from Tropical Cyclone Veronica and a train derailment at WAIO, lower volumes from Escondida (lower grade partially offset by record concentrator throughput) and Pampa Norte (fire at electrowinning plant at Spence and heavy rainfall), coupled with lower volumes from Petroleum due to planned Pyreneesdry-dock maintenance and natural field decline.improved operational stability. For information on our average realised prices and production of our commodities, refer to section 1.13.1.11.
99
Total expenses of US$28.028.8 billion increased by US$0.50.8 billion, or 23 per cent, from FY2018.FY2019. The increasedecrease in changes in inventories of finished goods and work in progress of US$638822 million was primarily driven by higher recoveries at the leach pad andFY2019 inventory drawdowns as more ore was redirected to the concentratorsat Escondida in line with the Los Colorados Extension commissioning at Escondida, and inventory drawdown at Coal duecompared to Tropical Cyclone Trevor and general wet weather affecting all operations at Queensland Coal.planned rebuilds for operational stability following drawdowns in the prior year. Raw materials and consumables used increased by US$202918 million driven by higher diesel prices across the Group. Third party commodity purchases havecancellation of power contracts at Escondida and Spence as part of the shift towards 100 per cent renewable energy supply contracts. Freight and transportation decreased by US$305397 million driven primarily by a decrease in copper price. Government royalties paidthe adoption of IFRS 16 where freight costs related to continuous voyage charters were brought onto the balance sheet as right-of-use assets and payable have increased by US$370 million reflecting higher iron ore prices.depreciated. Depreciation and amortisation expense decreasedincreased by US$459283 million reflectingdriven by the adoption of IFRS 16 right-of-use assets partially offset by lower depreciation and amortisation at Petroleum (lowerin line with lower production at Shenzi andvolumes due to natural field decline. Impairment of assets increased by US$230 million driven by Cerro Colorado operations reflecting current mine plan. Other operating expenses increased by US$736 million driven by an increase in estimated remaining reserves at Atlantis) and lower depreciationdepletion of production stripping mainly at Escondida (increasedue to increased fine copper movement combined with closure provision adjustment for closed mines. Favourable movements in asset lifeforeign exchange (FX) affected the majority of the Escondida Water Supply project).cost categories.
(Loss)/profit from equity accounted investments, related impairments and expenses of US$(546)(512) million hasin FY2020 decreased by US$69334 million from FY2018.FY2019. The decrease isreflects lower profits from Antamina and Cerrejón which was primarily due to lower prices and COVID-19-related outages offset by favourable FX movements on the Samarco dam failure provision updated assumptions relating to the fishing ban, financial assistance, compensation programs and resettlement of communities and Samarco Germano dam accelerated decommissioning provision following legislative changes in Brazil. This is coupled with lower coal production volumes at Cerrejón due to adverse weather and lower average realised prices for copper at Antamina in FY2019.provision.
Net finance costs of US$1.1 billion911 million decreased by US$0.2153 million, or 1514 per cent, from FY2018FY2019 mainly due to higherlower effective interest earned on increased term deposit holdingsrates and a lower average debt balance following the repayment on maturity of Group debt. For more information on net finance costs, refer to section 1.12.31.10.3 and note 1921 ‘Net debt’finance costs’ in section 5.
Total taxation expense of US$5.5 billion decreased4,774 million reduced by US$1.5 billion755 million from FY2018,FY2019. The decrease was primarily due to the impacts of thelower profits combined with FY2019 impacted by provisions for tax disputes and a higher net reduction in US tax reform in FY2018.credits related to Chilean taxes. For more information on income tax expense, refer to note 6 ‘Income tax expense’ in section 5.
Principal factors that affect Revenue, Profit from operations and Underlying EBITDA
The following table describes the impact of the principal factors that affected Revenue, Profit from operations and Underlying EBITDA for FY2019FY2020 and relates them back to our Consolidated Income Statement. For information on the method of calculation of the principal factors that affect Revenue, Profit from operations and Underlying EBITDA, refer to section 1.12.6.6.1.2.
With effect from 1 July 2019, the Change in volumes variance calculation has been changed to reference prior year price less variable unit cost instead of prior year Underlying EBITDA margin. This change to the Change in volumes variance calculation is offset in the Operating cash costs variance calculation. Management believes this amendment is useful because the entire impact of a Change in volumes will be reflected in one category instead of separately reporting the related fixed cost dilution impacts in the Operating cash costs category. Prior periods have not been restated for this change.
Revenue US$M | Total expenses, Other income and (Loss)/profit from equity accounted investments US$M | Profit from operations US$M | Depreciation, amortisation and impairments and Exceptional Items US$M | Underlying EBITDA US$M | ||||||||||||||||
Year ended 30 June 2018 | ||||||||||||||||||||
Revenue | 43,129 | |||||||||||||||||||
Other income | 247 | |||||||||||||||||||
Expenses excluding net finance costs | (27,527 | ) | ||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | 147 | |||||||||||||||||||
|
| |||||||||||||||||||
Total other income, expenses excluding net finance costs and Profit from equity accounted investments, related impairments and expenses | (27,133 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Profit from operations | 15,996 | |||||||||||||||||||
Depreciation, amortisation and impairments (1) | 6,621 | |||||||||||||||||||
Exceptional items | 566 | |||||||||||||||||||
|
| |||||||||||||||||||
Underlying EBITDA | 23,183 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in sales prices | 1,591 | (36 | ) | 1,555 | – | 1,555 | ||||||||||||||
Price-linked costs | – | (353 | ) | (353 | ) | – | (353 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net price impact | 1,591 | (389 | ) | 1,202 | – | 1,202 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Productivity volumes | 304 | (161 | ) | 143 | – | 143 | ||||||||||||||
Growth volumes | (17 | ) | (58 | ) | (75 | ) | – | (75 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Changes in volumes | 287 | (219 | ) | 68 | – | 68 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating cash costs | – | (1,176 | ) | (1,176 | ) | – | (1,176 | ) | ||||||||||||
Exploration and business development | – | 142 | 142 | – | 142 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in controllable cash costs (2) | – | (1,034 | ) | (1,034 | ) | – | (1,034 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
100
Revenue US$M | Total expenses, Other income and (Loss)/profit from equity accounted investments US$M | Profit from operations US$M | Depreciation, amortisation and impairments and Exceptional Items US$M | Underlying EBITDA US$M | ||||||||||||||||||||||||||||||||||||
Year ended 30 June 2019 | ||||||||||||||||||||||||||||||||||||||||
Revenue | 44,288 | |||||||||||||||||||||||||||||||||||||||
Other income | 393 | |||||||||||||||||||||||||||||||||||||||
Expenses excluding net finance costs | (28,022 | ) | ||||||||||||||||||||||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (546 | ) | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Total other income, expenses excluding net finance costs and (Loss)/profit from equity accounted investments, related impairments and expenses | (28,175 | ) | ||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Profit from operations | 16,113 | |||||||||||||||||||||||||||||||||||||||
Depreciation, amortisation and impairments (1) | 6,093 | |||||||||||||||||||||||||||||||||||||||
Exceptional items | 952 | |||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Underlying EBITDA | 23,158 | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Change in sales prices | (1,038 | ) | (54 | ) | (1,092 | ) | – | (1,092 | ) | |||||||||||||||||||||||||||||||
Price-linked costs | – | (12 | ) | (12 | ) | – | (12 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net price impact | (1,038 | ) | (66 | ) | (1,104 | ) | – | (1,104 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Change in volumes | (378 | ) | (34 | ) | (412 | ) | – | (412 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Operating cash costs | – | 223 | 223 | – | 223 | |||||||||||||||||||||||||||||||||||
Exploration and business development | – | (115 | ) | (115 | ) | – | (115 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Change in controllable cash costs (2) | – | 108 | 108 | – | 108 | |||||||||||||||||||||||||||||||||||
Revenue US$M | Total expenses, Other income and (Loss)/profit from equity accounted investments US$M | Profit from operations US$M | Depreciation, amortisation and impairments and Exceptional Items US$M | Underlying EBITDA US$M |
|
|
|
|
| |||||||||||||||||||||||||||||||
Exchange rates | (107 | ) | 1,104 | 997 | – | 997 | (66 | ) | 1,020 | 954 | – | 954 | ||||||||||||||||||||||||||||
Inflation on costs | – | (400 | ) | (400 | ) | – | (400 | ) | – | (298 | ) | (298 | ) | – | (298 | ) | ||||||||||||||||||||||||
Fuel and energy | – | (180 | ) | (180 | ) | – | (180 | ) | – | 77 | 77 | – | 77 | |||||||||||||||||||||||||||
Non-cash | – | 81 | 81 | – | 81 | – | (460 | ) | (460 | ) | – | (460 | ) | |||||||||||||||||||||||||||
One-off items | (350 | ) | (46 | ) | (396 | ) | – | (396 | ) | 189 | 95 | 284 | – | 284 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Change in other costs | (457 | ) | 559 | 102 | – | 102 | 123 | 434 | 557 | – | 557 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Asset sales | – | 29 | 29 | – | 29 | – | 1 | 1 | – | 1 | ||||||||||||||||||||||||||||||
Ceased and sold operations | 23 | (264 | ) | (241 | ) | – | (241 | ) | (90 | ) | (328 | ) | (418 | ) | – | (418 | ) | |||||||||||||||||||||||
Other | (285 | ) | 134 | (151 | ) | – | (151 | ) | 26 | 155 | 181 | – | 181 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Depreciation, amortisation and impairments (1) | – | 528 | 528 | (528 | ) | – | ||||||||||||||||||||||||||||||||||
Depreciation, amortisation and impairments | – | (104 | ) | (104 | ) | 104 | – | |||||||||||||||||||||||||||||||||
Exceptional items | – | (386 | ) | (386 | ) | 386 | – | – | (501 | ) | (501 | ) | 501 | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Year ended 30 June 2019 | ||||||||||||||||||||||||||||||||||||||||
Year ended 30 June 2020 | ||||||||||||||||||||||||||||||||||||||||
Revenue | 44,288 | 42,931 | ||||||||||||||||||||||||||||||||||||||
Other income | 393 | 777 | ||||||||||||||||||||||||||||||||||||||
Expenses excluding net finance costs | (28,022 | ) | (28,775 | ) | ||||||||||||||||||||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (546 | ) | (512 | ) | ||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Total other income, expenses excluding net finance costs and Profit from equity accounted investments, related impairments and expenses | (28,175 | ) | ||||||||||||||||||||||||||||||||||||||
Total other income, expenses excluding net finance costs and (Loss)/profit from equity accounted investments, related impairments and expenses | (28,510 | ) | ||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Profit from operations | 16,113 | 14,421 | ||||||||||||||||||||||||||||||||||||||
Depreciation, amortisation and impairments | 6,093 | |||||||||||||||||||||||||||||||||||||||
Depreciation, amortisation and impairments (1) | 6,606 | |||||||||||||||||||||||||||||||||||||||
Exceptional item included in Depreciation, amortisation and impairments | (409 | ) | ||||||||||||||||||||||||||||||||||||||
Exceptional items | 952 | 1,453 | ||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Underlying EBITDA | 23,158 | 22,071 |
(1) | Depreciation and impairments that we classify as exceptional items are excluded from depreciation, amortisation and impairments. Depreciation, amortisation and impairments includesnon-exceptional impairments of US$ |
(2) | Collectively, we refer to the change in operating cash costs and change in exploration and business development as change in controllable cash costs. Operating cash costs by definition do not includenon-cash costs. The change in operating cash costs also excludes the impact of exchange rates and inflation, changes in fuel and energy costs, changes in exploration and business development costs andone-off items. These items are excluded so as to provide a consistent measurement of changes in costs across all segments, based on the factors that are within the control and responsibility of the segment. Change in controllable cash costs and change in operating cash costs are not measures that are recognised by IFRS. They may differ from similarly titled measures reported by other companies. |
Higher
Lower average realised prices increaseddecreased Underlying EBITDA by US$1.61.1 billion in FY2019FY2020 reflecting higher iron ore,lower average realised prices for metallurgical and energy coal, petroleum and metallurgical coal prices,copper, partially offset by lower copperhigher average realised prices for iron ore and thermal coal prices. This was partially offset by an increase to price-linked costs of US$353 million mainly reflecting higher royalty charges.nickel.
ProductivityChange in volumes indecreased Underlying EBITDA improved by US$143412 million primarily as a result of record production at WAIO, Caval Ridge and Poitrel, record average concentrator throughput at Escondida and improved operational stability following the Los Colorados Extension commissioningprior period impacts of unplanned outages. These favourable movements were more than offset by the impacts from planned maintenance across a number of our assets (Queensland Coal, WAIO), unfavourable weather (Queensland Coal, WAIO, NSWEC), a change in product strategy at NSWEC to focus on higher-quality products, lower grade at Escondida and increased sales volumesSpence and Petroleum natural field decline across the portfolio.
Lower costs reflect strong cost performance driven by consumption efficiencies at WAIO (record production at JimblebarEscondida, favourable inventory movements across our assets in line with mine plans and improved material handling and equipment reliability),planned rebuilds for operational stability following drawdowns in the prior year, supported by further reductions in overheads, partially offset by lower head gradeincreased planned maintenance activities at Escondida,a number of assets during the WAIO train derailment and fire at the Spence electrowinning plant.year. This was partially offset by US$75 million lower growth volumes at Petroleum due to planned Pyreneesdry-dock maintenance, higher gas to liquids production mix and natural field decline partially offset by higher uptime in the US Gulf of Mexico and Australia and increased tax barrels in Trinidad and Tobago.
Higher costs reflect unfavourable fixed cost dilution related to unplanned production outages at Olympic Dam, WAIO, Spence and Nickel West during the first half of FY2019, higher strip ratios and contractor stripping costs at our Australian coal operations, inventory drawdowns related to the Los Colorados Extension commissioning, increased maintenance activities, partially offset by the benefit from higher overall volumes at Olympic Dam as a result of the smelter maintenance campaign in the prior year. This was partially offset by lower Petroleum exploration expense (the Ocean Bottom Node survey acquisitionbusiness development costs in Mexico following the Gulf of Mexico were less than the prior year impact of expensing the Scimitar well) and lower study costs (following development approval of the Escondida Water Supply Extension project in March 2018).
Overall, underlying improvements in productivity of US$1.0 billion were offset by the impact of unplanned production outagessuccessful exploration program at Olympic Dam, WAIO, Spence and Nickel West of US$0.8 billion during the December 2018 half year; higher than expected unit costs at Queensland Coal (lower volumes, wet weather and increased contractor stripping costs), New South Wales Energy Coal (higher strip ratio and contractor stripping costs) and Nickel West (mine plan changes) of US$0.4 billion; and grade decline in copper of US$0.8 billion.Trion.
A stronger US dollar against the Australian dollar and Chilean peso increased Underlying EBITDA by US$997954 million during the period.
Non-cash reflects higher deferred stripping depletion and lower overburden movement in line with mine plan at Escondida, decreasing Underlying EBITDA by US$460 million.
101Higher ceased and sold operations reflects higher closure and rehabilitation provision adjustments for closed mines of US$362 million, sale of our interests in the Bruce and Keith oil and gas fields in the prior period, and cessation of operations at Minerva in FY2020.
Other includes the favourable impacts from the first year of application of IFRS 16 Leases offset by lower profits from our equity accounted investments (Antamina and Cerrejón) due to lower prices and COVID-19 related outages.
Cash flow
The following table provides a summary of the Consolidated Cash Flow Statement contained in section 5.1.4 to show the key sources and uses of cash during the periods presented:
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | 2020 US$M | 2019 US$M | 2018 US$M | ||||||||||||||||||
Cash generated from operations | 23,428 | 22,949 | 18,612 | 22,268 | 23,428 | 22,949 | ||||||||||||||||||
Dividends received | 516 | 709 | 636 | 137 | 516 | 709 | ||||||||||||||||||
Net interest paid | (903 | ) | (887 | ) | (984 | ) | (840 | ) | (903 | ) | (887 | ) | ||||||||||||
Proceeds/(settlements) of cash management related instruments | 296 | (292 | ) | (140 | ) | 85 | 296 | (292 | ) | |||||||||||||||
Net taxation paid | (5,940 | ) | (4,918 | ) | (2,248 | ) | (5,944 | ) | (5,940 | ) | (4,918 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net operating cash flows from Continuing operations | 17,397 | 17,561 | 15,876 | 15,706 | 17,397 | 17,561 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net operating cash flows from Discontinued operations | 474 | 900 | 928 | – | 474 | 900 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net operating cash flows | 17,871 | 18,461 | 16,804 | 15,706 | 17,871 | 18,461 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Purchases of property, plant and equipment | (6,250 | ) | (4,979 | ) | (3,697 | ) | (6,900 | ) | (6,250 | ) | (4,979 | ) | ||||||||||||
Exploration expenditure | (873 | ) | (874 | ) | (966 | ) | (740 | ) | (873 | ) | (874 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Subtotal: Capital and exploration expenditure | (7,123 | ) | (5,853 | ) | (4,663 | ) | (7,640 | ) | (7,123 | ) | (5,853 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Exploration expenditure expensed and included in operating cash flows | 516 | 641 | 610 | 517 | 516 | 641 | ||||||||||||||||||
Net investment and funding of equity accounted investments | (630 | ) | 204 | (234 | ) | (618 | ) | (630 | ) | 204 | ||||||||||||||
Other investing activities | (140 | ) | (52 | ) | 563 | 125 | (140 | ) | (52 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net investing cash flows from Continuing operations | (7,377 | ) | (5,060 | ) | (3,724 | ) | (7,616 | ) | (7,377 | ) | (5,060 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net investing cash flows from Discontinued operations | (443 | ) | (861 | ) | (437 | ) | – | (443 | ) | (861 | ) | |||||||||||||
Proceeds from divestment of Onshore US, net of its cash | 10,427 | – | – | – | 10,427 | – | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net investing cash flows | 2,607 | (5,921 | ) | (4,161 | ) | (7,616 | ) | 2,607 | (5,921 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net repayment of interest bearing liabilities | (2,514 | ) | (3,878 | ) | (5,501 | ) | (1,690 | ) | (2,514 | ) | (3,878 | ) | ||||||||||||
Sharebuy-back – BHP Group Limited | (5,220 | ) | – | – | – | (5,220 | ) | – | ||||||||||||||||
Dividends paid | (11,395 | ) | (5,220 | ) | (2,921 | ) | (6,876 | ) | (11,395 | ) | (5,220 | ) | ||||||||||||
Dividends paid tonon-controlling interests | (1,198 | ) | (1,582 | ) | (575 | ) | (1,043 | ) | (1,198 | ) | (1,582 | ) | ||||||||||||
Other financing activities | (188 | ) | (171 | ) | (108 | ) | (143 | ) | (188 | ) | (171 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net financing cash flows from Continuing operations | (20,515 | ) | (10,851 | ) | (9,105 | ) | (9,752 | ) | (20,515 | ) | (10,851 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net financing cash flows from Discontinued operations | (13 | ) | (40 | ) | (28 | ) | – | (13 | ) | (40 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net financing cash flows | (20,528 | ) | (10,891 | ) | (9,133 | ) | (9,752 | ) | (20,528 | ) | (10,891 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents | (10,477 | ) | 1,649 | 3,510 | (1,662 | ) | (10,477 | ) | 1,649 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents from Continuing operations | (10,495 | ) | 1,650 | 3,047 | (1,662 | ) | (10,495 | ) | 1,650 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents from Discontinued operations | 18 | (1 | ) | 463 | – | 18 | (1 | ) | ||||||||||||||||
|
|
|
|
|
|
Net operating cash inflowsof US$17.915.7 billion decreased by US$0.62.2 billion. This decrease reflects increased costs (including outagesweaker commodity prices in coal and weather impact)petroleum and higher Australianfield and Chilean income tax payments in FY2019grade declines, partially offset by strong commoditystronger iron ore prices and record production from several of our operations.strong underlying performance across the portfolio.
Net investing cash inflowsoutflowsof US$2.67.6 billion increased by US$8.510.2 billion. The increaseThis reflects the proceeds from the divestment of Onshore US, net of its cash in FY2019, partially offset by continued investment in high-return latent capacity projects and increased investment in South Flank, Spence Growth Option and Mad Dog Phase 2 and the Spence Growth Option. Higher net investment and funding of equity accounted investments relate to the FY2018 cash receipt from Newcastle Coal Infrastructure Group not repeating in FY2019 and investment in SolGold and Resolution.FY2020.
For more information and a breakdown of capital and exploration expenditure on a commodity basis, refer to section 1.13.1.11.
Net financing cash outflows of US$20.59.8 billion increaseddecreased by US$9.610.8 billion. This reflects theoff-marketbuy-backoff-market buy-back of BHP Group Limited shares of US$5.2 billion in December 2018, the special dividend of US$5.2 billion paid in January 2019 from the Onshore US asset sale (net proceeds) and higher dividends to BHP shareholders of US$1.0 billion partially offset by, lower repayments of interest bearing liabilities of US$1.60.8 billion and lower dividends tonon-controlling interests of US$0.40.2 billion, partially offset by higher dividends to BHP shareholders in FY2020 of US$0.7 billion.
For more information, refer to section 1.12.31.10.3 and note 19 ‘Net debt’ in section 5.
Underlying Return on Capital Employed (ROCE) of 16.9 per cent increased by 1.0 per cent (FY2019: 15.9 per cent) reflecting the impact of the sale of Onshore US in FY2018. The Return on Capital Employed in FY2020 includes US$12.5 billion of Assets under Construction (average of ending balances for FY2020 of US$13.8 billion and FY2019 of US$11.1 billion) including major projects in Potash, Spence Growth Option, South Flank and Mad Dog which are not yet producing their planned contribution to earnings.
For more information on Assets under Construction refer to note 11 ‘Property, plant and equipment’ in section 5.
Comparisons for the year ended 30 June 20182019 to 30 June 20172018 in connection with financialFinancial results, principalPrincipal factors affectingthat affect Revenue, Profit from operations and Underlying EBITDA and cashCash flow have been omitted from thisForm 20-F, but can be found in ourForm 20-F for the fiscal year ended 30 June 2018,2019, filed on 1817 September 2018.
1022019.
1.12.31.10.3 Debt and sources of liquidity
Our policies on debt and liquidity management have the following objectives:
a strong balance sheet through the cycle;cycle
diversification of funding sources;sources
maintain borrowings and excess cash predominantly in US dollars.dollars
Interest bearing liabilities, net debt and gearing
At the end of FY2019,FY2020, Interest bearing liabilities were US$24.827.0 billion (FY2018:(FY2019: US$26.824.8 billion) and Cash and cash equivalents were US$15.613.4 billion (FY2018:(FY2019: US$15.915.6 billion). This resulted in net debt(1) of US$9.212.0 billion, which represented a decreasean increase of US$1.72.6 billion compared with the net debt position at 30 June 2018.2019 primarily due to the application of IFRS 16. Gearing, which is the ratio of net debt to net debt plus net assets, was 15.118.7 per cent at 30 June 2019,2020, compared with 15.315.4 per cent at 30 June 2018.2019.
During FY2019,FY2020, the Group continued to reduce its debt. This included the decisiondecided not to refinance US$2.40.9 billion of Group-level debt (being €1.3(consisting of an A$1.0 billion bond and the remaining amount of European medium-term notes and US$0.8 billion of senior notes which matured in November 2018 and April 2019 respectively)the €600 million bond that matured). This both extended BHP’s average debt maturity profile and enhanced BHP’s capital structure.
At the subsidiary level, Escondida has refinanced US$0.30.5 billion of maturing long-term debt.
Funding sources
No new Group-level debt was issued in FY2019FY2020 and debt that matured during the year was not refinanced.
Our Group-level borrowing facilities are not subject to financial covenants. Certain specific financing facilities in relation to specific assets are the subject of financial covenants that vary from facility to facility, but this would be considered normal for such facilities. In addition to the Group’s uncommitted debt issuance programs, we hold the following committed standby facilities:
Facility available 2019 US$M | Drawn 2019 US$M | Undrawn 2019 US$M | Facility available 2018 US$M | Drawn 2018 US$M | Undrawn 2018 US$M | Facility available 2020 US$M | Drawn 2020 US$M | Undrawn 2020 US$M | Facility available 2019 US$M | Drawn 2019 US$M | Undrawn 2019 US$M | |||||||||||||||||||||||||||||||||||||
Revolving credit facility (2) | 6,000 | – | 6,000 | 6,000 | – | 6,000 | 5,500 | – | 5,500 | 6,000 | – | 6,000 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total financing facilities | 6,000 | – | 6,000 | 6,000 | – | 6,000 | 5,500 | – | 5,500 | 6,000 | – | 6,000 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | We use |
(2) | BHP’s revolving credit facility was refinanced on 10 October 2019 and is due to mature on 10 October 2024. The committed US$ |
For more information on the maturity profile of our debt obligations and details of our standby and support agreements, refer to note 2122 ‘Financial risk management’ in section 5.
In BHP’s opinion, working capital is sufficient for its present requirements. BHP’s credit ratings are currentlyA2/P-1 outlook stable (Moody’s – long-term/short-term) andA/A-1 outlook stable (Standard & Poor’s – long-term/short-term). A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by an assigning rating agency. Any rating should be evaluated independently of any other information.
103
The following table expands on the net debt, to provide more information on the cash andnon-cash movements in FY2019.FY2020.
Year ended 30 June | 2019 US$M | 2018 US$M | 2020 US$M | 2019 US$M | ||||||||||||||||||||||||||||
Net debt at the beginning of the financial year | (10,934 | ) | (16,321 | ) | (9,446 | ) | (11,605 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net operating cash flows | 17,871 | 18,461 | 15,706 | 17,871 | ||||||||||||||||||||||||||||
Net investing cash flows | 2,607 | (5,921 | ) | (7,616 | ) | 2,607 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Free cash flow | 20,478 | 12,540 | 8,090 | 20,478 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Carrying value of interest bearing liability repayments | 2,351 | 3,573 | 1,533 | 2,351 | ||||||||||||||||||||||||||||
Net settlements of interest bearing liabilities and debt related instruments | (2,514 | ) | (3,878 | ) | (1,984 | ) | (2,781 | ) | ||||||||||||||||||||||||
Sharebuy-back – BHP Group Limited | (5,220 | ) | – | – | (5,220 | ) | ||||||||||||||||||||||||||
Dividends paid | (11,395 | ) | (5,220 | ) | (6,876 | ) | (11,395 | ) | ||||||||||||||||||||||||
Dividends paid tonon-controlling interests | (1,198 | ) | (1,582 | ) | (1,043 | ) | (1,198 | ) | ||||||||||||||||||||||||
Other financing activities (1) | (201 | ) | (211 | ) | (143 | ) | (201 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Other cash movements | (18,177 | ) | (7,318 | ) | (8,513 | ) | (18,444 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Interest rate movements(2) | (729 | ) | 353 | |||||||||||||||||||||||||||||
Foreign exchange impacts on debt(3) | 311 | (245 | ) | |||||||||||||||||||||||||||||
Foreign exchange impacts on cash(3) | (170 | ) | 56 | |||||||||||||||||||||||||||||
Fair value adjustment on debt (including debt related instruments) (2) | 88 | 44 | ||||||||||||||||||||||||||||||
Foreign exchange impacts on cash (including cash management related instruments) | (26 | ) | 94 | |||||||||||||||||||||||||||||
IFRS 16 leases taken on at 1 July | (1,778 | ) | – | |||||||||||||||||||||||||||||
Lease additions | (363 | ) | – | |||||||||||||||||||||||||||||
Others | 6 | 1 | (96 | ) | (13 | ) | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Non-cash movements | (582 | ) | 165 | (2,175 | ) | 125 | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net debt at the end of the financial year | (9,215 | ) | (10,934 | ) | ||||||||||||||||||||||||||||
Net debt at the end of the financial year (3) | (12,044 | ) | (9,446 | ) | ||||||||||||||||||||||||||||
|
|
|
|
(1) | Other financing activities mainly comprises purchases of shares by Employee Share Option Plan trusts of US$ |
(2) |
|
(3) |
|
The Group hedges against the volatility in both exchange and interest rates on debt, and also exchange on cash, with associated movements in derivatives reported in Other financial assets/liabilities as effective hedged derivatives (cross currency and interest rate swaps), in accordance with accounting standards. For more information, refer to note 21 ‘Financial risk management’ in section 5.
The comparison for the year ended 30 June 20182019 to 30 June 20172018 has been omitted from this Form20-F, but can be found in our Form20-F for the fiscal year ended 30 June 2018,2019, filed on 1817 September 2018.2019.
1.12.41.10.4 Alternative performance measuresPerformance Measures
We use various alternative performance measuresAlternative Performance Measures (APMs) to reflect our underlying performance.
These indicatorsAPMs are not defined or specified under the requirements of IFRS, but are derived from the Group’s Consolidated Financial Statements prepared in accordance with IFRS. The APMs are consistent with how management reviews financial performance of the Group with the Board and the investment community.
Section 1.12.56.1, which is incorporated into the Strategic Report by reference, includes our APMs and Section 6.1.1 outlines why we believe the APMs are useful and the calculation methodology. We believe these APMs provide useful information, but they should not be considered as an indication of, or as a substitute for, statutory measures as an indicator of actual operating performance such(such as profit or net operating cash flowflow) or any other measure of financial performance or position presented in accordance with IFRS, or as a measure of a company’s profitability, liquidity or financial position.
The following tables provide reconciliations between the APMs and their nearest respective IFRS measure.
The measures and below reconciliations included in this section for the year ended 30 June 2019 and comparative periods are unaudited and have been derived from the Group’s Consolidated Financial Statements.
Exceptional items
To improve the comparability of underlying financial performance between reporting periods, some of our APMs adjust the relevant IFRS measures for exceptional items. For more information on exceptional items, refer to note 3 ‘Exceptional items’ in section 5.
Exceptional items are those gains or losses where their nature, including the expected frequency of the events giving rise to them, and amount is considered material to the Group’s Consolidated Financial Statements. The exceptional items included within the Group’s profit from Continuing and Discontinued operations for the fiscal year are detailed below.
104
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | |||||||||
Continuing operations | ||||||||||||
Revenue | – | – | – | |||||||||
Other income | 50 | – | 169 | |||||||||
Expenses excluding net finance costs, depreciation, amortisation and impairments | (57 | ) | (57 | ) | (416 | ) | ||||||
Depreciation and amortisation | – | – | (212 | ) | ||||||||
Net impairments | – | – | (5 | ) | ||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (945 | ) | (509 | ) | (172 | ) | ||||||
|
|
|
|
|
| |||||||
Profit/(loss) from operations | (952 | ) | (566 | ) | (636 | ) | ||||||
|
|
|
|
|
| |||||||
Financial expenses | (108 | ) | (84 | ) | (127 | ) | ||||||
Financial income | – | – | – | |||||||||
|
|
|
|
|
| |||||||
Net finance costs | (108 | ) | (84 | ) | (127 | ) | ||||||
|
|
|
|
|
| |||||||
Profit/(loss) before taxation | (1,060 | ) | (650 | ) | (763 | ) | ||||||
|
|
|
|
|
| |||||||
Income tax benefit/(expense) | 242 | (2,320 | ) | (243 | ) | |||||||
Royalty-related taxation (net of income tax benefit) | – | – | – | |||||||||
|
|
|
|
|
| |||||||
Total taxation benefit/(expense) | 242 | (2,320 | ) | (243 | ) | |||||||
|
|
|
|
|
| |||||||
Profit/(loss) after taxation from Continuing operations | (818 | ) | (2,970 | ) | (1,006 | ) | ||||||
|
|
|
|
|
| |||||||
Discontinued operations | ||||||||||||
Profit/(loss) after taxation from Discontinued operations | – | (2,258 | ) | – | ||||||||
|
|
|
|
|
| |||||||
Profit/(loss) after taxation from Continuing and Discontinued operations | (818 | ) | (5,228 | ) | (1,006 | ) | ||||||
|
|
|
|
|
| |||||||
Total exceptional items attributable tonon-controlling interests | – | – | (164 | ) | ||||||||
Total exceptional items attributable to BHP shareholders | (818 | ) | (5,228 | ) | (842 | ) | ||||||
|
|
|
|
|
| |||||||
Exceptional items attributable to BHP shareholders per share (US cents) | (15.8 | ) | (98.2 | ) | (15.8 | ) | ||||||
|
|
|
|
|
| |||||||
Weighted basic average number of shares (Million) | 5,180 | 5,323 | 5,323 | |||||||||
|
|
|
|
|
|
105
APMs derived from Consolidated Income Statement
Underlying attributable profit
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | |||||||||
Profit after taxation from Continuing and Discontinued operations attributable to BHP shareholders | 8,306 | 3,705 | 5,890 | |||||||||
Total exceptional items attributable to BHP shareholders(1) | 818 | 5,228 | 842 | |||||||||
|
|
|
|
|
| |||||||
Underlying attributable profit | 9,124 | 8,933 | 6,732 | |||||||||
|
|
|
|
|
|
|
Underlying attributable profit – Continuing operations
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | |||||||||
Profit after taxation from Continuing and Discontinued operations attributable to BHP shareholders | 8,306 | 3,705 | 5,890 | |||||||||
Loss attributable to members of BHP for Discontinued operations | 342 | 2,947 | 485 | |||||||||
Total exceptional items attributable to BHP shareholders(1) | 818 | 5,228 | 842 | |||||||||
Total exceptional items attributable to BHP shareholders for Discontinued operations(1) | – | (2,258 | ) | – | ||||||||
|
|
|
|
|
| |||||||
Underlying attributable profit – Continuing operations | 9,466 | 9,622 | 7,217 | |||||||||
|
|
|
|
|
|
|
Underlying basic earnings per share
Year ended 30 June | 2019 US cents | 2018 US cents | 2017 US cents | |||||||||
Basic earnings per ordinary share | 160.3 | 69.6 | 110.7 | |||||||||
Exceptional items attributable to BHP shareholders per share(1) | 15.8 | 98.2 | 15.8 | |||||||||
|
|
|
|
|
| |||||||
Underlying basic earnings per ordinary share | 176.1 | 167.8 | 126.5 | |||||||||
|
|
|
|
|
|
|
Underlying EBITDA
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | |||||||||
Profit from operations | 16,113 | 15,996 | 12,554 | |||||||||
Exceptional items included in profit from operations(1) | 952 | 566 | 636 | |||||||||
|
|
|
|
|
| |||||||
Underlying EBIT | 17,065 | 16,562 | 13,190 | |||||||||
|
|
|
|
|
| |||||||
Depreciation and amortisation expense | 5,829 | 6,288 | 6,184 | |||||||||
Net impairments | 264 | 333 | 193 | |||||||||
Exceptional item included in Depreciation, amortisation and impairments(1) | – | – | (217 | ) | ||||||||
|
|
|
|
|
| |||||||
Underlying EBITDA | 23,158 | 23,183 | 19,350 | |||||||||
|
|
|
|
|
|
|
Underlying EBITDA – Segment
Year ended 30 June 2019 US$M | Petroleum | Copper | Iron Ore | Coal | Group and unallocated items/ elimination (2) | Total Group | ||||||||||||||||||
Profit from operations | 2,220 | 2,587 | 8,426 | 3,400 | (520 | ) | 16,113 | |||||||||||||||||
Exceptional items included in profit from operations(1) | – | – | 971 | – | (19 | ) | 952 | |||||||||||||||||
Depreciation and amortisation expense | 1,560 | 1,835 | 1,653 | 632 | 149 | 5,829 | ||||||||||||||||||
Net impairments | 21 | 128 | 79 | 35 | 1 | 264 | ||||||||||||||||||
Exceptional item included in Depreciation, amortisation and impairments(1) | – | – | – | – | – | – | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA | 3,801 | 4,550 | 11,129 | 4,067 | (389 | ) | 23,158 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
106
Year ended 30 June 2018 US$M | Petroleum | Copper | Iron Ore | Coal | Group and unallocated items/ elimination (2) | Total Group | ||||||||||||||||||
Profit from operations | 1,546 | 4,389 | 6,656 | 3,682 | (277 | ) | 15,996 | |||||||||||||||||
Exceptional items included in profit from operations(1) | – | – | 539 | – | 27 | 566 | ||||||||||||||||||
Depreciation and amortisation expense | 1,719 | 1,920 | 1,721 | 686 | 242 | 6,288 | ||||||||||||||||||
Net impairments | 76 | 213 | 14 | 29 | 1 | 333 | ||||||||||||||||||
Exceptional item included in Depreciation, amortisation and impairments (1) | – | – | – | – | – | – | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA | 3,341 | 6,522 | 8,930 | 4,397 | (7 | ) | 23,183 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Year ended 30 June 2017 US$M | Petroleum | Copper | Iron Ore | Coal | Group and unallocated items/ elimination (2) | Total Group | ||||||||||||||||||
Profit from operations | 1,367 | 1,460 | 6,994 | 3,214 | (481 | ) | 12,554 | |||||||||||||||||
Exceptional items included in profit from operations (1) | – | 546 | 203 | (164 | ) | 51 | 636 | |||||||||||||||||
Depreciation and amortisation expense | 1,648 | 1,737 | 1,828 | 719 | 252 | 6,184 | ||||||||||||||||||
Net impairments | 102 | 14 | 52 | 20 | 5 | 193 | ||||||||||||||||||
Exceptional item included in Depreciation, amortisation and impairments (1) | – | (212 | ) | – | (5 | ) | – | (217 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA | 3,117 | 3,545 | 9,077 | 3,784 | (173 | ) | 19,350 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2019 US$M | Profit from operations | Exceptional items included in profit from operations (1) | Depreciation and amortisation | Net impairments | Exceptional item included in Depreciation, amortisation and impairments (1) | Underlying EBITDA | ||||||||||||||||||
Potash | (131 | ) | – | 4 | – | – | (127 | ) | ||||||||||||||||
Nickel West | 91 | – | 11 | – | – | 102 | ||||||||||||||||||
Corporate and eliminations | (480 | ) | (19 | ) | 134 | 1 | – | (364 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | (520 | ) | (19 | ) | 149 | 1 | – | (389 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Year ended 30 June 2018 US$M | Profit from operations | Exceptional items included in profit from operations (1) | Depreciation and amortisation | Net impairments | Exceptional item included in Depreciation, amortisation and impairments (1) | Underlying EBITDA | ||||||||||||||||||
Potash | (139 | ) | – | 4 | – | – | (135 | ) | ||||||||||||||||
Nickel West | 215 | – | 76 | – | – | 291 | ||||||||||||||||||
Corporate and eliminations | (353 | ) | 27 | 162 | 1 | – | (163 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | (277 | ) | 27 | 242 | 1 | – | (7 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Year ended 30 June 2017 US$M | Profit from operations | Exceptional items included in profit from operations (1) | Depreciation and amortisation | Net impairments | Exceptional item included in Depreciation, amortisation and impairments(1) | Underlying EBITDA | ||||||||||||||||||
Potash | (118 | ) | – | 5 | 5 | – | (108 | ) | ||||||||||||||||
Nickel West | (43 | ) | – | 87 | – | – | 44 | |||||||||||||||||
Corporate and eliminations | (320 | ) | 51 | 160 | – | – | (109 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | (481 | ) | 51 | 252 | 5 | – | (173 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
107
Underlying EBITDA margin
Year ended 30 June 2019 US$M | Petroleum | Copper | Iron Ore | Coal | Group and unallocated items/ elimination (4) | Total Group | ||||||||||||||||||
Revenue – Group production | 5,920 | 9,729 | 17,223 | 9,102 | 1,116 | 43,090 | ||||||||||||||||||
Revenue – Third party products | 10 | 1,109 | 32 | 19 | 28 | 1,198 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Revenue | 5,930 | 10,838 | 17,255 | 9,121 | 1,144 | 44,288 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA – Group production(1) | 3,801 | 4,434 | 11,115 | 4,068 | (389 | ) | 23,029 | |||||||||||||||||
Underlying EBITDA – Third party products(1) | – | 116 | 14 | (1 | ) | – | 129 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA | 3,801 | 4,550 | 11,129 | 4,067 | (389 | ) | 23,158 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment contribution to the Group’s Underlying EBITDA(2) | 16 | % | 19 | % | 48 | % | 17 | % | 100 | % | ||||||||||||||
Underlying EBITDA margin(3) | 64 | % | 46 | % | 65 | % | 45 | % | 53 | % | ||||||||||||||
Year ended 30 June 2018 US$M | Petroleum | Copper | Iron Ore | Coal | Group and unallocated items/ elimination (4) | Total Group | ||||||||||||||||||
Revenue – Group production | 5,396 | 11,432 | 14,756 | 8,887 | 1,222 | 41,693 | ||||||||||||||||||
Revenue – Third party products | 12 | 1,349 | 54 | 2 | 19 | 1,436 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Revenue | 5,408 | 12,781 | 14,810 | 8,889 | 1,241 | 43,129 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA – Group production(1) | 3,340 | 6,462 | 8,929 | 4,398 | (8 | ) | 23,121 | |||||||||||||||||
Underlying EBITDA – Third party products(1) | 1 | 60 | 1 | (1 | ) | 1 | 62 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA | 3,341 | 6,522 | 8,930 | 4,397 | (7 | ) | 23,183 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment contribution to the Group’s Underlying EBITDA (2) | 14 | % | 28 | % | 39 | % | 19 | % | 100 | % | ||||||||||||||
Underlying EBITDA margin(3) | 62 | % | 57 | % | 61 | % | 49 | % | 55 | % | ||||||||||||||
Year ended 30 June 2017 US$M | Petroleum | Copper | Iron Ore | Coal | Group and unallocated items/ elimination (4) | Total Group | ||||||||||||||||||
Revenue – Group production | 4,713 | 6,930 | 14,543 | 7,578 | 867 | 34,631 | ||||||||||||||||||
Revenue – Third party products | 9 | 1,012 | 81 | – | 7 | 1,109 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Revenue | 4,722 | 7,942 | 14,624 | 7,578 | 874 | 35,740 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA – Group production(1) | 3,114 | 3,522 | 9,054 | 3,784 | (173 | ) | 19,301 | |||||||||||||||||
Underlying EBITDA – Third party products(1) | 3 | 23 | 23 | – | – | 49 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Underlying EBITDA | 3,117 | 3,545 | 9,077 | 3,784 | (173 | ) | 19,350 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment contribution to the Group’s Underlying EBITDA (2) | 16 | % | 18 | % | 47 | % | 19 | % | 100 | % | ||||||||||||||
Underlying EBITDA margin(3) | 66 | % | 51 | % | 62 | % | 50 | % | 56 | % |
|
We engage in third party trading for the following reasons:
Production variability and occasional shortfalls from our assets means that we sometimes source third party materials to ensure a steady supply of product to our customers.
To optimise our supply chain outcomes, we may buy physical product from third parties.
To support the development of liquid markets, we will sometimes source third party physical product and manage risk through both the physical and financial markets.
|
|
|
108
Effective tax rate
2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||
Year ended 30 June | Profit before taxation US$M | Income tax expense US$M | % | Profit before taxation US$M | Income tax expense US$M | % | Profit before taxation US$M | Income tax expense US$M | % | |||||||||||||||||||||||||||
Statutory effective tax rate | 15,049 | (5,529 | ) | 36.7 | 14,751 | (7,007 | ) | 47.5 | 11,137 | (4,443 | ) | 39.9 | ||||||||||||||||||||||||
Adjusted for: | ||||||||||||||||||||||||||||||||||||
Exchange rate movements | – | (25 | ) | – | (152 | ) | – | 88 | ||||||||||||||||||||||||||||
Exceptional items(1) | 1,060 | (242 | ) | 650 | 2,320 | 763 | 243 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Adjusted effective tax rate | 16,109 | (5,796 | ) | 36.0 | 15,401 | (4,839 | ) | 31.4 | 11,900 | (4,112 | ) | 34.6 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APMs derived from Consolidated Cash Flow Statement
Capital and exploration expenditure
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | |||||||||
Capital expenditure (purchases of property, plant and equipment) | 6,250 | 4,979 | 3,697 | |||||||||
Add: Exploration expenditure | 873 | 874 | 966 | |||||||||
|
|
|
|
|
| |||||||
Capital and exploration expenditure (cash basis) – Continuing operations | 7,123 | 5,853 | 4,663 | |||||||||
|
|
|
|
|
| |||||||
Capital and exploration expenditure – Discontinued operations | 443 | 900 | 555 | |||||||||
|
|
|
|
|
| |||||||
Capital and exploration expenditure (cash basis) – Total operations | 7,566 | 6,753 | 5,218 | |||||||||
|
|
|
|
|
|
Free cash flow
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | |||||||||
Net operating cash flows | 17,871 | 18,461 | 16,804 | |||||||||
Net investing cash flows | 2,607 | (5,921 | ) | (4,161 | ) | |||||||
|
|
|
|
|
| |||||||
Free cash flow | 20,478 | 12,540 | 12,643 | |||||||||
|
|
|
|
|
|
Free cash flow – Continuing operations
Year ended 30 June | 2019 US$M | 2018 US$M | 2017 US$M | |||||||||
Net operating cash flows from Continuing operations | 17,397 | 17,561 | 15,876 | |||||||||
Net investing cash flows from Continuing operations | (7,377 | ) | (5,060 | ) | (3,724 | ) | ||||||
|
|
|
|
|
| |||||||
Free cash flow – Continuing operations | 10,020 | 12,501 | 12,152 | |||||||||
|
|
|
|
|
|
109
APMs derived from Consolidated Balance Sheet
Net debt and gearing ratio
Year ended 30 June | 2019 US$M | 2018 US$M | ||||||
Interest bearing liabilities – Current | 1,661 | 2,736 | ||||||
Interest bearing liabilities – Non current | 23,167 | 24,069 | ||||||
|
|
|
| |||||
Total interest bearing liabilities | 24,828 | 26,805 | ||||||
|
|
|
| |||||
Less: Cash and cash equivalents | 15,613 | 15,871 | ||||||
|
|
|
| |||||
Net debt | 9,215 | 10,934 | ||||||
|
|
|
| |||||
Net assets | 51,824 | 60,670 | ||||||
|
|
|
| |||||
Gearing | 15.1 | % | 15.3 | % |
Net debt waterfall
Year ended 30 June | 2019 US$M | 2018 US$M | ||||||
Net debt at the beginning of the period | (10,934 | ) | (16,321 | ) | ||||
|
|
|
| |||||
Net operating cash flows | 17,871 | 18,461 | ||||||
Net investing cash flows | 2,607 | (5,921 | ) | |||||
Net financing cash flows | (20,528 | ) | (10,891 | ) | ||||
|
|
|
| |||||
Net (decrease)/increase in cash and cash equivalents from Continuing and Discontinued operations | (50 | ) | 1,649 | |||||
|
|
|
| |||||
Carrying value of interest bearing liability repayments | 2,351 | 3,573 | ||||||
|
|
|
| |||||
Interest rate movements | (729 | ) | 353 | |||||
Foreign exchange impacts on debt | 311 | (245 | ) | |||||
Foreign exchange impacts on cash | (170 | ) | 56 | |||||
Others | 6 | 1 | ||||||
|
|
|
| |||||
Non-cash movements | (582 | ) | 165 | |||||
|
|
|
| |||||
Net debt at the end of the period | (9,215 | ) | (10,934 | ) | ||||
|
|
|
|
110
Net operating assets
The following table reconciles Net operating assets for the Group to Net assets on the Consolidated Balance Sheet:
Year ended 30 June | 2019 US$M | 2018 US$M | ||||||
Net assets | 51,824 | 60,670 | ||||||
Less:Non-operating assets | ||||||||
Cash and cash equivalents | (15,613 | ) | (15,871 | ) | ||||
Trade and other receivables (1) | (222 | ) | (36 | ) | ||||
Other financial assets (2) | (1,188 | ) | (974 | ) | ||||
Current tax assets | (124 | ) | (106 | ) | ||||
Deferred tax assets | (3,764 | ) | (4,041 | ) | ||||
Assets held for sale (3) | – | (11,939 | ) | |||||
|
|
|
| |||||
Add:Non-operating liabilities | ||||||||
Trade and other payables (4) | 328 | 363 | ||||||
Interest bearing liabilities | 24,828 | 26,805 | ||||||
Other financial liabilities (5) | 1,020 | 1,218 | ||||||
Current tax payable | 1,546 | 1,773 | ||||||
Non-current tax payable | 187 | 137 | ||||||
Deferred tax liabilities | 3,234 | 3,472 | ||||||
Liabilities held for sale (3) | – | 1,222 | ||||||
|
|
|
| |||||
Net operating assets | 62,056 | 62,693 | ||||||
|
|
|
| |||||
Net operating assets | ||||||||
Petroleum | 7,228 | 8,052 | ||||||
Copper | 24,088 | 23,679 | ||||||
Iron Ore | 17,486 | 18,320 | ||||||
Coal | 9,674 | 9,853 | ||||||
Group and unallocated items (6) | 3,580 | 2,789 | ||||||
|
|
|
| |||||
Total | 62,056 | 62,693 | ||||||
|
|
|
|
|
|
|
|
|
|
111
1.12.5 Definition and calculation of alternative performance measures
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
112
| ||||
|
|
1.12.6 Definition and calculation of principal factors
The method of calculation of the principal factors that affect Revenue, Profit from operations and Underlying EBITDA is as follows:
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
113
| ||
| ||
| ||
| ||
| ||
| ||
|
Productivity comprises changes in controllable cash costs, changes in volumes attributed to productivity and changes in capitalised exploration (being capitalised exploration in the current period less capitalised exploration in the prior period as reported in the cash flow statement).
114
1.131.11 Performance by commodity
Management believes the following financial information presented by commodity provides a meaningful indication of the underlying financial performance of the assets, including equity accounted investments, of each reportable segment. Information relating to assets that are accounted for as equity accounted investments areis shown to reflect BHP’s share, unless otherwise noted, to provide insight into the drivers of these assets.
For the purposes of this financial information, segments are reported on a statutory basis in accordance with IFRS 8 ‘Operating Segments’. The tables for each commodity include an ‘adjustment for equity accounted investments’ to reconcile the equity accounted results to the statutory segment results.
For a reconciliation of alternative performance measures to their respective IFRS measure and an explanation as to the use of Underlying EBITDA and Underlying EBIT in assessing our performance, refer to section 1.12.4.6.1. For the definition and method of calculation of alternative performance measures, refer to section 1.12.5.6.1.1. For more information as to the statutory determination of our reportable segments, refer to note 1 ‘Segment reporting’ in section 5.
Unit costs (1) is one of the financial measures used to monitor the performance of our individual assets and is included in the analysis of each reportable segment.
1.13.1
(1) | For more information on alternative performance measures, refer to section 6.1. |
Detailed below is financial information for our Petroleum assets excluding Onshore US for FY2019 and FY2018 and an analysis of Petroleum’s financial performance for FY2019FY2020 compared with FY2018.FY2019.
Year ended 30 June 2019 US$M | Revenue (1) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (8) | Capital expenditure | Exploration gross (2) | Exploration to profit (3) | ||||||||||||||||||||||||
Australia Production Unit (4) | 507 | 332 | 192 | 140 | 513 | 13 | ||||||||||||||||||||||||||
Bass Strait | 1,237 | 915 | 427 | 488 | 2,217 | 32 | ||||||||||||||||||||||||||
North West Shelf | 1,657 | 1,220 | 298 | 922 | 1,371 | 106 | ||||||||||||||||||||||||||
Atlantis | 979 | 824 | 261 | 563 | 1,060 | 31 | ||||||||||||||||||||||||||
Shenzi | 540 | 437 | 151 | 286 | 658 | 30 | ||||||||||||||||||||||||||
Mad Dog | 319 | 268 | 59 | 209 | 1,232 | 362 | ||||||||||||||||||||||||||
Trinidad/Tobago | 287 | 181 | 56 | 125 | 302 | 23 | ||||||||||||||||||||||||||
Algeria | 258 | 201 | 26 | 175 | 49 | 7 | ||||||||||||||||||||||||||
Exploration | – | (388 | ) | 58 | (446 | ) | 1,039 | – | ||||||||||||||||||||||||
Other (5) | 153 | 73 | 55 | 18 | (109 | ) | 41 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum from Group production | 5,937 | 4,063 | 1,583 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Closed mines (6) | – | (260 | ) | – | (260 | ) | (1,104 | ) | – | |||||||||||||||||||||||
Third party products | 10 | – | – | – | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum | 5,947 | 3,803 | 1,583 | 2,220 | 7,228 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (7) | (17 | ) | (2 | ) | (2 | ) | – | – | – | – | – | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum statutory result | 5,930 | 3,801 | 1,581 | 2,220 | 7,228 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
Year ended 30 June 2020 US$M | Revenue (4) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (6) | Exploration to profit (7) | ||||||||||||||||||||||||
Australia Production Unit (1) | 361 | 253 | 197 | 56 | 289 | 6 | ||||||||||||||||||||||||||
Bass Strait | 1,102 | 761 | 449 | 312 | 1,796 | 87 | ||||||||||||||||||||||||||
North West Shelf | 1,076 | 731 | 260 | 471 | 1,261 | 130 | ||||||||||||||||||||||||||
Atlantis | 561 | 431 | 175 | 256 | 1,061 | 197 | ||||||||||||||||||||||||||
Shenzi | 277 | 174 | 139 | 35 | 550 | 45 | ||||||||||||||||||||||||||
Mad Dog | 216 | 164 | 64 | 100 | 1,551 | 375 | ||||||||||||||||||||||||||
Trinidad/Tobago | 191 | 92 | 46 | 46 | 323 | 46 | ||||||||||||||||||||||||||
Algeria | 159 | 111 | 12 | 99 | 60 | 16 | ||||||||||||||||||||||||||
Exploration | – | (394 | ) | 41 | (435 | ) | 1,227 | (1 | ) | |||||||||||||||||||||||
Other (2) | 104 | (111 | ) | 77 | (188 | ) | 129 | 8 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum from Group production | 4,047 | 2,212 | 1,460 | 752 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Third party products | 39 | (2 | ) | – | (2 | ) | – | – | – | – | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum | 4,086 | 2,210 | 1,460 | 750 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3) | (16 | ) | (3 | ) | (3 | ) | – | – | – | – | – | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum statutory result | 4,070 | 2,207 | 1,457 | 750 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2018 US$M | Revenue (1) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets(8) | Capital expenditure | Exploration gross (2) | Exploration to profit (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 30 June 2019 Restated US$M | Revenue (4) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (6) | Exploration to profit (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Australia Production Unit | 568 | 422 | 247 | 175 | 740 | – | 507 | 332 | 192 | 140 | 513 | 13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Bass Strait | 1,285 | 948 | 494 | 454 | 2,504 | 29 | 1,237 | 915 | 427 | 488 | 2,217 | 32 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
North West Shelf | 1,400 | 1,058 | 230 | 828 | 1,574 | 167 | 1,657 | 1,220 | 298 | 922 | 1,371 | 106 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Atlantis | 833 | 666 | 332 | 334 | 1,307 | 159 | 979 | 824 | 261 | 563 | 1,060 | 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shenzi | 576 | 470 | 193 | 277 | 743 | 32 | 540 | 437 | 151 | 286 | 658 | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Mad Dog | 229 | 160 | 50 | 110 | 947 | 189 | 319 | 268 | 59 | 209 | 1,232 | 362 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Trinidad/Tobago | 161 | (53 | ) | 38 | (91 | ) | 256 | 16 | 287 | 181 | 56 | 125 | 302 | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Algeria | 234 | 186 | 28 | 158 | 37 | 6 | 258 | 201 | 26 | 175 | 49 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Exploration | – | (516 | ) | 127 | (643 | ) | 953 | – | – | (388 | ) | 58 | (446 | ) | 1,039 | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 126 | 54 | 59 | (5 | ) | (142 | ) | 58 | 153 | 73 | 55 | 18 | (109 | ) | 41 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Total Petroleum from Group production | 5,412 | 3,395 | 1,798 | 1,597 | 8,919 | 656 | 709 | 592 | 5,937 | 4,063 | 1,583 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Closed mines (6) | – | (52 | ) | – | (52 | ) | (867 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Third party products | 12 | 1 | – | 1 | – | – | 10 | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Total Petroleum | 5,424 | 3,344 | 1,798 | 1,546 | 8,052 | 656 | 709 | 592 | 5,947 | 4,063 | 1,583 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment for equity accounted investments (7) | (16 | ) | (3 | ) | (3 | ) | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment for equity accounted investments (3) | (17 | ) | (2 | ) | (2 | ) | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Total Petroleum statutory result | 5,408 | 3,341 | 1,795 | 1,546 | 8,052 | 656 | 709 | 592 | 5,930 | 4,061 | 1,581 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
Australia Production Unit includes Macedon, Pyrenees and Minerva. |
Predominantly divisional activities, business development, UK (divested in November 2018), Neptune and Genesis. Also includes the Caesar oil pipeline and the Cleopatra gas pipeline, which are equity accounted investments. The financial information for the Caesar oil pipeline and the Cleopatra gas pipeline presented above, with the exception of net operating assets, reflects BHP’s share. |
|
Total Petroleum statutory result |
Total Petroleum statutory result revenue includes: crude oil US$2,033 million (2019: US$3,171 million), natural gas US$980 million (2019: US$1,259 million), LNG US$774 million (2019: US$1,179 million), NGL US$198 million (2019: US$263 million) and other US$85 million (2019: US$58 million) which includes third party products. |
(5) | Refer to section |
(6) | Includes US$170 million of capitalised exploration (2019: US$297 million). |
(7) | Includes US$ nil of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2019: US$21 million). |
Key drivers of conventional petroleum’s financial results
Price overview
Trends in each of the major markets are outlined below.
Crude oil
Our average realised sales price for crude oil was US$66.5949.53 per barrel (FY2018:(FY2019: US$60.5766.59 per barrel). While crudeCrude oil prices were higher on average compared to the previous financial year, geopolitics and shifts in OPEC policy contributed to increased price volatility. Brent hit a four-year high in the first half of FY2019, ahead of US sanctions on Iran taking effect, but then fell sharply in December on mounting oversupply concerns. Deeper supply cuts by OPEC and itsnon-member allies (‘OPEC plus’), coupled with increased US sanctions and unplanned outages supported a recoverydropped significantly in the second half of FY2019. However, this was moderated by rising US supplyFY2020 due to a brief OPEC and concerns overits non-member allies’ (‘OPEC+’) price war in March 2020 and COVID-19, with Brent falling below US$20/bbl in April 2020 at the height of the global lockdowns and peak demand growthdestruction. The prices have partially recovered since then mainly due to swift output cuts from OPEC+ and a partial recovery in responsemobility. Very large storage builds flipped to ongoing trade tensions. A roughly balanced marketdraws in late May 2020, which allowed benchmark prices to move up to approximately US$40/bbl. Demand is expected in CY2019. Our long-termto recover to pre-COVID-19 levels no earlier than the end of CY2021. In our longer-term outlook, remains positive, underpinned by rising demand from the developing world and natural field decline.we believe oil will be attractive, even under a plausible low case, for a considerable time to come.
Liquefied natural gas
Our average realised sales price for LNG was US$9.437.26 per Mcf (FY2018:(FY2019: US$8.079.43 per Mcf). The Japan-Korea Marker (JKM) price for LNG reachedperformed poorly in FY2020, reflecting a three-year highdeepening oversupply situation. JKM hit an all-time low in September 2018 on strongApril 2020 as a slowdown in Asian demand growth in Asia, led by China.due to warm weather and COVID-19 and large increments of new supply coming online weighed on the market. Longer term, the commodity offers a combination of systematic base decline and an attractive demand trajectory. However, prices declined sharplygas resource is abundant and liquefaction infrastructure comes with large upfront costs and extended pay backs. North American exports are expected to provide the marginal supply across multiple longer-term scenarios for the LNG industry, with new supply likely to be required to balance the market in the second half as Asian demand slowed, while new supply volume increased. European imports increased substantiallyyear-on-year, playing a key role to help balance the market. We expect the market to remain well supplied through to CY2020. Our long-term outlook formiddle of this decade, or slightly later. Within global gas, LNG remains positive, underpinned by rising energy demand from emerging economies and the need for low emission and flexible fuels to supplement intermittent renewables. Depleting indigenous gas supplies are alsois expected to increase the dependence of some major consumers on the export market.
116gain share. Against this backdrop, LNG assets advantaged by their proximity to existing infrastructure or customers, or both, will be attractive.
Production
Total petroleumPetroleum production for FY2019 increasedFY2020 decreased by 110 per cent to 121109 MMboe.
Crude oil, condensate and natural gas liquids production decreased by 11 per cent to 49 MMboe as a resultdue to the impacts of higher uptime and stronger field performanceTropical Storm Barry in the Gulf of Mexico, Tropical Cyclone Damien at Atlantis, Mad Dog andour North West Shelf offset byoperations, maintenance at Atlantis and natural field decline and aacross the portfolio. Weaker market conditions, including impacts from COVID-19, also contributed to lower volumes in the June 2020 quarter. This decline was partially offset by higher uptime at Pyrenees following the 70-day planned dry dock maintenance program during the prior year.
Natural gas production decreased by 9 per cent to 360 bcf, reflecting a decrease in both production and tax barrels (in accordance with the terms of our Production Sharing Contract) due to weaker market conditions in Trinidad and Tobago, impacts of maintenance and Tropical Cyclone Damien at Pyrenees.North West Shelf and natural field decline across the portfolio.
For more information on individual asset production in FY2020, FY2019 FY2018 and FY2017,FY2018, refer to section 6.2.6.3.
Financial results
Petroleum revenue for FY2019 increasedFY2020 decreased by US$522 million1.9 billion to US$5.94.1 billion. Gulf of Mexico, which includes Atlantis, Shenzi and Mad Dog, increaseddecreased by US$200784 million to US$1.81.1 billion. In Australia, Bass Strait and North West Shelf collectively increaseddecreased by US$209716 million to US$2.92.2 billion. The Trinidad Production Unit increaseddecreased by US$12696 million to US$0.30.2 billion while the Australian Production Unit, which includes Macedon, Pyrenees and Minerva, decreased by US$61146 million to US$0.50.4 billion.
Underlying EBITDA for Petroleum increaseddecreased by US$460 million1.9 billion to US$3.82.2 billion. Price impacts, net of price-linked costs, increaseddecreased Underlying EBITDA by US$599 million.1.1 billion. Controllable cash costs decreasedincreased by US$2730 million reflecting lower exploration expenses due to the ocean bottom node seismic survey acquisitionhigher business development costs in Mexico following the Gulf of Mexico less than the prior year impact of expensing the Scimitar well,successful exploration program at Trion, partially offset by additionallower maintenance activity at our Australian assets. Ceased and sold operations decreased by US$16776 million reflecting the revaluation of the closed mines provision partially offset by the sale of our interests in the Bruce and Keith oil and gas fields.fields in the prior period, and cessation of operations at Minerva in FY2020. Lower volumes decreased Underlying EBITDA by US$75588 million mainly due to planned Pyreneesdry-dock maintenance, higher gas to liquids production mix, natural field decline across the portfolio, a decrease in tax barrels at Trinidad and an increase in overlift positions in Australia.Tobago, weaker market conditions, the impacts from Tropical Cyclone Barry and Tropical Cyclone Damien and planned maintenance at Atlantis. Other items such as exchange rate and inflation and revaluation of embedded derivatives in the Trinidad and Tobago gas contract also positivelynegatively impacted Underlying EBITDA by US$7627 million.
Conventional petroleumPetroleum unit costs increaseddecreased by 58 per cent to US$10.549.74 per barrel of oil equivalent due to additional planneda reduction in price-linked costs, cost efficiencies and lower maintenance activities at our Australian operations due to COVID-19, partially offset by higherlower volumes. The calculation of conventional petroleum unit costs is set out in the table below.
Conventional Petroleum unit costs (1) (US$M) | FY2019 | FY2018 | ||||||||||||||
Petroleum unit costs | FY2020 | FY2019 | ||||||||||||||
Revenue | 5,930 | 5,408 | 4,070 | 5,930 | ||||||||||||
Underlying EBITDA | 4,061 | 3,393 | 2,207 | 4,061 | ||||||||||||
|
|
|
| |||||||||||||
Gross costs | 1,869 | 2,015 | 1,863 | 1,869 | ||||||||||||
|
|
|
| |||||||||||||
Less: exploration expense | 388 | 516 | 394 | 388 | ||||||||||||
Less: freight | 152 | 152 | 110 | 152 | ||||||||||||
Less: development and evaluation | 46 | 34 | 166 | 46 | ||||||||||||
Less: other | 8 | 106 | 131 | 8 | ||||||||||||
|
|
|
| |||||||||||||
Net costs | 1,275 | 1,207 | 1,062 | 1,275 | ||||||||||||
|
|
|
| |||||||||||||
Production (MMboe, equity share) | 121 | 120 | 109 | 121 | ||||||||||||
|
|
|
| |||||||||||||
Cost per boe (US$) (4) | 10.54 | 10.06 | ||||||||||||||
Cost per Boe (US$) (3) | 9.74 | 10.54 | ||||||||||||||
|
|
|
|
(1) |
|
Exploration expense represents conventional petroleum’s share of total exploration expense. |
Other includesnon-cash profit on sales of assets, inventory movements, foreign exchange, provision for onerous lease contracts and the impact from the revaluation of embedded derivatives in the Trinidad and Tobago gas contract. |
|
Delivery commitments
We have delivery commitments of natural gas and LNG in conventional petroleum of approximately 2.11 billion cubic feet through FY2034 (65(83 per cent Australia and Asia, 3517 per cent Trinidad). We haveothers), and crude and condensate delivery commitments of around 10.87 million barrels through FY2020 (51FY2021 (57 per cent United States, 4635 per cent Australia and Asia, 38 per cent others). We have sufficient proved reserves and production capacity to fulfil these delivery commitments.
We have obligationsobligation commitments of US$5343 million for contracted capacity on transportation pipelines and gathering systems through FY2024,FY2025, on which we are the shipper. The agreements have annual escalation clauses.
117
Other information
Drilling
The number of wells in the process of drilling and/or completion as of 30 June 20192020 was as follows:
Exploratory wells | Development wells | Total | Exploratory wells | Development wells | Total | |||||||||||||||||||||||||||||||||||||||||||
Gross | Net(1) | Gross | Net(1) | Gross | Net (1) | Gross | Net (1) | Gross | Net (1) | Gross | Net (1) | |||||||||||||||||||||||||||||||||||||
Australia | – | – | – | – | – | – | – | – | 2 | 1 | 2 | 1 | ||||||||||||||||||||||||||||||||||||
United States | – | – | 5 | 1 | 5 | 1 | – | – | 26 | 8 | 26 | 8 | ||||||||||||||||||||||||||||||||||||
Other (2) | – | – | 1 | 1 | 1 | 1 | – | – | 1 | 0 | 1 | 0 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | – | – | 6 | 2 | 6 | 2 | – | – | 29 | 9 | 29 | 9 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents our share of the gross well count. |
(2) | Other is comprised of Algeria. |
Conventional petroleum
BHP’s net share of capital development expenditure in FY2019,FY2020, which is presented on a cash basis within this section, was US$645909 million (FY2018:(FY2019: US$656645 million). While the majority of the expenditure in FY2019FY2020 was incurred by operating partners at our Australian and Gulf of Mexiconon-operated assets, we also incurred capital expenditure at our operated Australian, Gulf of Mexico, Algeria and Trinidad and Tobago assets.
Australia
BHP’s net share of capital development expenditure in FY2019, which is presented on a cash basis within this section,FY2020 was US$151223 million. The expenditure was primarily related to:
Scarborough gas field development
North West Shelf: Karratha Gas Plant refurbishment projects and external corrosion compliance and Greater WesternFlank-B subsea tie back well development;
Bass Strait: West Barracouta subsea tie back development and Snapper A21a development project and rationalisation of crude processing facility onshore.
Gulf of Mexico
BHP’s net share of capital development expenditure in FY2019, which is presented on a cash basis within this section, was US$423 million. The expenditure was primarily related to:Nickel West
Atlantis: execution
Overview
Nickel West is a fully integrated mine-to-market nickel business. All nickel operations (mines, concentrators, a smelter and refinery) are located in Western Australia. The integrated business adds value throughout our nickel supply chain, with the majority of approved development on Atlantis Phase 3 Project;
Mad Dog: execution phaseNickel West’s current production sold as refined metal in the form of Phase 2 development, including ongoing drilling activity, with additional development activity on one wellpowder and briquettes.
Low-grade disseminated sulphide ore is mined from the large open-pit operation at Spar A.
Conventional petroleum explorationMt Keith. The ore is crushed and appraisalprocessed on-site to produce nickel concentrate. High-grade nickel sulphide ore is mined at the Cliffs, Leinster underground mines and Rocky’s Reward open-pit mine. The ore is processed through a concentrator and dryer at Leinster. Nickel West’s facility at Kambalda processes material purchased from third parties.
The majoritythree streams of nickel concentrate come together at the expenditure incurredKalgoorlie nickel smelter. The smelter uses a flash furnace to smelt concentrate to produce nickel matte. The Kwinana nickel refinery then refines granulated nickel matte from the Kalgoorlie smelter into premium-grade nickel powder and briquettes containing high-grade refined nickel. Nickel matte and metal are exported to overseas markets via the Port of Fremantle.
Key developments in FY2019 wasFY2020
The Nickel West resource transition involving the construction of three new mines continued to progress during FY2020, with two of these mines now in our focus areas, including Gulffull production.
The Mt Keith satellite mine (Yakabindie) entered production in December 2019 and is now the primary source of Mexico (US and Mexico) and Trinidad and Tobago. We also incurred expenditurefeed to the Mt Keith concentrator.
The Venus underground mine transitioned to full production in Canada.September 2019, with ore hoisted to the Leinster concentrator.
AccessLeinster B11 (the first block cave to be developed by BHP, located beneath the Leinster underground mine) proceeded in line with expectations, with development ore hoisted to the Leinster concentrator.
BHP was successful in its bidsNickel West signed an agreement to acquire a 100the Honeymoon Well development project on 19 June 2020 and the remaining 50 per cent interest in the Albion Downs North and operatorshipJericho exploration joint ventures, located approximately 50 kilometres from Mt Keith. Completion of twothe agreement is subject to a number of conditions, including government and third party approvals.
Looking ahead
We continue to focus on finalising Nickel West’s resource transition. Leinster B11 block cave is expected to commence the undercut phase during the first half of FY2021, providing increasing quantities of ore to the Leinster concentrator as the project progresses to full caving.
Nickel West also offers development options and potential enhancements to its resource position through exploration licences for blocks 8 and 12processing innovation. These opportunities are being explored in parallel with incremental debottlenecking opportunities at the concentrators and the Kalgoorlie nickel smelter.
Nickel West is expected to complete construction of the nickel sulphate plant located at the Kwinana nickel refinery in the Orphan Basin, offshore Eastern Canada. BHP’s aggregate bid amountfirst half of US$625 million reflects the costs of the drilling and seismic work likely to be performed during the exploration phase, although there is no minimum work program under the licence agreements. The maximum forfeiture amount under the licence agreements if no work is performed is approximately US$119 million for block 8 and US$38 million for block 12.
Exploration program expenditure details
Our gross expenditure on exploration was US$685 million in FY2019, of which US$388 million was expensed.
Exploration and appraisal wells drilled, or in the process of drilling, during the year included:
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
|
| |||||||||||||
|
|
118
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
|
| |||||||||||||
|
| |||||||||||||
| ||||||||||||||
|
| |||||||||||||
|
| |||||||||||||
|
| |||||||||||||
|
| |||||||||||||
In Trinidad and Tobago, we continued phase 2 of our deepwater drilling program.Victoria-1 andConcepcion-1 were drilled in our southern licences to further assess the commercial potential of the Magellan play.Victoria-1 encountered gas, whileConcepcion-1 did not encounter commercial hydrocarbons. Analysis is ongoing. Phase 2 drilling also includedBongos-2, which spud on 22 July 2018 and discovered gas in the Pliocene and Late Miocene.
Following theBongos-2 discovery, a Phase 3 drilling program in Trinidad and Tobago in the second half of FY2021. This stage (Stage 1) is expected to produce approximately 100 ktpa of nickel sulphate.
The Minerals Americas asset group includes projects, operated assets and non-operated joint ventures in Canada, Chile, Peru, the year included three wellsUnited States, Colombia and Brazil.
Operated assets
Copper
Our operated copper assets in the Americas, Escondida and Pampa Norte are (Bele-1,Tuk-1open-cut mines. At these mines, overburden is removed after blasting, using truck andHi-Hat-1) shovel. Ore is then extracted and further processed into high-quality copper concentrate or cathodes. Copper concentrate is obtained through a grinding and flotation process, while copper cathodes are produced through a leaching, solvent extraction and electrowinning process. Copper concentrate is transported to establish additional volumesthe port via pipeline, while cathodes are transported by either rail or road. From the ports, copper is exported to our customers around the Bongos discovery. All three wells encountered gas and analysisworld.
For the majority of the results is ongoing.June 2020 quarter, our Chilean assets operated with a reduction in their operational workforces of approximately 35 per cent to incorporate measures in response to COVID-19. We have implemented a comprehensive plan for COVID-19, including various hygiene and health controls and a proactive testing regime for people before entering sites and boarding transportation.
In Mexico, we drilledWe will continue to maintain operational measures that protect the health and wellbeing of our first operated well at Trion, following acquisition of the discovery in 2017. Trion 2DEL encountered oilworkforce while COVID-19 remains a major health risk, in line with expectationsOur Charter values. As a result, we anticipate continuing to operate our Chilean assets with a reduced workforce until these controls can be relaxed.
Escondida (Chile)
Overview
We own 57.5 per cent of the Escondida mine, a leading producer of copper concentrate and cathodes located in the Atacama Desert in northern Chile. Escondida’s two pits feed three concentrator plants, as well as two leaching operations (oxide and sulphide).
Key developments during FY2020
Escondida copper production in FY2020 increased by 4 per cent to 1,185 kilotonnes (kt), supported by record average concentrator throughput of 371 kilotonnes per day (ktpd), which offset expected grade decline, stoppages associated with the social unrest and COVID-19 impacts.
The Escondida Water Supply Expansion (EWSE) project was followedcompleted on time and budget in December 2019. Following the completion of the EWSE project, Escondida has eliminated water drawdown from aquifers for operational supply 10 years ahead of its FY2030 target.
The Centre of Integrated Operations (CIO) was inaugurated in July 2019 in BHP’s Santiago office and has since provided remote control services to the mine and process areas of Escondida and Spence. The CIO enables an operation that is safer and more productive by areducing people down-dipon-site sidetrackand allowing them to delineatework in a collaborative space.
Looking ahead
Production of between 940 and 1,030 kt is expected for FY2021, with a decline in copper grade of concentrator feed of approximately 4 per cent. Lower volumes reflect the fieldneed to continue to balance mine development and provideproduction requirements, with processing capacity at concentrators and leaching plants, as a result of a reduced operational workforce due to COVID-19. It is expected that production levels are likely to be impacted in FY2022 as a result of reduced operational workforce and material movement in FY2021. Guidance of an annual average of 1,200 kt of copper production over the next five years remains unchanged.
The BHP Operating System deployment and automated truck trial initiatives are expected to be completed in FY2021. In addition, Escondida will be undertaking studies on different material handling technologies to build an integrated suite of material handling projects that aims to combine innovative and disruptive technology and equipment solutions to increase mine productivity and improve costs competitiveness.
We expect these initiatives will allow Escondida to operate with a medium-term unit cost of less than US$1.10 per pound despite the continuation of grade decline and the increasing water costs.
Pampa Norte (Chile)
Overview
Pampa Norte consists of two wholly owned assets in the Atacama Desert in northern Chile – Spence and Cerro Colorado. Spence and Cerro Colorado produce high-quality copper cathodes through leaching, solvent extraction and electrowinning processes.
Key developments during FY2020
Pampa Norte copper production for FY2020 decreased by 2 per cent to 243 kt, mainly due to a 14 per cent decline in stacked ore grade.
The Spence Growth Option (SGO) to construct a 95 ktpd ore concentrator and the outsourcing of a 1,000 litre per second desalination plant is 93 per cent complete. As a result of measures put in place to reduce the spread of COVID-19, first production is now expected between December 2020 and March 2021. The commissioning of the desalination plant and capitalisation of the associated US$600 million lease (approximate) will now occur in the first half of FY2021. For more information about SGO, refer to section 6.5.
Looking ahead
Production for FY2021 is expected to be between 240 and 270 kt, reflecting the oil water contact. Another appraisal well, Trion 3DEL, spudreduced operational workforce due to COVID-19, the start-up of the SGO project and expected grade decline of approximately 7 per cent.
SGO will produce first copper between December 2020 and March 2021 and plans are on 9 July 2019track to redesign the approach to operations at Spence to optimally balance the requirements of the concentrate and based on preliminary results,cathodes processes. The first batch of the well encountered oilultra-class truck fleet arrived at Spence in FY2020 and the remaining units are expected to arrive in the reservoir’snext two years. The BHP Operating System deployment at Spence started in January 2020 and is expected to continue during FY2021. Similar to Escondida, Spence will be undertaking studies on various material handling technologies, such as automated trucks, trolley assistance and up-dipin-pit crushers and conveyors to increase mine productivity and improve cost competitiveness.
On 1 July 2020, Cerro Colorado announced it had started a four-month process to adjust its mine plan to reduce throughput and costs to achieve improved cash returns and ensure viable mining operations for the remaining period of its current environmental licence, which expires at the end of CY2023.
Potash
Potash is a potassium-rich salt mainly used in fertiliser to improve the quality and yield of agricultural production. As an essential nutrient for plant growth, potash is a vital link in the global food supply chain. The demands on that supply chain are intensifying; there will be more people to feed in future, as well as rising calorific intake comprising more varied diets. The strains this will place on finite land supply mean sustainable increases in crop yields will be crucial and potash fertilisers will be critical in replenishing our soils.
Jansen Potash Project (Canada)
Overview
BHP holds exploration permits and mining leases covering approximately 9,600 square kilometres in the province of Saskatchewan, Canada. The Jansen Potash Project is located approximately 140 kilometres east of Saskatoon. We currently own 100 per cent of the Project.
Jansen’s large resource endowment provides the opportunity to develop it in stages, with anticipated initial capacity of between 4.3 and 4.5 Mtpa for Jansen Stage 1, with sequenced brownfield expansions of up to 12 Mtpa (4 Mtpa per stage).
Key developments during FY2020
Focus in FY2020 was on safely installing new work platforms, called Galloways, into the two 7.3-metre diameter service and production shafts to enable the installation of the final watertight composite concrete and steel liners from all previous well intersections. Evaluationa depth of approximately 900 metres. At the end of FY2020, the current scope of work was 86 per cent complete.
The service shaft and analysisproduction shaft are 1,005 metres and 975 metres deep, respectively. Jansen is ongoing.intended to mine the Lower Patience Lake potash formation, which lies between 935 metres and 940 metres.
Looking ahead
Future work will include continuing to install the watertight composite concrete and steel final liners. In Australia,June 2020, final shaft lining work for the Jansen Potash Project, which was reduced to focus on one shaft as part of our COVID-19 response plan to reduce our on-site interprovincial workforce, was resumed in both shafts. BHP continues to assess the impacts of COVID-19 and the temporary reduction in construction activity. Timing for completion of the shafts continues to be under review.
We will continue the selection of a port option on the North West Shelf Joint Venture,American west coast from which Jansen’s potash would be exported. As with all decisions relating to the deployment of capital, the next steps of the Project will be assessed in line with our Capital Allocation Framework.
Non-operated minerals joint ventures
BHP holds interests in companies and joint ventures that we participateddo not operate. Our non-operated minerals joint ventures (NOJVs) include Antamina (33.75 per cent ownership), Resolution Copper (45 per cent ownership), Cerrejón (33.33 per cent ownership) and Samarco (50 per cent ownership).
For more information on Samarco and Fundação Renova, refer to section 1.8.
We engage with our NOJV partners and operator companies through our NOJV team, which seeks to sustainably maximise returns through managing risk. While NOJVs have their own operating and management standards, we seek to enhance governance processes and influence operator companies to adopt international standards (within the limits of the relevant joint venture agreements).
Since the creation of the NOJV team, our focus has been to reinforce strong practices in governance, risk management and value optimisation.
During theAchernar-1COVID-19 explorationpandemic, BHP supported some of the work by the operator at certain of our NOJVs to fulfiladdress risks associated with the pandemic, including temporary shutdowns and restart. Subject matter experts from NOJV partners (including BHP) provided input to relevant NOJV operators in relation to HSE, communications and community engagement issues during the pandemic.
Throughout FY2020, we continued positively influencing the NOJVs to align with international standards (including ISO 31000). This included analysing and challenging completeness of their risk profile and prioritising management of those risks.
The NOJV team also continued to support the NOJVs to improve their operating performance and cost competitiveness in a well commitmentchallenging environment, delivering significant capital optimisation across the Antamina, Cerrejón and Resolution joint ventures and strengthening the capital returns from each of the operations.
More information on the health, safety and environment performance at our NOJVs is available at bhp.com.
Copper
Antamina (Peru)
Overview
We own 33.75 per cent of Antamina, a large, WA-28-Plow-cost exploration permit.copper and zinc mine in north central Peru. Antamina is a joint venture between BHP (33.75 per cent), Glencore (33.75 per cent), Teck Resources (22.5 per cent) and Mitsubishi Corporation (10 per cent), and is operated independently by Compañía Minera Antamina S.A. Antamina by-products include molybdenum and silver.
Key developments during FY2020
Antamina continues to focus its efforts on safety and health improvements. Copper production for FY2020 decreased by 15 per cent to 125 kt and zinc decreased by 10 per cent to 88 kt reflecting lower copper head grades and the impact of operating with a reduced workforce following a six-week shutdown during the June 2020 quarter in response to COVID-19.
During FY2020, Antamina continued with a strong focus on developing a robust technology roadmap to secure a more sustainable operation in the long term and to maintain cost competitiveness. Antamina has progressed studies to debottleneck the operation through mine mechanisation projects and the first phase is expected to be completed in the next three years.
Antamina announced its intent to submit its Modified Environmental Impact Assessment (MEIA) for its life extension project from CY2028 to CY2036, which includes extension of current approved tailings capacity, additional waste dumps and new pit design.
Antamina’s operations were suspended between 13 April and 26 May 2020 due to COVID-19 implications. Strict controls were applied during the demobilisation to safeguard the health of workers and local communities. At the end of FY2020, its operations were at a ramp-up stage, while complying with government COVID-19 requirements and applying sector international standards for health and safety.
During the COVID-19 emergency, Antamina intensified its contribution to local communities, helping the Regional Government to strengthen its capabilities to cope with the pandemic, providing medical equipment, launching initiatives for local farmers and entrepreneurs to support the local economy (through the program Reactiva Ancash), and distributing food aid.
Looking ahead
Copper production of between 120 and 140 kt, and zinc production of between 140 and 160 kt is expected for FY2021.
Antamina will remain focused on improving productivity and reducing unit cash costs by identifying new technologies and innovative solutions in line with the technology roadmap. In addition, Antamina will continue to embed a culture of diversity and inclusion in its strategy and monitor the MEIA process, seeking final approval in a reasonable timeframe and community engagement. Once the MEIA process is finalised, it is anticipated Antamina will update its reserve and resource statement to reflect an approved life extension to CY2036.
Resolution Copper (United States)
Overview
BHP holds a 45 per cent interest in the Resolution Copper project in the US state of Arizona, which is operated by Rio Tinto (55 per cent interest). Resolution Copper is one of the largest undeveloped copper projects in the world and has the potential to become the largest copper producer in North America. The Resolution Copper deposit lies more than 1,600 metres beneath the surface. Resolution Copper is working with regulators and the community to plan the development of the resource and obtain the necessary permits.
Key developments during FY2020
The shaft No. 9 sinking project involves deepening the historic shaft from its current depth at 1,460 metres below the surface to a final depth of 2,086 metres and linking it with the existing No. 10 shaft via development activities underground. This project is on track with respect to schedule and budget. In December 2019, it passed the one-mile (1,600 metre) mark with zero safety events; a major milestone for shaft sinking works in the United States.
The multi-year National Environmental Policy Act permitting process and community engagement are progressing positively. The US Forest Service released the Draft Environmental Impact Statement on 9 August 2019 and the comment period closed on 7 November 2019.
Resolution continued to move forward to identify the best development pathway for the project as the PFS-A study progressed. BHP’s share of project expenditure for FY2020 was US$103 million.
Looking ahead
We remain focused on supporting Resolution Copper on optimising the project and working with the operator, Rio Tinto, to develop the project in a manner that creates sustainable benefits for all stakeholders.
Coal
Cerrejón (Colombia)
Overview
We have a 33.33 per cent interest in Cerrejón, which owns, operates and markets (through an independent company) one of the world’s largest open-cut energy coal mines, located in the La Guajira province of Colombia. Cerrejón is an equal partnership joint venture with Anglo American and Glencore. Cerrejón has lease agreements for several mining areas and owns integrated rail and port facilities. Coal product is marketed through an independent company and is exported mainly to European, North American and South American customers; a minor proportion is exported to Asia.
Cerrejón makes an important contribution to the Colombian economy and to the region of La Guajira, employing local people, contributing through taxes and royalties and investing in social and environmental initiatives. Cerrejón is also working with local Indigenous groups to address concerns raised by them in relation to the impacts of Cerrejón’s operations on their communities.
Key developments during FY2020
FY2020 concluded with stable safety and operational performance at Cerrejón. Production declined by 23 per cent to 7 Mt in FY2020, due to a temporary shutdown and workforce reduction during the COVID-19 pandemic and focus on higher-quality products due to market adjustment. Cerrejón reduced its operational costs by 15 per cent, which allowed it to remain cash flow neutral in spite of the decline in coal price.
Cerrejón supported the local community of La Guajira during the COVID-19 emergency by providing drinking water, food parcels and medical equipment, including the donation of a laboratory to carry out COVID-19 molecular testing in the community. Cerrejón continues to engage with communities and ensure its stakeholders are informed about the protocols and controls they have in place to keep the workforce and communities safe.
Looking ahead
Cerrejón is focused on stability of throughput with current installed capacity, targeting higher calorific value coal and market diversification. Production is expected to be approximately 7 Mt in FY2021.
Iron Ore
Samarco (Brazil)
BHP Billiton Brasil Ltda (BHP Brasil) and Vale S.A. (Vale) each have a 50 per cent shareholding in Samarco Mineração S.A. (Samarco), the owner of the Samarco iron ore mine in Brazil.
Overview
As a result of the tragic failure of the Fundão dam at Samarco in November 2015, operations at Samarco remain suspended.
Samarco comprises a mine and three concentrators located in the state of Minas Gerais and four pellet plants and a port located in Anchieta in the state of Espírito Santo. Three 400-kilometre pipelines connect the mine site to the pelletising facilities.
All geotechnical structures within the Germano facilities, including tailings dams, are monitored 24 hours a day by Samarco, using more than 800 pieces of monitoring and safety equipment, including cameras, weather forecast stations, drones and accelerometers. In addition, sirens are installed along the river up to 80 kilometres downstream of Samarco. Geotechnical engineers and technicians monitor data from the instrumentation in an integrated monitoring control room, undertake daily field inspections and perform monthly third party audits.
Key developments during FY2020
Samarco operations restart consists of three main pillars: Alegria Sul pit tailings disposal system, LOC (corrective operational licence) issuance and filtration plant construction together with operations readiness activities. Alegria Sul pit tailings disposal system implementation was completed in September 2019. The LOC was issued on 25 October 2019. US$44 million for BHP Billiton Brasil Ltda’s share was approved to fund the restart of production at Samarco from a single concentrator in the second half of CY2020 or early CY2021 (BHP mid-view is January 2021). The funds will be used for the first phase of installation of tailings filtration infrastructure and operational readiness activities. Work related to the construction of the filtration plant and operations readiness activities have been slowed as a result of a reduced workforce as part of our COVID-19 response without a significant impact on the restart schedule.
BHP Brasil and Vale approved the filtration plant and operational readiness activities investment in November 2019 and dam decommissioning program investment for CY2020–2021 was approved in April 2020.
Following Vale’s Brumadinho dam tragedy on 25 January 2019, Brazil’s National Mining Agency (ANM) announced a requirement for all upstream construction tailings dams to be decommissioned by various dates, depending on their size. As required under the regulatory requirements, a dam decommissioning conceptual design was filed with the ANM in August 2019 and a basic design was filed with the ANM in December 2019. Field works started in April 2020 for the program, which includes the decommissioning of the Germano pit dam and Germano main dam (including the main dam and the Sela, Tulipa and Selinha saddle dykes) to guarantee the long-term stability of the structures, as well wasas final regrading of the impoundment area and, finally, environmental rehabilitation.
Construction of a dry holenew retaining dam, following the failure of the Fundão dam, is now complete and was pluggedthe last structure to be built in the Fundão valley to ensure the remaining tailings would not be remobilised. Further work relating to the starting dyke for the future tailings and abandoned.waste piles is now incorporated into the Germano decommissioning program. This work will be completed by Samarco following transfer of the program from Fundação Renova in September 2019.
Following
Looking ahead
The Samarco business plan considers an operations restart with one concentrator and tailings filtering, which changes theWildling-2 well tailings disposal from the use of tailings dams to disposal of the coarse portion of the tailings in FY2018dry stack piles and the disposal of slimes in a previously mined out pit. Samarco is focused on completing the filtration plant construction for dry stacking and completing operational readiness activities. All filters are now installed and the electrical and mechanical installation services are progressing.
As part of the dam decommissioning process, the Germano pit dam gallery plugging and the Germano main dam preliminary services have started. Samarco is looking ahead to complete Germano main dam toe ground replacement, initial regrading and initial excavation of the spillway in FY2021.
Conventional petroleum
BHP has owned oil and gas assets since the 1960s. We have a world-class portfolio of high-margin conventional assets located in the US Gulf of Mexico, technical work is continuingAustralia, Trinidad and Tobago, and Algeria, as we advance evaluationwell as appraisal and exploration options in Mexico, deepwater Trinidad and Tobago, western Gulf of Mexico, Eastern Canada and Barbados. Our conventional petroleum business includes exploration, appraisal, development and production activities. We produce crude oil and condensate, gas and natural gas liquids (NGLs) that are sold on the international spot market or delivered domestically under contracts with varying terms, depending on location of the development options to optimise value of the resource discovered in this area.asset.
For information onOur conventional petroleum exploration, referbusiness responded effectively to section 1.6.3.
Outlook
InCOVID-19, despite global market impacts in the second half of FY2020 as petroleum demand reduced due to collapsing transport activity. As always, the safety of our conventional business, volumes are expectedpeople came first and additional measures were put in place across each of our assets and projects to be between 110protect the health and 116 MMboesafety of our workforce. All assets remained in FY2020operation as a result of planned maintenance atthese measures and through partnering with our communities, suppliers and contractors. Despite supply chain delays, all projects currently in execution remain on track to meet first production guidance.
United States
Gulf of Mexico
Overview
Our US Gulf of Mexico assets are large, long-life and expandable.
We operate two fields in the US waters of the Gulf of Mexico – Shenzi (44 per cent interest) and Neptune (35 per cent interest).
We hold non-operating interests in two other fields – Atlantis (44 per cent interest) and naturalMad Dog (23.9 per cent interest).
All our producing fields are located between 155 and 210 kilometres offshore from the US state of Louisiana. We also own 25 per cent and 22 per cent, respectively, of the companies that own and operate the Caesar oil pipeline and the Cleopatra gas pipeline. These pipelines transport oil and gas from the Green Canyon area, where our US Gulf of Mexico fields are located, to connecting pipelines that transport product onshore.
Key developments during FY2020
The Mad Dog Phase 2 project, located in the Green Canyon area of the deepwater US Gulf of Mexico, successfully progressed through FY2020 and remains on track for first production in CY2022. Mad Dog Phase 2 is an extension of the existing Mad Dog field decline acrossand is one of the portfolio.largest discovered and undeveloped resources in the Gulf of Mexico. The project builds on the successful Mad Dog South appraisal well, which confirmed significant hydrocarbons in the southern portion of this field, and will include a new floating production facility with the capacity to produce up to 140,000 gross barrels of crude oil per day from up to 14 production wells.
Conventional unit costs areThe Atlantis Phase 3 project, also located in the Green Canyon area, remained on schedule and on budget, achieving first production in July 2020. This project includes a subsea tie back of eight new production wells accessing infill resource opportunities identified through seismic imaging. Atlantis Phase 3 is expected to be between US$10.50increase production by an estimated 38,000 gross barrels of oil equivalent per day at its peak.
For more information on Mad Dog Phase 2 and US$11.50 per barrel (based on an average exchange rate of AUD/USD 0.70) in FY2020 reflecting the impact of lower volumes, partially offset by lower maintenance activities at our Australian assets. In the medium term, we expect an increase in unit costsAtlantis Phase 3, refer to less than US$13 per barrel (based on an average exchange rate of AUD/USD 0.70) as a result of natural field decline.section 6.5.
Conventional petroleum capital expenditure of approximately US$1.2 billion is planned in FY2020. Conventional petroleum capital expenditure for FY2020 includes US$1.1 billion of development and US$0.1 billion of maintenance.Australia
119
Overview
Bass Strait
We have produced oil and gas from Bass Strait (50 per cent interest) for more than 50 years. Our operations are located between 25 and 80 kilometres off the southeastern coast of Australia. The Gippsland Basin Joint Venture, operated by Esso Australia (a subsidiary of ExxonMobil), participated in the original discovery and development of hydrocarbons in the basin. The Kipper gas field under the Kipper Unit Joint Venture (32.5 per cent interest), also operated by Esso Australia, has brought online additional gas and liquids production that are processed via existing Gippsland Basin Joint Venture facilities.
The majority of our Bass Strait crude oil and condensate production is sold to local refineries in Australia. Gas is piped onshore to the Gippsland Joint Venture’s Longford processing facility, from where we sell our share of production to domestic retailers and end users. Liquefied petroleum gas (LPG) is dispatched via pipeline, road tanker or sea tanker. Ethane is dispatched via pipeline to a petrochemical plant in western Melbourne.
North West Shelf
We are a joint venture participant in the North West Shelf project (12.5–16.67 per cent interest), located approximately 125 kilometres northwest of Dampier in Western Australia. The North West Shelf project supplies gas to the Western Australian domestic market and liquefied natural gas (LNG) to buyers primarily in Japan, South Korea and China.
North West Shelf gas is piped from offshore fields to the onshore Karratha Gas Plant for processing. LPG, condensate and LNG are transported to market by ship, while domestic gas is transported by the Dampier-to-Bunbury and Pilbara Energy pipelines to buyers.
We are also a joint venture partner in four nearby oil fields – Cossack, Wanaea, Lambert and Hermes – produced through the Okha floating production, storage and off-take (FPSO) facility (16.67 per cent interest). All North West Shelf gas and oil joint ventures are operated by Woodside Energy Limited (Woodside).
A US$0.7 billion explorationPyrenees
BHP operates the Pyrenees FPSO facility, located approximately 23 kilometres off Northwest Cape, Western Australia. The facility produces from six offshore fields. We had an effective 62.36 per cent interest in the fields as at 30 June 2020 based on inception-to-date production from two permits in which we have interests of 71.43 per cent and appraisal program40 per cent, respectively.
Macedon
We are the operator of Macedon (71.43 per cent interest), an offshore gas field located around 75 kilometres west of Onslow, Western Australia and an onshore gas processing facility located around 17 kilometres southwest of Onslow.
The operation consists of four subsea wells, with gas piped onshore to the processing plant. After processing, the gas is planned for FY2020.delivered into a pipeline and sold to the Western Australian domestic market.
Onshore US: Discontinued operationsMinerva
BHP operates the Minerva Joint Venture (90 per cent interest), a gas field located 11 kilometres south-southwest of Port Campbell in western Victoria. The operation consists of two subsea wells, with gas piped onshore to a processing plant. After processing, the gas is delivered into a pipeline and sold domestically.
On 283 September 2019, the Minerva gas field reached end-of-field life and production ceased at the Minerva gas plant. On 1 May 2018, BHP completedentered into an agreement for the sale of 100its interests in the onshore gas plant with subsidiaries of Cooper Energy and Mitsui E&P Australia Pty Ltd. The agreement provided for the transfer of the plant and associated land after the cessation of current operations processing gas from the Minerva gas field. The sale was completed on 5 December 2019.
Key developments during FY2020
Scarborough
In the March 2020 quarter, BHP and Woodside (operator) agreed to align participating interests across the WA-1-R and WA-2-R titles resulting in BHP holding a 26.5 per cent interest in each title. BHP also holds a 50 per cent non-operated interest in Jupiter and Thebe titles (WA-61-R and WA-63-R) in the greater Scarborough area located offshore northwest Australia. Scarborough offers material growth potential in Western Australia and opportunities to develop the Scarborough gas field are progressing.
BHP and Woodside also signed a non-binding Heads of Agreement to progress the Scarborough gas development during the December 2019 quarter. Among other terms, this includes agreement on a competitive tariff for gas processing through the Pluto LNG facility. In March 2020, Woodside announced deferral of the issued share capitalScarborough gas development to the second half of CY2021. A final investment decision by BHP Billiton Petroleum (Arkansas) Inc.is expected to align with this revised timing.
Bass Strait West Barracouta
Two new West Barracouta wells were completed under budget in the June 2020 quarter. Construction on production infrastructure linking the West Barracouta development to the existing Barracouta field is currently underway. First gas is expected in CY2021.
North West Shelf Greater Western Flank
A final investment decision was reached for Greater Western Flank Phase 3 (GWF-3) and 100Lambert Deep in January 2020. This four well tie back will take advantage of existing infrastructure and first gas is expected in CY2023.
Other conventional petroleum assets
Overview
Trinidad and Tobago
BHP operates the Greater Angostura field (45 per cent interest in the production sharing contract), an integrated oil and gas development located offshore 40 kilometres east of Trinidad. The crude oil is sold on a spot basis to international markets, while the gas is sold domestically under term contracts.
Algeria
Our Algerian asset comprises an effective 29.2 per cent interest in the Rhourde Ouled Djemma (ROD) Integrated Development, which consists of the membership interestsROD, Sif Fatima – Sif Fatima North East (SF SFNE) and four satellite oil fields that pump oil back to a dedicated processing train. The oil is sold to international markets. ROD Integrated Development is jointly operated by Sonatrach and ENI.
Key developments during FY2020
Building on our existing position in the region, Ruby is an offshore shallow water oil and gas development in Trinidad and Tobago that will consist of five production wells tied back into existing operated processing facilities. The BHP Billiton Petroleum (Fayetteville) LLC, which held the Fayetteville assets, for a gross cash considerationBoard approved its development on 8 August 2019 with an expected investment of US$0.3 billion.283 million (BHP share). First production is targeted in CY2021. The project is estimated to have the capacity to produce up to 16,000 gross barrels of oil per day and 80 million gross standard cubic feet of natural gas per day.
On 31 October 2018, BHP completedFor more information on Ruby, refer to section 6.5.
BHP’s Commercial function maximises commercial and social value and minimises costs across the saleend-to-end supply chain. The function is organised around our core value chain activities – Sales and Marketing; Maritime and Supply Chain Excellence; Procurement; and Warehousing Inventory and Logistics and Property – supported by short- and long-term market insights, strategy and planning activities, and close partnership with our assets.
Our Operating Model enables us to provide improved service levels to our assets and customers, by harnessing deep subject matter expertise, simpler processes and centralisation of 100 per centstandardised activities. By embracing our strategic end-to-end supply chain mandate and partnership with our suppliers and customers, the Commercial function also creates social value through supply chain integrity, community and sustainability focus.
Sales and Marketing
Sales and Marketing connects BHP’s resources to market through commercial expertise, optimised sales and operations planning, deep customer insights and proactive risk management. They present a single face to markets across multiple assets, with a view to realising maximum value for our products.
Maritime and Supply Chain Excellence
Maritime and Supply Chain Excellence manages BHP’s enterprise-wide transportation strategy and chartering ocean freight to meet BHP’s inbound and outbound transportation needs. They work to ensure consistent safety standards across BHP’s maritime supply chain and lead the industry toward a safer and more sustainable global ecosystem. The team focuses on supply chain excellence and sourcing marine freight coverage at the lowest available cost.
Procurement
Our global Procurement sub-functions purchase the goods and services used by our projects, assets and functions. Procurement works with our business to optimise equipment performance, reduce operating costs and improve working capital. They manage supply chain risk and develop sustainable relationships with global suppliers and local businesses in the communities in which we operate.
Warehousing Inventory and Logistics and Property
Warehousing Inventory and Logistics and Property design and operate our inbound supply chain networks for the delivery of spare parts, operating supplies and consumables. They design and operate our office workspaces globally.
Market Analysis and Economics
Our Market Analysis and Economics team develops BHP’s independent view on the outlook for commodity demand and commodity prices. The team works with our Procurement, Maritime, and Sales and Marketing sub-functions to help optimise end-to-end commercial value, and with the Finance and External Affairs functions to identify and respond to long-run strategic changes in our operating environment.
1.10 Summary of financial performance
We prepare our Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. We publish our Consolidated Financial Statements in US dollars. All Consolidated Income Statement, Consolidated Balance Sheet and Consolidated Cash Flow Statement information below has been derived from audited Financial Statements. For more information, refer to section 5.
Information in this section has been presented on a Continuing operations basis to exclude the contribution from Onshore US assets, unless otherwise noted. Details of the issued share capitalcontribution of Petrohawk Energy Corporation, the BHP subsidiary that held the Eagle Ford (being Black Hawk and Hawkville), Haynesville and Permian assets, for a gross cash consideration of US$10.3 billion (net of preliminary customary completion adjustments of US$0.2 billion).
While the effective date at which the right to economic profits transferred to the purchasers was 1 July 2018, the Group continued to control the Onshore US assets until the completion dates of their respective transactions. As such, the Group continued to recognise its share of revenue, expenses, net finance costs and associated income tax expense related to the operation until the completion date. In addition, the Group provided transitional services to the buyer, which ceased in July 2019. Results from the Onshore US assetsGroup’s results are disclosed as Discontinued operations. For further information, refer toin note 2728 ‘Discontinued operations’ in section 5.
The comparison for the year ended 30 June 2018 to 30 June 2017 has been omitted from this Form20-F, but can be found in our Form20-F for the fiscal year ended 30 June 2018, filed on 18 September 2018.
1.13.2 Copper
Detailed below is financial information for our Copper assets for FY2019 and FY2018 and an analysis of Copper’s financial performance for FY2019 compared with FY2018.
Year ended 30 June 2019 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (7) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Escondida (1) | 6,876 | 3,384 | 1,245 | 2,139 | 12,726 | 1,036 | ||||||||||||||||||||||||||
Pampa Norte (2) | 1,502 | 701 | 381 | 320 | 2,937 | 1,194 | ||||||||||||||||||||||||||
Antamina (3) | 1,144 | 723 | 108 | 615 | 1,345 | 229 | ||||||||||||||||||||||||||
Olympic Dam | 1,351 | 273 | 331 | (58 | ) | 7,133 | 485 | |||||||||||||||||||||||||
Other (3)(4) | – | (315 | ) | 8 | (323 | ) | (53 | ) | 21 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Copper from Group production | 10,873 | 4,766 | 2,073 | 2,693 | 24,088 | 2,965 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | 1,109 | 116 | – | 116 | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper | 11,982 | 4,882 | 2,073 | 2,809 | 24,088 | 2,965 | 66 | 65 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (5) | (1,144 | ) | (332 | ) | (110 | ) | (222 | ) | – | (230 | ) | (4 | ) | (3 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper statutory result | 10,838 | 4,550 | 1,963 | 2,587 | 24,088 | 2,735 | 62 | 62 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Year ended 30 June 2018 US$M | Revenue (6) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (7) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Escondida (1) | 8,346 | 4,921 | 1,601 | 3,320 | 13,666 | 997 | ||||||||||||||||||||||||||
Pampa Norte (2) | 1,831 | 924 | 298 | 626 | 1,967 | 757 | ||||||||||||||||||||||||||
Antamina (3) | 1,305 | 955 | 111 | 844 | 1,313 | 183 | ||||||||||||||||||||||||||
Olympic Dam | 1,255 | 267 | 228 | 39 | 6,937 | 669 | ||||||||||||||||||||||||||
Other (3)(4) | – | (193 | ) | 8 | (201 | ) | (204 | ) | 5 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Copper from Group production | 12,737 | 6,874 | 2,246 | 4,628 | 23,679 | 2,611 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | 1,349 | 60 | – | 60 | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper | 14,086 | 6,934 | 2,246 | 4,688 | 23,679 | 2,611 | 53 | 53 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (5) | (1,305 | ) | (412 | ) | (113 | ) | (299 | ) | – | (183 | ) | – | – | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper statutory result | 12,781 | 6,522 | 2,133 | 4,389 | 23,679 | 2,428 | 53 | 53 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June US$M | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Consolidated Income Statement (section 5.1.1) | ||||||||||||||||||||
Revenue (1) | 42,931 | 44,288 | 43,129 | 35,740 | 28,567 | |||||||||||||||
Profit from operations | 14,421 | 16,113 | 15,996 | 12,554 | 2,804 | |||||||||||||||
Profit/(loss) after taxation from Continuing operations | 8,736 | 9,520 | 7,744 | 6,694 | (312 | ) | ||||||||||||||
Loss after taxation from Discontinued operations | – | (335 | ) | (2,921 | ) | (472 | ) | (5,895 | ) | |||||||||||
Profit/(loss) after taxation from Continuing and Discontinued operations attributable to BHP shareholders (Attributable profit/(loss)) (2) | 7,956 | 8,306 | 3,705 | 5,890 | (6,385 | ) | ||||||||||||||
Dividends per ordinary share – paid during the period (US cents) | 143.0 | 220.0 | 98.0 | 54.0 | 78.0 | |||||||||||||||
Dividends per ordinary share – determined in respect of the period (US cents) | 120.0 | 235.0 | 118.0 | 83.0 | 30.0 | |||||||||||||||
Basic earnings/(loss) per ordinary share (US cents) (2)(3) | 157.3 | 160.3 | 69.6 | 110.7 | (120.0 | ) | ||||||||||||||
Diluted earnings/(loss) per ordinary share (US cents) (2)(3) | 157.0 | 159.9 | 69.4 | 110.4 | (120.0 | ) | ||||||||||||||
Basic earnings/(loss) from Continuing operations per ordinary share (US cents) (3) | 157.3 | 166.9 | 125.0 | 119.8 | (10.2 | ) | ||||||||||||||
Diluted earnings/(loss) from Continuing operations per ordinary share (US cents) (3) | 157.0 | 166.5 | 124.6 | 119.5 | (10.2 | ) | ||||||||||||||
Number of ordinary shares (million) | ||||||||||||||||||||
– At period end | 5,058 | 5,058 | 5,324 | 5,324 | 5,324 | |||||||||||||||
– Weighted average | 5,057 | 5,180 | 5,323 | 5,323 | 5,322 | |||||||||||||||
– Diluted | 5,069 | 5,193 | 5,337 | 5,336 | 5,322 | |||||||||||||||
Consolidated Balance Sheet (section 5.1.3) (4) | ||||||||||||||||||||
Total assets | 104,783 | 100,861 | 111,993 | 117,006 | 118,953 | |||||||||||||||
Net assets | 52,246 | 51,824 | 60,670 | 62,726 | 60,071 | |||||||||||||||
Share capital (including share premium) | 2,686 | 2,686 | 2,761 | 2,761 | 2,761 | |||||||||||||||
Total equity attributable to BHP shareholders | 47,936 | 47,240 | 55,592 | 57,258 | 54,290 | |||||||||||||||
Consolidated Cash Flow Statement (section 5.1.4) | ||||||||||||||||||||
Net operating cash flows (5) | 15,706 | 17,871 | 18,461 | 16,804 | 10,625 | |||||||||||||||
Capital and exploration expenditure (6) | 7,640 | 7,566 | 6,753 | 5,220 | 7,711 | |||||||||||||||
Other financial information | ||||||||||||||||||||
Net debt (7)(8) | 12,044 | 9,446 | 11,605 | 17,201 | 25,590 | |||||||||||||||
Underlying attributable profit (7) | 9,060 | 9,124 | 8,933 | 6,732 | 1,215 | |||||||||||||||
Underlying EBITDA (7) | 22,071 | 23,158 | 23,183 | 19,350 | 11,720 | |||||||||||||||
Underlying EBIT (7) | 15,874 | 17,065 | 16,562 | 13,190 | 5,324 | |||||||||||||||
Underlying basic earnings per share (US cents) (7) | 179.2 | 176.1 | 167.8 | 126.5 | 22.8 | |||||||||||||||
Underlying Return on Capital Employed (per cent) (7) | 16.9 | 15.9 | 14.2 | 9.8 | 2.4 |
(1) |
|
(2) | Includes |
(3) | For more information on earnings per share, refer to note 7 ‘Earnings per share’ in section 5. |
(4) | The Consolidated Balance Sheet for FY2018 includes the assets and |
(5) | Net operating cash flows are after dividends received, net interest paid and net taxation paid and includes Net operating cash flows from Discontinued operations. |
(6) | Capital and exploration expenditure is presented on a cash basis and represents purchases of property, plant and equipment plus exploration expenditure from the Consolidated Cash Flow Statement in section 5 and includes purchases of property, plant and equipment plus exploration expenditure from Discontinued operations. For more information, refer to note 28 ‘Discontinued operations’ in section 5. Purchase of property, plant and equipment includes capitalised deferred stripping of US$698 million for FY2020 (FY2019: US$1,022 million) and excludes capitalised interest. Exploration expenditure is capitalised in accordance with our accounting policies, as set out in note 11 ‘Property, plant and equipment’ in section 5. |
(7) | We use Alternative Performance Measures to reflect the underlying performance of the Group. Underlying attributable profit, Underlying basic earnings per share and Underlying Return on Capital Employed includes Continuing and Discontinued operations. Refer to section 6.1 for a reconciliation of Alternative Performance Measures to their respective IFRS measure. Refer to section 6.1.1 for the definition and method of calculation of Alternative Performance Measures. Refer to note 19 ‘Net debt’ in section 5 for the composition of Net debt. |
(8) | With effect from 1 July 2019, the net debt definition includes the fair value of derivative financial instruments used to hedge cash and borrowings. Prior period comparatives have been restated to reflect the change in net debt calculation. As a result of the adoption of IFRS 16 ‘Leases’ from 1 July 2019, the current period ‘Total Interest bearing liabilities’ includes all leases under the new definition. The Group elected to apply the modified retrospective transition approach, with no restatement of comparative periods. Refer to note 38 ‘New and amended accounting standards and interpretations’ in section 5. Vessel lease contracts that are priced with reference to a freight index, which did not meet the definition of a lease under IAS 17, now meet the definition of a lease under IFRS 16. These contracts are measured at each reporting date based on the prevailing freight index. The freight index has historically been volatile which creates significant short-term fluctuation in these liabilities. Continued volatility throughout FY2020 has meant that as of 1 January 2020, the Group excludes these liabilities from its net debt calculation. |
The following table expands on the Consolidated Income Statement in section 5.1.1, to provide more information on the revenue and expenses of the Group in FY2020.
Year ended 30 June | 2020 US$M | 2019 US$M | 2018 US$M | |||||||||
Continuing operations | ||||||||||||
Revenue (1) | 42,931 | 44,288 | 43,129 | |||||||||
|
|
|
|
|
| |||||||
Other income | 777 | 393 | 247 | |||||||||
|
|
|
|
|
| |||||||
Employee benefits expense | (4,055 | ) | (4,032 | ) | (3,990 | ) | ||||||
Changes in inventories of finished goods and work in progress | 326 | (496 | ) | 142 | ||||||||
Raw materials and consumables used | (5,509 | ) | (4,591 | ) | (4,389 | ) | ||||||
Freight and transportation | (1,981 | ) | (2,378 | ) | (2,294 | ) | ||||||
External services | (4,404 | ) | (4,745 | ) | (4,786 | ) | ||||||
Third party commodity purchases | (1,139 | ) | (1,069 | ) | (1,374 | ) | ||||||
Net foreign exchange gains/(losses) | 603 | 147 | 93 | |||||||||
Fair value of derivatives | (422 | ) | (8 | ) | (208 | ) | ||||||
Government royalties paid and payable | (2,362 | ) | (2,538 | ) | (2,168 | ) | ||||||
Exploration and evaluation expenditure incurred and expensed in the current period | (517 | ) | (516 | ) | (641 | ) | ||||||
Depreciation and amortisation expense | (6,112 | ) | (5,829 | ) | (6,288 | ) | ||||||
Impairment of assets | (494 | ) | (264 | ) | (333 | ) | ||||||
Lease costs | (675 | ) | (405 | ) | (421 | ) | ||||||
All other operating expenses | (2,034 | ) | (1,298 | ) | (870 | ) | ||||||
|
|
|
|
|
| |||||||
Expenses excluding net finance costs | (28,775 | ) | (28,022 | ) | (27,527 | ) | ||||||
|
|
|
|
|
| |||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (512 | ) | (546 | ) | 147 | |||||||
|
|
|
|
|
| |||||||
Profit from operations | 14,421 | 16,113 | 15,996 | |||||||||
|
|
|
|
|
| |||||||
Net finance costs | (911 | ) | (1,064 | ) | (1,245 | ) | ||||||
Total taxation expense | (4,774 | ) | (5,529 | ) | (7,007 | ) | ||||||
|
|
|
|
|
| |||||||
Profit after taxation from Continuing operations | 8,736 | 9,520 | 7,744 | |||||||||
|
|
|
|
|
| |||||||
Discontinued operations | ||||||||||||
Loss after taxation from Discontinued operations | – | (335 | ) | (2,921 | ) | |||||||
|
|
|
|
|
| |||||||
Profit after taxation from Continuing and Discontinued operations | 8,736 | 9,185 | 4,823 | |||||||||
|
|
|
|
|
| |||||||
Attributable to non-controlling interests | 780 | 879 | 1,118 | |||||||||
Attributable to BHP shareholders | 7,956 | 8,306 | 3,705 | |||||||||
|
|
|
|
|
|
(1) | Includes the sale of third party products. |
Profit after taxation attributable to BHP shareholders decreased from a profit of US$8.3 billion in FY2019 to a profit of US$8.0 billion in FY2020.
Revenue of US$42.9 billion decreased by US$1.4 billion, or 3 per cent, from FY2019. This decrease was primarily attributable to lower average realised prices for coal, petroleum and copper, and lower volumes due to natural field decline at Petroleum and lower grade at Escondida and Spence, combined with planned maintenance across a number of our assets. This was partially offset by higher average realised prices for iron ore, record production at WAIO, record average concentrator throughput at Escondida and improved operational stability. For information on our average realised prices and production of our commodities, refer to section 1.11.
Total expenses of US$28.8 billion increased by US$0.8 billion, or 3 per cent, from FY2019. The decrease in changes in inventories of finished goods and work in progress of US$822 million was primarily driven by FY2019 inventory drawdowns at Escondida in line with the Los Colorados Extension commissioning compared to planned rebuilds for operational stability following drawdowns in the prior year. Raw materials and consumables used increased by US$918 million driven by the cancellation of power contracts at Escondida and Spence as part of the shift towards 100 per cent renewable energy supply contracts. Freight and transportation decreased by US$397 million driven by the adoption of IFRS 16 where freight costs related to continuous voyage charters were brought onto the balance sheet as right-of-use assets and depreciated. Depreciation and amortisation expense increased by US$283 million driven by the adoption of IFRS 16 right-of-use assets partially offset by lower depreciation and amortisation at Petroleum in line with lower production volumes due to natural field decline. Impairment of assets increased by US$230 million driven by Cerro Colorado operations reflecting current mine plan. Other operating expenses increased by US$736 million driven by an increase in depletion of production stripping mainly at Escondida due to increased fine copper movement combined with closure provision adjustment for closed mines. Favourable movements in foreign exchange (FX) affected the majority of cost categories.
(Loss)/profit from equity accounted investments, related impairments and expenses of US$(512) million in FY2020 decreased by US$34 million from FY2019. The decrease reflects lower profits from Antamina and Cerrejón which was primarily due to lower prices and COVID-19-related outages offset by favourable FX movements on the Samarco dam failure provision.
Net finance costs of US$911 million decreased by US$153 million, or 14 per cent, from FY2019 mainly due to lower effective interest rates and lower average debt balance following the repayment on maturity of Group debt. For more information on net finance costs, refer to section 1.10.3 and note 21 ‘Net finance costs’ in section 5.
Total taxation expense of US$4,774 million reduced by US$755 million from FY2019. The decrease was primarily due to lower profits combined with FY2019 impacted by provisions for tax disputes and a higher net reduction in US tax credits related to Chilean taxes. For more information on income tax expense, refer to note 6 ‘Income tax expense’ in section 5.
Principal factors that affect Revenue, Profit from operations and Underlying EBITDA
The following table describes the impact of the principal factors that affected Revenue, Profit from operations and Underlying EBITDA for FY2020 and relates them back to our Consolidated Income Statement. For information on the method of calculation of the principal factors that affect Revenue, Profit from operations and Underlying EBITDA, refer to section 6.1.2.
With effect from 1 July 2019, the Change in volumes variance calculation has been changed to reference prior year price less variable unit cost instead of prior year Underlying EBITDA margin. This change to the Change in volumes variance calculation is offset in the Operating cash costs variance calculation. Management believes this amendment is useful because the entire impact of a Change in volumes will be reflected in one category instead of separately reporting the related fixed cost dilution impacts in the Operating cash costs category. Prior periods have not been restated for this change.
Revenue US$M | Total expenses, Other income and (Loss)/profit from equity accounted investments US$M | Profit from operations US$M | Depreciation, amortisation and impairments and Exceptional Items US$M | Underlying EBITDA US$M | ||||||||||||||||
Year ended 30 June 2019 | ||||||||||||||||||||
Revenue | 44,288 | |||||||||||||||||||
Other income | 393 | |||||||||||||||||||
Expenses excluding net finance costs | (28,022 | ) | ||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (546 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Total other income, expenses excluding net finance costs and (Loss)/profit from equity accounted investments, related impairments and expenses | (28,175 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Profit from operations | 16,113 | |||||||||||||||||||
Depreciation, amortisation and impairments (1) | 6,093 | |||||||||||||||||||
Exceptional items | 952 | |||||||||||||||||||
|
| |||||||||||||||||||
Underlying EBITDA | 23,158 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in sales prices | (1,038 | ) | (54 | ) | (1,092 | ) | – | (1,092 | ) | |||||||||||
Price-linked costs | – | (12 | ) | (12 | ) | – | (12 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net price impact | (1,038 | ) | (66 | ) | (1,104 | ) | – | (1,104 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in volumes | (378 | ) | (34 | ) | (412 | ) | – | (412 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating cash costs | – | 223 | 223 | – | 223 | |||||||||||||||
Exploration and business development | – | (115 | ) | (115 | ) | – | (115 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in controllable cash costs (2) | – | 108 | 108 | – | 108 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Exchange rates | (66 | ) | 1,020 | 954 | – | 954 | ||||||||||||||
Inflation on costs | – | (298 | ) | (298 | ) | – | (298 | ) | ||||||||||||
Fuel and energy | – | 77 | 77 | – | 77 | |||||||||||||||
Non-cash | – | (460 | ) | (460 | ) | – | (460 | ) | ||||||||||||
One-off items | 189 | 95 | 284 | – | 284 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in other costs | 123 | 434 | 557 | – | 557 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Asset sales | – | 1 | 1 | – | 1 | |||||||||||||||
Ceased and sold operations | (90 | ) | (328 | ) | (418 | ) | – | (418 | ) | |||||||||||
Other | 26 | 155 | 181 | – | 181 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Depreciation, amortisation and impairments | – | (104 | ) | (104 | ) | 104 | – | |||||||||||||
Exceptional items | – | (501 | ) | (501 | ) | 501 | – | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Year ended 30 June 2020 | ||||||||||||||||||||
Revenue | 42,931 | |||||||||||||||||||
Other income | 777 | |||||||||||||||||||
Expenses excluding net finance costs | (28,775 | ) | ||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (512 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Total other income, expenses excluding net finance costs and (Loss)/profit from equity accounted investments, related impairments and expenses | (28,510 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Profit from operations | 14,421 | |||||||||||||||||||
Depreciation, amortisation and impairments (1) | 6,606 | |||||||||||||||||||
Exceptional item included in Depreciation, amortisation and impairments | (409 | ) | ||||||||||||||||||
Exceptional items | 1,453 | |||||||||||||||||||
|
| |||||||||||||||||||
Underlying EBITDA | 22,071 |
(1) | Depreciation and impairments that we classify as exceptional items are excluded from depreciation, amortisation and impairments. Depreciation, amortisation and impairments includes non-exceptional impairments of US$85 million (FY2019: US$264 million). |
(2) | Collectively, we refer to the change in operating cash costs and change in exploration and business development as change in controllable cash costs. Operating cash costs by definition do not include non-cash costs. The change in operating cash costs also excludes the impact of exchange rates and inflation, changes in fuel and energy costs, changes in exploration and business development costs and one-off items. These items are excluded so as to provide a consistent measurement of changes in costs across all segments, based on the factors that are within the control and responsibility of the segment. Change in controllable cash costs and change in operating cash costs are not measures that are recognised by IFRS. They may differ from similarly titled measures reported by other companies. |
Lower average realised prices decreased Underlying EBITDA by US$1.1 billion in FY2020 reflecting lower average realised prices for metallurgical and energy coal, petroleum and copper, partially offset by higher average realised prices for iron ore and nickel.
Change in volumes decreased Underlying EBITDA by US$412 million primarily as a result of record production at WAIO, Caval Ridge and Poitrel, record average concentrator throughput at Escondida and improved operational stability following the prior period impacts of unplanned outages. These favourable movements were more than offset by the impacts from planned maintenance across a number of our assets (Queensland Coal, WAIO), unfavourable weather (Queensland Coal, WAIO, NSWEC), a change in product strategy at NSWEC to focus on higher-quality products, lower grade at Escondida and Spence and Petroleum natural field decline across the portfolio.
Lower costs reflect strong cost performance driven by consumption efficiencies at Escondida, favourable inventory movements across our assets in line with mine plans and planned rebuilds for operational stability following drawdowns in the prior year, supported by further reductions in overheads, partially offset by increased planned maintenance activities at a number of assets during the year. This was offset by higher business development costs in Mexico following the successful exploration program at Trion.
A stronger US dollar against the Australian dollar and Chilean peso increased Underlying EBITDA by US$954 million during the period.
Non-cash reflects higher deferred stripping depletion and lower overburden movement in line with mine plan at Escondida, decreasing Underlying EBITDA by US$460 million.
Higher ceased and sold operations reflects higher closure and rehabilitation provision adjustments for closed mines of US$362 million, sale of our interests in the Bruce and Keith oil and gas fields in the prior period, and cessation of operations at Minerva in FY2020.
Other includes the favourable impacts from the first year of application of IFRS 16 Leases offset by lower profits from our equity accounted investments (Antamina and Cerrejón) due to lower prices and COVID-19 related outages.
Cash flow
The following table provides a summary of the Consolidated Cash Flow Statement contained in section 5.1.4 to show the key sources and uses of cash during the periods presented:
Year ended 30 June | 2020 US$M | 2019 US$M | 2018 US$M | |||||||||
Cash generated from operations | 22,268 | 23,428 | 22,949 | |||||||||
Dividends received | 137 | 516 | 709 | |||||||||
Net interest paid | (840 | ) | (903 | ) | (887 | ) | ||||||
Proceeds/(settlements) of cash management related instruments | 85 | 296 | (292 | ) | ||||||||
Net taxation paid | (5,944 | ) | (5,940 | ) | (4,918 | ) | ||||||
|
|
|
|
|
| |||||||
Net operating cash flows from Continuing operations | 15,706 | 17,397 | 17,561 | |||||||||
|
|
|
|
|
| |||||||
Net operating cash flows from Discontinued operations | – | 474 | 900 | |||||||||
|
|
|
|
|
| |||||||
Net operating cash flows | 15,706 | 17,871 | 18,461 | |||||||||
|
|
|
|
|
| |||||||
Purchases of property, plant and equipment | (6,900 | ) | (6,250 | ) | (4,979 | ) | ||||||
Exploration expenditure | (740 | ) | (873 | ) | (874 | ) | ||||||
|
|
|
|
|
| |||||||
Subtotal: Capital and exploration expenditure | (7,640 | ) | (7,123 | ) | (5,853 | ) | ||||||
|
|
|
|
|
| |||||||
Exploration expenditure expensed and included in operating cash flows | 517 | 516 | 641 | |||||||||
Net investment and funding of equity accounted investments | (618 | ) | (630 | ) | 204 | |||||||
Other investing activities | 125 | (140 | ) | (52 | ) | |||||||
|
|
|
|
|
| |||||||
Net investing cash flows from Continuing operations | (7,616 | ) | (7,377 | ) | (5,060 | ) | ||||||
|
|
|
|
|
| |||||||
Net investing cash flows from Discontinued operations | – | (443 | ) | (861 | ) | |||||||
Proceeds from divestment of Onshore US, net of its cash | – | 10,427 | – | |||||||||
|
|
|
|
|
| |||||||
Net investing cash flows | (7,616 | ) | 2,607 | (5,921 | ) | |||||||
|
|
|
|
|
| |||||||
Net repayment of interest bearing liabilities | (1,690 | ) | (2,514 | ) | (3,878 | ) | ||||||
Share buy-back – BHP Group Limited | – | (5,220 | ) | – | ||||||||
Dividends paid | (6,876 | ) | (11,395 | ) | (5,220 | ) | ||||||
Dividends paid to non-controlling interests | (1,043 | ) | (1,198 | ) | (1,582 | ) | ||||||
Other financing activities | (143 | ) | (188 | ) | (171 | ) | ||||||
|
|
|
|
|
| |||||||
Net financing cash flows from Continuing operations | (9,752 | ) | (20,515 | ) | (10,851 | ) | ||||||
|
|
|
|
|
| |||||||
Net financing cash flows from Discontinued operations | – | (13 | ) | (40 | ) | |||||||
|
|
|
|
|
| |||||||
Net financing cash flows | (9,752 | ) | (20,528 | ) | (10,891 | ) | ||||||
|
|
|
|
|
| |||||||
Net (decrease)/increase in cash and cash equivalents | (1,662 | ) | (10,477 | ) | 1,649 | |||||||
|
|
|
|
|
| |||||||
Net (decrease)/increase in cash and cash equivalents from Continuing operations | (1,662 | ) | (10,495 | ) | 1,650 | |||||||
|
|
|
|
|
| |||||||
Net increase/(decrease) in cash and cash equivalents from Discontinued operations | – | 18 | (1 | ) | ||||||||
|
|
|
|
|
|
Net operating cash inflows of US$15.7 billion decreased by US$2.2 billion. This reflects weaker commodity prices in coal and petroleum and field and grade declines, partially offset by stronger iron ore prices and strong underlying performance across the portfolio.
Net investing cash outflows of US$7.6 billion increased by US$10.2 billion. This reflects the proceeds from the divestment of Onshore US, net of its cash in FY2019, partially offset by continued investment in high-return latent capacity projects and investment in South Flank, Spence Growth Option and Mad Dog 2 in FY2020.
For more information and a breakdown of capital and exploration expenditure on a commodity basis, refer to section 1.11.
Net financing cash outflows of US$9.8 billion decreased by US$10.8 billion. This reflects the off-market buy-back of BHP Group Limited shares of US$5.2 billion in December 2018, the special dividend of US$5.2 billion paid in January 2019 from the Onshore US asset sale (net proceeds), lower repayments of interest bearing liabilities of US$0.8 billion and lower dividends to non-controlling interests of US$0.2 billion, partially offset by higher dividends to BHP shareholders in FY2020 of US$0.7 billion.
For more information, refer to section 1.10.3 and note 19 ‘Net debt’ in section 5.
Underlying Return on Capital Employed (ROCE) of 16.9 per cent increased by 1.0 per cent (FY2019: 15.9 per cent) reflecting the impact of the sale of Onshore US in FY2018. The Return on Capital Employed in FY2020 includes US$12.5 billion of Assets under Construction (average of ending balances for FY2020 of US$13.8 billion and FY2019 of US$11.1 billion) including major projects in Potash, Spence Growth Option, South Flank and Mad Dog which are not yet producing their planned contribution to earnings.
For more information on Assets under Construction refer to note 11 ‘Property, plant and equipment’ in section 5.
Comparisons for the year ended 30 June 2019 to 30 June 2018 in connection with Financial results, Principal factors that affect Revenue, Profit from operations and Underlying EBITDA and Cash flow have been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
1.10.3 Debt and sources of liquidity
Our policies on debt and liquidity management have the following objectives:
a strong balance sheet through the cycle
diversification of funding sources
maintain borrowings and excess cash predominantly in US dollars
Interest bearing liabilities, net debt and gearing
At the end of FY2020, Interest bearing liabilities were US$27.0 billion (FY2019: US$24.8 billion) and Cash and cash equivalents were US$13.4 billion (FY2019: US$15.6 billion). This resulted in net debt (1) of US$12.0 billion, which represented an increase of US$2.6 billion compared with the net debt position at 30 June 2019 primarily due to the application of IFRS 16. Gearing, which is the ratio of net debt to net debt plus net assets, was 18.7 per cent at 30 June 2020, compared with 15.4 per cent at 30 June 2019.
During FY2020, the Group decided not to refinance US$0.9 billion of Group-level debt (consisting of an A$1.0 billion bond and the remaining amount of the €600 million bond that matured). This extended BHP’s average debt maturity profile and enhanced BHP’s capital structure.
At the subsidiary level, Escondida refinanced US$0.5 billion of maturing long-term debt.
Funding sources
No new Group-level debt was issued in FY2020 and debt that matured during the year was not refinanced.
Our Group-level borrowing facilities are not subject to financial covenants. Certain specific financing facilities in relation to specific assets are the subject of financial covenants that vary from facility to facility, but this would be considered normal for such facilities. In addition to the Group’s uncommitted debt issuance programs, we hold the following committed standby facilities:
Facility available 2020 US$M | Drawn 2020 US$M | Undrawn 2020 US$M | Facility available 2019 US$M | Drawn 2019 US$M | Undrawn 2019 US$M | |||||||||||||||||||
Revolving credit facility (2) | 5,500 | – | 5,500 | 6,000 | – | 6,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total financing facilities | 5,500 | – | 5,500 | 6,000 | – | 6,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | We use Alternative Performance Measures to reflect the underlying financial performance of BHP, refer to section 6.1. For the definition and method of calculation of alternative performance measures, refer to section 6.1.1. For the composition of net debt, refer to note 19 ‘Net debt’ in section 5. |
(2) | BHP’s revolving credit facility was refinanced on 10 October 2019 and is due to mature on 10 October 2024. The committed US$5.5 billion revolving credit facility operates as a back-stop to the Group’s uncommitted commercial paper program. The combined amount drawn under the facility or as commercial paper will not exceed US$5.5 billion. As at 30 June 2020, US$ nil commercial paper was drawn (FY2019: US$ nil), therefore US$5.5 billion of committed facility was available to use (FY2019: US$6.0 billion). A commitment fee is payable on the undrawn balance and an interest rate comprising an interbank rate plus a margin applies to any drawn balance. The agreed margins are typical for a credit facility extended to a company with BHP’s credit rating. |
For more information on the maturity profile of our debt obligations and details of our standby and support agreements, refer to note 22 ‘Financial risk management’ in section 5.
In BHP’s opinion, working capital is sufficient for its present requirements. BHP’s credit ratings are currently A2/P-1 outlook stable (Moody’s – long-term/short-term) and A/A-1 outlook stable (Standard & Poor’s – long-term/short-term). A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by an assigning rating agency. Any rating should be evaluated independently of any other information.
The following table expands on the net debt, to provide more information on the cash and non-cash movements in FY2020.
Year ended 30 June | 2020 US$M | 2019 US$M | ||||||||||||||
Net debt at the beginning of the financial year | (9,446 | ) | (11,605 | ) | ||||||||||||
|
|
|
| |||||||||||||
Net operating cash flows | 15,706 | 17,871 | ||||||||||||||
Net investing cash flows | (7,616 | ) | 2,607 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Free cash flow | 8,090 | 20,478 | ||||||||||||||
|
|
|
| |||||||||||||
Carrying value of interest bearing liability repayments | 1,533 | 2,351 | ||||||||||||||
Net settlements of interest bearing liabilities and debt related instruments | (1,984 | ) | (2,781 | ) | ||||||||||||
Share buy-back – BHP Group Limited | – | (5,220 | ) | |||||||||||||
Dividends paid | (6,876 | ) | (11,395 | ) | ||||||||||||
Dividends paid to non-controlling interests | (1,043 | ) | (1,198 | ) | ||||||||||||
Other financing activities (1) | (143 | ) | (201 | ) | ||||||||||||
|
|
|
| |||||||||||||
Other cash movements | (8,513 | ) | (18,444 | ) | ||||||||||||
|
|
|
| |||||||||||||
Fair value adjustment on debt (including debt related instruments) (2) | 88 | 44 | ||||||||||||||
Foreign exchange impacts on cash (including cash management related instruments) | (26 | ) | 94 | |||||||||||||
IFRS 16 leases taken on at 1 July | (1,778 | ) | – | |||||||||||||
Lease additions | (363 | ) | – | |||||||||||||
Others | (96 | ) | (13 | ) | ||||||||||||
|
|
|
| |||||||||||||
Non-cash movements | (2,175 | ) | 125 | |||||||||||||
|
|
|
| |||||||||||||
Net debt at the end of the financial year (3) | (12,044 | ) | (9,446 | ) | ||||||||||||
|
|
|
|
(1) | Other financing activities mainly comprises purchases of shares by Employee Share Option Plan trusts of US$143 million (FY2019: US$188 million). |
(2) | The Group hedges against the volatility in both exchange and interest rates on debt, and also exchange on cash, with associated movements in derivatives reported in Other financial assets/liabilities as effective hedged derivatives (cross currency and interest rate swaps), in accordance with accounting standards. For more information, refer to note 22 ‘Financial risk management’ in section 5. |
(3) |
|
The comparison for the year ended 30 June 2019 to 30 June 2018 has been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
1.10.4 Alternative Performance Measures
We use various Alternative Performance Measures (APMs) to reflect our underlying performance.
These APMs are not defined or specified under the requirements of IFRS, but are derived from the Group’s Consolidated Financial Statements prepared in accordance with IFRS. The APMs are consistent with how management reviews financial performance of the Group with the Board and the investment community.
Section 6.1, which is incorporated into the Strategic Report by reference, includes our APMs and Section 6.1.1 outlines why we believe the APMs are useful and the calculation methodology. We believe these APMs provide useful information, but they should not be considered as an indication of, or as a substitute for, statutory measures as an indicator of actual operating performance (such as profit or net operating cash flow) or any other measure of financial performance or position presented in accordance with IFRS, or as a measure of a company’s profitability, liquidity or financial position.
Management believes the following financial information presented by commodity provides a meaningful indication of the underlying financial performance of the assets, including equity accounted investments, of each reportable segment. Information relating to assets that are accounted for as equity accounted investments is shown to reflect BHP’s share, unless otherwise noted, to provide insight into the drivers of these assets.
For the purposes of this financial information, segments are reported on a statutory basis in accordance with IFRS 8 ‘Operating Segments’. The tables for each commodity include an ‘adjustment for equity accounted investments’ to reconcile the equity accounted results to the statutory segment results.
For a reconciliation of alternative performance measures to their respective IFRS measure and an explanation as to the use of Underlying EBITDA and Underlying EBIT in assessing our performance, refer to section 6.1. For the definition and method of calculation of alternative performance measures, refer to section 6.1.1. For more information as to the statutory determination of our reportable segments, refer to note 1 ‘Segment reporting’ in section 5.
Unit costs (1) is one of the financial measures used to monitor the performance of our individual assets and is included in the analysis of each reportable segment.
(1) | For more information on alternative performance measures, refer to section 6.1. |
Detailed below is financial information for our Petroleum assets excluding Onshore US for FY2019 and an analysis of Petroleum’s financial performance for FY2020 compared with FY2019.
Year ended 30 June 2020 US$M | Revenue (4) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (6) | Exploration to profit (7) | ||||||||||||||||||||||||
Australia Production Unit (1) | 361 | 253 | 197 | 56 | 289 | 6 | ||||||||||||||||||||||||||
Bass Strait | 1,102 | 761 | 449 | 312 | 1,796 | 87 | ||||||||||||||||||||||||||
North West Shelf | 1,076 | 731 | 260 | 471 | 1,261 | 130 | ||||||||||||||||||||||||||
Atlantis | 561 | 431 | 175 | 256 | 1,061 | 197 | ||||||||||||||||||||||||||
Shenzi | 277 | 174 | 139 | 35 | 550 | 45 | ||||||||||||||||||||||||||
Mad Dog | 216 | 164 | 64 | 100 | 1,551 | 375 | ||||||||||||||||||||||||||
Trinidad/Tobago | 191 | 92 | 46 | 46 | 323 | 46 | ||||||||||||||||||||||||||
Algeria | 159 | 111 | 12 | 99 | 60 | 16 | ||||||||||||||||||||||||||
Exploration | – | (394 | ) | 41 | (435 | ) | 1,227 | (1 | ) | |||||||||||||||||||||||
Other (2) | 104 | (111 | ) | 77 | (188 | ) | 129 | 8 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum from Group production | 4,047 | 2,212 | 1,460 | 752 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Third party products | 39 | (2 | ) | – | (2 | ) | – | – | – | – | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum | 4,086 | 2,210 | 1,460 | 750 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3) | (16 | ) | (3 | ) | (3 | ) | – | – | – | – | – | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum statutory result | 4,070 | 2,207 | 1,457 | 750 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2019 Restated US$M | Revenue (4) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (6) | Exploration to profit (7) | ||||||||||||||||||||||||
Australia Production Unit (1) | 507 | 332 | 192 | 140 | 513 | 13 | ||||||||||||||||||||||||||
Bass Strait | 1,237 | 915 | 427 | 488 | 2,217 | 32 | ||||||||||||||||||||||||||
North West Shelf | 1,657 | 1,220 | 298 | 922 | 1,371 | 106 | ||||||||||||||||||||||||||
Atlantis | 979 | 824 | 261 | 563 | 1,060 | 31 | ||||||||||||||||||||||||||
Shenzi | 540 | 437 | 151 | 286 | 658 | 30 | ||||||||||||||||||||||||||
Mad Dog | 319 | 268 | 59 | 209 | 1,232 | 362 | ||||||||||||||||||||||||||
Trinidad/Tobago | 287 | 181 | 56 | 125 | 302 | 23 | ||||||||||||||||||||||||||
Algeria | 258 | 201 | 26 | 175 | 49 | 7 | ||||||||||||||||||||||||||
Exploration | – | (388 | ) | 58 | (446 | ) | 1,039 | – | ||||||||||||||||||||||||
Other (2) | 153 | 73 | 55 | 18 | (109 | ) | 41 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum from Group production | 5,937 | 4,063 | 1,583 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Third party products | 10 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum | 5,947 | 4,063 | 1,583 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3) | (17 | ) | (2 | ) | (2 | ) | – | – | – | – | – | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum statutory result | 5,930 | 4,061 | 1,581 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Australia Production Unit includes Macedon, Pyrenees and |
(2) | Predominantly divisional activities, business development, UK (divested in November 2018), Neptune and Genesis. Also includes the Caesar oil pipeline and the Cleopatra gas pipeline, which are equity accounted |
|
(4) | Total Petroleum statutory result revenue includes: crude oil US$2,033 million (2019: US$3,171 million), natural gas US$980 million (2019: US$1,259 million), LNG US$774 million (2019: US$1,179 million), NGL US$198 million (2019: US$263 million) and other US$85 million (2019: US$58 million) which includes third party products. |
(5) |
|
120
|
Refer to section |
Key drivers of Copper’s financial results
Price overview
Our average realised sales price for FY2019 was US$2.62 per pound (FY2018: US$3.00 per pound). Copper prices decreased in FY2019 as rising global trade uncertainty affected investor sentiment. Labour negotiations in Chile and Peru during CY2018 went relatively smoothly with limited volume disruptions. Despite the lower price, refined copper stocks at exchanges decreasedyear-on-year. In the near term, incremental mine production from committed projects and rising scrap availability should continue to meet demand needs. In the longer term, we expect demand to grow steadily, led by a solid performance in traditionalend-use sectors. Exposure to the electrification megatrend provides some upside. A deficit is expected to emerge early to middle of next decade as grade declines, a rise in costs and a scarcity of high-quality future development opportunities are likely to constrain the industry’s ability to cheaply meet this demand growth.
Production
Total Copper production for FY2019 decreased by 4 per cent to 1.7 Mt.
Escondida copper production decreased by 6 per cent to 1,135 kt, as an expected 12 per cent decline in copper grade was partially offset by record average concentrator throughput of 344 ktpd. Pampa Norte copper production decreased by 7 per cent to 247 kt, due to adverse weather impacts and a production outage at Spence following a fire at the electrowinning plant in September 2018. This was partially offset by record ore milled at Spence and Cerro Colorado after implementing maintenance improvement initiatives as part of our broader transformation program. Olympic Dam copper production increased by 17 per cent to 160 kt as a result of the major smelter maintenance campaign in the prior period, which was partially offset by an unplanned acid plant outage in August 2018 and two minor production outages relating to the smelter and to the refinery crane during the year. Antamina copper production increased by 6 per cent to 147 kt and zinc production decreased by 18 per cent to 98 kt, reflecting higher copper head grades and lower zinc head grades, in line with the mine plan.
For more information on individual asset production in FY2019, FY2018 and FY2017, refer to section 6.2.
Financial results
Copper revenue decreased by US$1.9 billion to US$10.8 billion in FY2019. Escondida revenue decreased by US$1.5 billion to US$6.9 billion.
Underlying EBITDA for Copper decreased by US$2.0 billion to US$4.6 billion. Price impacts, net of price-linked costs, decreased Underlying EBITDA by US$1.3 billion. Lower volumes decreased Underlying EBITDA by US$315 million mainly driven by lower grades at Escondida and lower production at Pampa Norte after a fire at the electrowinning plant at Spence and heavy rainfall, partially offset by a record concentrator throughput at Escondida following the Los Colorados Extension commissioning and record ore milled at Pampa Norte.
Controllable cash costs increased by US$321 million, mainly due to Olympic Dam unfavourable fixed cost dilution related to the acid plant outage, Escondida inventory drawdowns related to the Los Colorados Extension commissioning, change in estimated recoverable copper contained in the Escondida sulphide leach pad which benefited costs in the prior year andend-of-negotiation bonus payments. This was partially offset by the Olympic Dam acid plant outage self-insurance recoveries, inventory movements at Pampa Norte and the benefit from higher overall volumes at Olympic Dam as a result of the smelter maintenance campaign in the prior year.
Unit costs at Escondida increased by 7 per cent to US$1.14 per pound, driven by an expected 12 per cent decline in copper grade and labour settlement costs. The calculation of Escondida unit costs is set out in the table below.
Escondida unit costs | ||||||||
US$M | FY2019 | FY2018 | ||||||
Revenue | 6,876 | 8,346 | ||||||
Underlying EBITDA | 3,384 | 4,921 | ||||||
|
|
|
| |||||
Gross costs | 3,492 | 3,425 | ||||||
|
|
|
| |||||
Less:by-product credits | 490 | 447 | ||||||
Less: freight | 149 | 123 | ||||||
|
|
|
| |||||
Net costs | 2,853 | 2,855 | ||||||
|
|
|
| |||||
Sales (kt, equity share) | 1,131 | 1,209 | ||||||
Sales (Mlb, equity share) | 2,493 | 2,664 | ||||||
|
|
|
| |||||
Cost per pound (US$) (1) | 1.14 | 1.07 | ||||||
|
|
|
|
|
121
Outlook
Total Copper production of between 1,705 and 1,820 kt is expected in FY2020. Escondida production of between 1,160 and 1,230 kt is expected in FY2020, underpinned by a further uplift in concentrator throughput to compensate grade decline. Production at Pampa Norte is expected to be between 230 and 250 kt in FY2020, as the Spence Growth Option continues to progress on schedule and budget, with initial production targeted in FY2021. At Olympic Dam, production is expected to be between 180 and 205 kt in FY2020 reflecting improved operational performance, partially offset by planned maintenance related to the replacement of the refinery crane.
Escondida unit costs are expected to increase to between US$1.20 and US$1.35 per pound (based on an average exchange rate of USD/CLP 683) in FY2020 reflecting lowerby-product credits and higher deferred stripping costs. The impact of a decline in copper grade of approximately 5 per cent is expected to be offset by increased concentrator throughput. In the medium term, unit costs are expected to remain less than US$1.15 per pound (based on an average exchange rate of USD/CLP 683) with expected higher power and water costs offset by transformation programs focused on efficiency improvements and optimised maintenance strategies.
The comparison for the year ended 30 June 2018 to 30 June 2017 has been omitted from this Form20-F, but can be found in our Form20-F for the fiscal year ended 30 June 2018, filed on 18 September 2018.
1.13.3 Iron Ore
Detailed below is financial information for our Iron Ore assets for FY2019 and FY2018 and an analysis of Iron Ore’s financial performance for FY2019 compared with FY2018.
Year ended 30 June 2019 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (1) | Exploration to profit | ||||||||||||||||||||||||
Western Australia Iron Ore | 17,066 | 11,053 | 1,707 | 9,346 | 19,208 | 1,600 | ||||||||||||||||||||||||||
Samarco (2) | – | – | – | – | (1,908 | ) | – | |||||||||||||||||||||||||
Other (3) | 157 | 62 | 25 | 37 | 186 | 11 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Iron Ore from Group production | 17,223 | 11,115 | 1,732 | 9,383 | 17,486 | 1,611 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products (4) | 32 | 14 | – | 14 | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Iron Ore | 17,255 | 11,129 | 1,732 | 9,397 | 17,486 | 1,611 | 93 | 41 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Iron Ore statutory result | 17,255 | 11,129 | 1,732 | 9,397 | 17,486 | 1,611 | 93 | 41 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Year ended 30 June 2018 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (1) | Exploration to profit | ||||||||||||||||||||||||
Western Australia Iron Ore | 14,596 | 8,869 | 1,721 | 7,148 | 19,406 | 1,047 | ||||||||||||||||||||||||||
Samarco (2) | – | – | – | – | (1,278 | ) | – | |||||||||||||||||||||||||
Other (3) | 160 | 60 | 14 | 46 | 192 | 27 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Iron Ore from Group production | 14,756 | 8,929 | 1,735 | 7,194 | 18,320 | 1,074 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products (4) | 54 | 1 | – | 1 | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Iron Ore | 14,810 | 8,930 | 1,735 | 7,195 | 18,320 | 1,074 | 84 | 44 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Iron Ore statutory result | 14,810 | 8,930 | 1,735 | 7,195 | 18,320 | 1,074 | 84 | 44 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) | Includes US$170 million of capitalised exploration (2019: US$297 million). |
122
(7) | Includes US$ nil of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2019: US$21 million). |
Key drivers of Iron Ore’sconventional petroleum’s financial results
Price overview
Iron Ore’sTrends in each of the major markets are outlined below.
Crude oil
Our average realised sales price for FY2019crude oil was US$66.6849.53 per wet metric tonne (wmt) (FY2018:barrel (FY2019: US$56.7166.59 per wmt)barrel). Crude oil prices dropped significantly in the second half of FY2020 due to a brief OPEC and its non-member allies’ (‘OPEC+’) price war in March 2020 and COVID-19, with Brent falling below US$20/bbl in April 2020 at the height of the global lockdowns and peak demand destruction. The prices have partially recovered since then mainly due to swift output cuts from OPEC+ and a partial recovery in mobility. Very large storage builds flipped to draws in late May 2020, which allowed benchmark prices to move up to approximately US$40/bbl. Demand is expected to recover to pre-COVID-19 levels no earlier than the end of CY2021. In our longer-term outlook, we believe oil will be attractive, even under a plausible low case, for a considerable time to come.
Liquefied natural gas
Our average realised sales price for LNG was US$7.26 per Mcf (FY2019: US$9.43 per Mcf). The Platts 62% Fe Iron Ore Fines index has been elevated sinceJapan-Korea Marker (JKM) price for LNG performed poorly in FY2020, reflecting a deepening oversupply situation. JKM hit an all-time low in April 2020 as a slowdown in Asian demand growth due to warm weather and COVID-19 and large increments of new supply coming online weighed on the tailings dam collapse in Brazil disruptedmarket. Longer term, the commodity offers a combination of systematic base decline and an attractive demand trajectory. However, gas resource is abundant and liquefaction infrastructure comes with large upfront costs and extended pay backs. North American exports are expected to provide the marginal supply across multiple longer-term scenarios for the LNG industry, with new supply likely to be required to balance the market in late January 2019. In addition to the decline in Brazilian exports, prices responded to stronger than expected Chinese pig iron production and cyclone disruptions to Australian supply. In the longer term, supplymiddle of this decade, or slightly later. Within global gas, LNG is expected to returngain share. Against this backdrop, LNG assets advantaged by their proximity to a more normal trajectory and the marginal tonne being provided by a higher cost, lowervalue-in-use exporter from Australiaexisting infrastructure or Brazil.customers, or both, will be attractive.
Production
Total Iron OrePetroleum production from WAIO for FY2019 was broadly unchanged at 238 Mt, or 270 Mt on a 100FY2020 decreased by 10 per cent basis. This reflected recordto 109 MMboe.
Crude oil, condensate and natural gas liquids production at Jimblebar and inventory impacts from the Mt Whaleback fire in the prior period offsetdecreased by 11 per cent to 49 MMboe due to the impacts of plannedTropical Storm Barry in the Gulf of Mexico, Tropical Cyclone Damien at our North West Shelf operations, maintenance at Atlantis and natural field decline across the portfolio. Weaker market conditions, including impacts from COVID-19, also contributed to lower volumes in September 2018,the June 2020 quarter. This decline was partially offset by higher uptime at Pyrenees following the 70-day dry dock maintenance program during the prior year.
Natural gas production decreased by 9 per cent to 360 bcf, reflecting a train derailmentdecrease in November 2018both production and tax barrels (in accordance with the terms of our Production Sharing Contract) due to weaker market conditions in Trinidad and Tobago, impacts of maintenance and Tropical Cyclone Veronica in March 2019.Damien at North West Shelf and natural field decline across the portfolio.
For more information on individual asset production in FY2020, FY2019 FY2018 and FY2017,FY2018, refer to section 6.2.6.3.
Financial results
Total Iron OrePetroleum revenue increasedfor FY2020 decreased by US$2.41.9 billion to US$17.34.1 billion. Gulf of Mexico, which includes Atlantis, Shenzi and Mad Dog, decreased by US$784 million to US$1.1 billion. In Australia, Bass Strait and North West Shelf collectively decreased by US$716 million to US$2.2 billion. The Trinidad Production Unit decreased by US$96 million to US$0.2 billion in FY2019.while the Australian Production Unit, which includes Macedon, Pyrenees and Minerva, decreased by US$146 million to US$0.4 billion.
Underlying EBITDA for Iron Ore increasedPetroleum decreased by US$2.21.9 billion to US$11.12.2 billion. Price impact,impacts, net of price-linked costs, increaseddecreased Underlying EBITDA by US$2.11.1 billion. HigherControllable cash costs increased by US$30 million reflecting higher business development costs in Mexico following the successful exploration program at Trion, partially offset by lower maintenance activity at our Australian assets. Ceased and sold operations decreased by US$76 million reflecting the sale of our interests in the Bruce and Keith oil and gas fields in the prior period, and cessation of operations at Minerva in FY2020. Lower volumes increaseddecreased Underlying EBITDA by US$382588 million driven by record productionmainly due to natural field decline across the portfolio, a decrease in tax barrels at Jimblebar, expiry ofTrinidad and Tobago, weaker market conditions, the Wheelarra joint venture and improved supply chain reliability and performance. This was partially offset by a train derailment and the impactimpacts from Tropical Cyclone Veronica. Lower controllable cash costs from favourable inventory movements partially offset by increasedBarry and Tropical Cyclone Damien and planned maintenance activities increasedat Atlantis. Other items such as exchange rate and inflation also negatively impacted Underlying EBITDA by US$10327 million.
WAIOPetroleum unit costs decreased by 18 per cent to US$14.169.74 per tonne reflecting higher volumes, continued productivity improvementsbarrel of oil equivalent due to a reduction in price-linked costs, cost efficiencies and favourable exchange movements,lower maintenance activities at our Australian operations due to COVID-19, partially offset by the impacts of a train derailment and Tropical Cyclone Veronica.lower volumes. The calculation of WAIOconventional petroleum unit costs is set out in the table below.
WAIO unit costs (US$M) | FY2019 | FY2018 | ||||||||||||||
Petroleum unit costs | FY2020 | FY2019 | ||||||||||||||
Revenue | 17,066 | 14,596 | 4,070 | 5,930 | ||||||||||||
Underlying EBITDA | 11,053 | 8,869 | 2,207 | 4,061 | ||||||||||||
|
|
|
| |||||||||||||
Gross costs | 6,013 | 5,727 | 1,863 | 1,869 | ||||||||||||
|
|
|
| |||||||||||||
Less: exploration expense (1) | 394 | 388 | ||||||||||||||
Less: freight | 1,308 | 1,276 | 110 | 152 | ||||||||||||
Less: royalties | 1,322 | 1,075 | ||||||||||||||
Less: development and evaluation | 166 | 46 | ||||||||||||||
Less: other (2) | 131 | 8 | ||||||||||||||
|
|
|
| |||||||||||||
Net costs | 3,383 | 3,376 | 1,062 | 1,275 | ||||||||||||
|
|
|
| |||||||||||||
Sales (kt, equity share) | 238,836 | 236,771 | ||||||||||||||
Production (MMboe, equity share) | 109 | 121 | ||||||||||||||
|
|
|
| |||||||||||||
Cost per tonne (US$) (1) | 14.16 | 14.26 | ||||||||||||||
Cost per Boe (US$) (3) | 9.74 | 10.54 | ||||||||||||||
|
|
|
|
(1) |
|
(2) | Other includes non-cash profit on sales of assets, inventory movements, foreign exchange, provision for onerous lease contracts and the impact from the revaluation of embedded derivatives in the Trinidad and Tobago gas contract. |
(3) | FY2020 based on an average exchange rate of AUD/USD |
OutlookDelivery commitments
WAIO productionWe have delivery commitments of between 242natural gas and 253 Mt, or between 273 and 286 Mt on a 100LNG of approximately 1 billion cubic feet through FY2034 (83 per cent basis is expected in FY2020. This reflects a significant maintenance program at Port Hedland designed to improve productivityAustralia and provide a stable base for our tightly coupled supply chain as we sustainably increase production towards 290 Mtpa (100Asia, 17 per cent basis)others), and crude and condensate commitments of 7 million barrels through FY2021 (57 per cent United States, 35 per cent Australia and Asia, 8 per cent others). As partWe have sufficient proved reserves and production capacity to fulfil these delivery commitments.
We have obligation commitments of this, a major car dumper maintenance campaign is plannedUS$43 million for contracted capacity on transportation pipelines and gathering systems through FY2025, on which we are the September 2019 quarter, with a corresponding impact expected on production.
WAIO unit costs are expected to decrease to between US$13 and US$14 per tonne (based on an average exchange rate of AUD/USD 0.70) in FY2020. In the medium term, we expect to lower our unit costs to less than US$13 per tonne (based on an average exchange rate of AUD/USD 0.70).
shipper. The comparison for the year ended 30 June 2018 to 30 June 2017 has been omitted from this Form20-F, but can be found in ourForm 20-F for the fiscal year ended 30 June 2018, filed on 18 September 2018.
123agreements have annual escalation clauses.
1.13.4 CoalOther information
Detailed below is financial information for our Coal assets for FY2019 and FY2018 and an analysisDrilling
The number of Coal’s financial performance for FY2019 compared with FY2018.wells in the process of drilling and/or completion as of 30 June 2020 was as follows:
Year ended 30 June 2019 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Queensland Coal | 7,679 | 3,722 | 532 | 3,190 | 8,232 | 549 | ||||||||||||||||||||||||||
New South Wales Energy Coal (1) | 1,527 | 431 | 166 | 265 | 920 | 102 | ||||||||||||||||||||||||||
Colombia (1) | 698 | 274 | 101 | 173 | 853 | 104 | ||||||||||||||||||||||||||
Other (2) | 2 | (110 | ) | 2 | (112 | ) | (331 | ) | 5 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Coal from Group production | 9,906 | 4,317 | 801 | 3,516 | 9,674 | 760 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | 19 | (1 | ) | – | (1 | ) | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal | 9,925 | 4,316 | 801 | 3,515 | 9,674 | 760 | 23 | 15 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3)(4) | (804 | ) | (249 | ) | (134 | ) | (115 | ) | – | (105 | ) | – | – | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal statutory result | 9,121 | 4,067 | 667 | 3,400 | 9,674 | 655 | 23 | 15 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Year ended 30 June 2018 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Queensland Coal | 7,388 | 3,647 | 596 | 3,051 | 8,355 | 391 | ||||||||||||||||||||||||||
New South Wales Energy Coal (1) | 1,605 | 652 | 149 | 503 | 994 | 18 | ||||||||||||||||||||||||||
Colombia (1) | 818 | 395 | 95 | 300 | 883 | 54 | ||||||||||||||||||||||||||
Other (2) | – | (10 | ) | 3 | (13 | ) | (379 | ) | – | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Coal from Group production | 9,811 | 4,684 | 843 | 3,841 | 9,853 | 463 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | 2 | (1 | ) | – | (1 | ) | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal | 9,813 | 4,683 | 843 | 3,840 | 9,853 | 463 | 21 | 21 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3)(4) | (924 | ) | (286 | ) | (128 | ) | (158 | ) | – | (54 | ) | – | – | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal statutory result | 8,889 | 4,397 | 715 | 3,682 | 9,853 | 409 | 21 | 21 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploratory wells | Development wells | Total | ||||||||||||||||||||||
Gross | Net (1) | Gross | Net (1) | Gross | Net (1) | |||||||||||||||||||
Australia | – | – | 2 | 1 | 2 | 1 | ||||||||||||||||||
United States | – | – | 26 | 8 | 26 | 8 | ||||||||||||||||||
Other (2) | – | – | 1 | 0 | 1 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | – | – | 29 | 9 | 29 | 9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
(2) |
|
Conventional petroleum
|
|
|
Key driversBHP’s net share of Coal’s financial results
Price overviewcapital development expenditure in FY2020, which is presented on a cash basis within this section, was US$909 million (FY2019: US$645 million). While the majority of the expenditure in FY2020 was incurred by operating partners at our Australian and Gulf of Mexico non-operated assets, we also incurred capital expenditure at our operated Australian, Gulf of Mexico, Algeria and Trinidad and Tobago assets.
Metallurgical coalAustralia
Our average realised sales price for FY2019BHP’s net share of capital development expenditure in FY2020 was US$199.61 per tonne for hard coking coal (FY2018: US$194.59 per tonne) and US$130.18 per tonne for weak coking coal (FY2018: US$131.70 per tonne). Metallurgical coal prices reached a high in the middle of FY2019 amid supply constraints in Queensland on account of wet weather conditions. Prices eased from this peak due to weaker demand from India and uncertainties around Chinese imports. In the short term, supply should continue to improve with additional volumes expected from various regions. Within this broader view, the application of China’s coal supply reform, and the design and enforcement of safety, environmental and water stewardship requirements will be critical signposts to monitor. Over the longer term, emerging markets such as India are expected to support seaborne demand growth. High-quality metallurgical coals will continue to offer steelmakersvalue-in-use benefits.223 million. The expenditure was primarily related to:
124Scarborough gas field development
Energy coal
Our average realised sales price for FY2019 was US$77.90 per tonne (FY2018: US$86.94 per tonne). The Newcastle 6,000 kcal/kg price reached its peak in July 2018 and gradually declined over the course of FY2019. Weaker demand in North Asia, driven by increased nuclear and renewable power generation, and slower restocking post the winter season, weighed on price. Tighter import controls and softer demand from China also contributed to lower prices, particularly for the lower-heat 5,500 kcal/kg coals. In the long term, global energy coal demand is expected to grow only modestly, with Indian and South East Asian demand offsetting weakness in OECD countries amidst slowing demand from China.
Production
Metallurgical coal production for FY2019 was broadly flat at 42 Mt, or 75 Mt on a 100 per cent basis. At Queensland Coal, record annual production was achieved at BMC due to improved wash plant performance and increased yields at South Walker Creek and higher wash plant throughput at Poitrel. Despite record stripping, BMA’s production decreased slightly due to unfavourable weather impacts and lower wash plant yields during the year. Energy coal production decreased 6 per cent to 27 Mt, as record stripping performance was offset by higher strip ratios and lower wash plant yields at New South Wales Energy Coal, and due to adverse weather and its impacts on mine sequencing at Cerrejón.
For more information on individual asset production in FY2019, FY2018 and FY2017, refer to section 6.2.
Financial results
Coal revenue increased by US$0.2 billion to US$9.1 billion in FY2019.
Underlying EBITDA for Coal decreased by US$330 million to US$4.1 billion. Prices, net of price-linked costs, decreased Underlying EBITDA by US$115 million. Controllable cash costs decreased Underlying EBITDA by US$415 million driven by increased contractor stripping activity and rates coupled with higher planned maintenance activity at Queensland Coal, and unfavourable inventory movements and increased contractor mining and stripping activity at New South Wales Energy Coal. Higher volumes increased Underlying EBITDA by US$103 million supported by record production at South Walker Creek and Poitrel and prior year impacts from lower volumes at Broadmeadow (roof conditions) and Blackwater (geotechnical issues).
Queensland Coal unit costs increased by 2 per cent to US$69 per tonne, mainly due to wet weather impacts and higher strip ratios, diesel prices and contractor stripping costs, partially offset by favourable exchange rate movements. New South Wales Energy Coal unit costs increased by 10 per cent to US$50 per tonne, as a result of higher strip ratios and contractor stripping costs, and unfavourable inventory movements. This was partially offset by the impact of favourable exchange rate movements. The calculation of Queensland Coal’s and New South Wales Energy Coal’s unit costs is set out in the table below.
Queensland Coal unit costs | NSWEC unit costs | |||||||||||||||
US$M | FY2019 | FY2018 | FY2019 | FY2018 | ||||||||||||
Revenue | 7,679 | 7,388 | 1,421 | 1,501 | ||||||||||||
Underlying EBITDA | 3,722 | 3,647 | 353 | 569 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross costs | 3,957 | 3,741 | 1,068 | 932 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less: freight | 156 | 150 | – | – | ||||||||||||
Less: royalties | 805 | 740 | 114 | 111 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net costs | 2,996 | 2,851 | 954 | 821 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Sales (kt, equity share) | 43,145 | 41,899 | 19,070 | 18,022 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost per tonne (US$) (1) | 69.44 | 68.04 | 50.03 | 45.56 | ||||||||||||
|
|
|
|
|
|
|
|
North West Shelf: Karratha Gas Plant refurbishment projects and external corrosion compliance
|
Outlook
Metallurgical coal production is expected to be between 41Bass Strait: West Barracouta subsea tie back development and 45 Mt, or 73 and 79 Mt on a 100 per cent basis, in FY2020. With major wash plant shutdowns at Goonyella, Peak Downs and Caval Ridge planned in the September 2019 quarter, volumes are expected to be larger in the last three quarters of FY2020. Energy coal production is expected to be between approximately 24 to 26 Mt in FY2020.
Queensland Coal unit costs are expected to be between US$67 and US$74 per tonne (based on an average exchange rate of AUD/USD 0.70) in FY2020, as a result of increased wash plant maintenance and local inflationary pressures. In the medium term, we expect to lower our unit costs to between US$54 and US$61 per tonne (based on an average exchange rate of AUD/USD 0.70) reflecting higher volumes, lower strip ratios, optimised maintenance strategies and efficiency improvements from our transformation programs.
125Snapper A21a development project
New South Wales Energy Coal unit costs are expected to be between US$55 and US$61 per tonne (based on an average exchange rate of AUD/USD 0.70) in FY2020 reflecting increased stripping costs and lower volumes as we continue to progress through the monocline, increase development stripping and focus on higher-quality products. In the medium term, unit costs are expected to be between US$46 and US$50 per tonne (based on an average exchange rate of AUD/USD 0.70), reflecting ongoing progression through the monocline and our focus on higher-quality products.
The comparison for the year ended 30 June 2018 to 30 June 2017 has been omitted from this Form20-F, but can be found in our Form20-F for the fiscal year ended 30 June 2018, filed on 18 September 2018.
1.13.5 Other assets
Nickel West
Overview
Nickel West is a fully integrated mine-to-market nickel business. All nickel operations (mines, concentrators, a smelter and refinery) are located in Western Australia. The integrated business adds value throughout our nickel supply chain, with the majority of Nickel West’s current production sold as refined metal in the form of powder and briquettes.
Low-grade disseminated sulphide ore is mined from the large open-pit operation at Mt Keith. The ore is crushed and processed on-site to produce nickel concentrate. High-grade nickel sulphide ore is mined at the Cliffs, Leinster underground mines and Rocky’s Reward open-pit mine. The ore is processed through a concentrator and dryer at Leinster. Nickel West’s facility at Kambalda processes material purchased from third parties.
The three streams of nickel concentrate come together at the Kalgoorlie nickel smelter. The smelter uses a flash furnace to smelt concentrate to produce nickel matte. The Kwinana nickel refinery then refines granulated nickel matte from the Kalgoorlie smelter into premium-grade nickel powder and briquettes containing high-grade refined nickel. Nickel matte and metal are exported to overseas markets via the Port of Fremantle.
Key developments in FY2020
The Nickel West resource transition involving the construction of three new mines continued to progress during FY2020, with two of these mines now in full production.
The Mt Keith satellite mine (Yakabindie) entered production in December 2019 and is now the primary source of feed to the Mt Keith concentrator.
The Venus underground mine transitioned to full production in September 2019, with ore hoisted to the Leinster concentrator.
Leinster B11 (the first block cave to be developed by BHP, located beneath the Leinster underground mine) proceeded in line with expectations, with development ore hoisted to the Leinster concentrator.
Nickel West signed an agreement to acquire the Honeymoon Well development project on 19 June 2020 and the remaining 50 per cent interest in the Albion Downs North and Jericho exploration joint ventures, located approximately 50 kilometres from Mt Keith. Completion of the agreement is subject to a number of conditions, including government and third party approvals.
Looking ahead
We continue to focus on finalising Nickel West’s resource transition. Leinster B11 block cave is expected to commence the undercut phase during the first half of FY2021, providing increasing quantities of ore to the Leinster concentrator as the project progresses to full caving.
Nickel West also offers development options and potential enhancements to its resource position through exploration and processing innovation. These opportunities are being explored in parallel with incremental debottlenecking opportunities at the concentrators and the Kalgoorlie nickel smelter.
Nickel West is expected to complete construction of the nickel sulphate plant located at the Kwinana nickel refinery in the first half of FY2021, with first product due in the second half of FY2021. This stage (Stage 1) is expected to produce approximately 100 ktpa of nickel sulphate.
The Minerals Americas asset group includes projects, operated assets and non-operated joint ventures in Canada, Chile, Peru, the United States, Colombia and Brazil.
Operated assets
Copper
Our operated copper assets in the Americas, Escondida and Pampa Norte are open-cut mines. At these mines, overburden is removed after blasting, using truck and shovel. Ore is then extracted and further processed into high-quality copper concentrate or cathodes. Copper concentrate is obtained through a grinding and flotation process, while copper cathodes are produced through a leaching, solvent extraction and electrowinning process. Copper concentrate is transported to the port via pipeline, while cathodes are transported by either rail or road. From the ports, copper is exported to our customers around the world.
For the majority of the June 2020 quarter, our Chilean assets operated with a reduction in their operational workforces of approximately 35 per cent to incorporate measures in response to COVID-19. We have implemented a comprehensive plan for COVID-19, including various hygiene and health controls and a proactive testing regime for people before entering sites and boarding transportation.
We will continue to maintain operational measures that protect the health and wellbeing of our workforce while COVID-19 remains a major health risk, in line with Our Charter values. As a result, we anticipate continuing to operate our Chilean assets with a reduced workforce until these controls can be relaxed.
Escondida (Chile)
Overview
We own 57.5 per cent of the Escondida mine, a leading producer of copper concentrate and cathodes located in the Atacama Desert in northern Chile. Escondida’s two pits feed three concentrator plants, as well as two leaching operations (oxide and sulphide).
Key developments during FY2020
Escondida copper production in FY2020 increased by 4 per cent to 1,185 kilotonnes (kt), supported by record average concentrator throughput of 371 kilotonnes per day (ktpd), which offset expected grade decline, stoppages associated with the social unrest and COVID-19 impacts.
The Escondida Water Supply Expansion (EWSE) project was completed on time and budget in December 2019. Following the completion of the EWSE project, Escondida has eliminated water drawdown from aquifers for operational supply 10 years ahead of its FY2030 target.
The Centre of Integrated Operations (CIO) was inaugurated in July 2019 in BHP’s Santiago office and has since provided remote control services to the mine and process areas of Escondida and Spence. The CIO enables an operation that is safer and more productive by reducing people on-site and allowing them to work in a collaborative space.
Looking ahead
Production of between 940 and 1,030 kt is expected for FY2021, with a decline in copper grade of concentrator feed of approximately 4 per cent. Lower volumes reflect the need to continue to balance mine development and production requirements, with processing capacity at concentrators and leaching plants, as a result of a reduced operational workforce due to COVID-19. It is expected that production levels are likely to be impacted in FY2022 as a result of reduced operational workforce and material movement in FY2021. Guidance of an annual average of 1,200 kt of copper production over the next five years remains unchanged.
The BHP Operating System deployment and automated truck trial initiatives are expected to be completed in FY2021. In addition, Escondida will be undertaking studies on different material handling technologies to build an integrated suite of material handling projects that aims to combine innovative and disruptive technology and equipment solutions to increase mine productivity and improve costs competitiveness.
We expect these initiatives will allow Escondida to operate with a medium-term unit cost of less than US$1.10 per pound despite the continuation of grade decline and the increasing water costs.
Pampa Norte (Chile)
Overview
Pampa Norte consists of two wholly owned assets in the Atacama Desert in northern Chile – Spence and Cerro Colorado. Spence and Cerro Colorado produce high-quality copper cathodes through leaching, solvent extraction and electrowinning processes.
Key developments during FY2020
Pampa Norte copper production for FY2020 decreased by 2 per cent to 243 kt, mainly due to a 14 per cent decline in stacked ore grade.
The Spence Growth Option (SGO) to construct a 95 ktpd ore concentrator and the outsourcing of a 1,000 litre per second desalination plant is 93 per cent complete. As a result of measures put in place to reduce the spread of COVID-19, first production is now expected between December 2020 and March 2021. The commissioning of the desalination plant and capitalisation of the associated US$600 million lease (approximate) will now occur in the first half of FY2021. For more information about SGO, refer to section 6.5.
Looking ahead
Production for FY2021 is expected to be between 240 and 270 kt, reflecting the reduced operational workforce due to COVID-19, the start-up of the SGO project and expected grade decline of approximately 7 per cent.
SGO will produce first copper between December 2020 and March 2021 and plans are on track to redesign the approach to operations at Spence to optimally balance the requirements of the concentrate and cathodes processes. The first batch of the ultra-class truck fleet arrived at Spence in FY2020 and the remaining units are expected to arrive in the next two years. The BHP Operating System deployment at Spence started in January 2020 and is expected to continue during FY2021. Similar to Escondida, Spence will be undertaking studies on various material handling technologies, such as automated trucks, trolley assistance and in-pit crushers and conveyors to increase mine productivity and improve cost competitiveness.
On 1 July 2020, Cerro Colorado announced it had started a four-month process to adjust its mine plan to reduce throughput and costs to achieve improved cash returns and ensure viable mining operations for the remaining period of its current environmental licence, which expires at the end of CY2023.
Potash
Potash is a potassium-rich salt mainly used in fertiliser to improve the quality and yield of agricultural production. As an essential nutrient for plant growth, potash is a vital link in the global food supply chain. The demands on that supply chain are intensifying; there will be more people to feed in future, as well as rising calorific intake comprising more varied diets. The strains this will place on finite land supply mean sustainable increases in crop yields will be crucial and potash fertilisers will be critical in replenishing our soils.
Jansen Potash Project (Canada)
Overview
BHP holds exploration permits and mining leases covering approximately 9,600 square kilometres in the province of Saskatchewan, Canada. The Jansen Potash Project is located approximately 140 kilometres east of Saskatoon. We currently own 100 per cent of the Project.
Jansen’s large resource endowment provides the opportunity to develop it in stages, with anticipated initial capacity of between 4.3 and 4.5 Mtpa for Jansen Stage 1, with sequenced brownfield expansions of up to 12 Mtpa (4 Mtpa per stage).
Key developments during FY2020
Focus in FY2020 was on safely installing new work platforms, called Galloways, into the two 7.3-metre diameter service and production shafts to enable the installation of the final watertight composite concrete and steel liners from a depth of approximately 900 metres. At the end of FY2020, the current scope of work was 86 per cent complete.
The service shaft and production shaft are 1,005 metres and 975 metres deep, respectively. Jansen is intended to mine the Lower Patience Lake potash formation, which lies between 935 metres and 940 metres.
Looking ahead
Future work will include continuing to install the watertight composite concrete and steel final liners. In June 2020, final shaft lining work for the Jansen Potash Project, which was reduced to focus on one shaft as part of our COVID-19 response plan to reduce our on-site interprovincial workforce, was resumed in both shafts. BHP continues to assess the impacts of COVID-19 and the temporary reduction in construction activity. Timing for completion of the shafts continues to be under review.
We will continue the selection of a port option on the North American west coast from which Jansen’s potash would be exported. As with all decisions relating to the deployment of capital, the next steps of the Project will be assessed in line with our Capital Allocation Framework.
Non-operated minerals joint ventures
BHP holds interests in companies and joint ventures that we do not operate. Our non-operated minerals joint ventures (NOJVs) include Antamina (33.75 per cent ownership), Resolution Copper (45 per cent ownership), Cerrejón (33.33 per cent ownership) and Samarco (50 per cent ownership).
For more information on Samarco and Fundação Renova, refer to section 1.8.
We engage with our NOJV partners and operator companies through our NOJV team, which seeks to sustainably maximise returns through managing risk. While NOJVs have their own operating and management standards, we seek to enhance governance processes and influence operator companies to adopt international standards (within the limits of the relevant joint venture agreements).
Since the creation of the NOJV team, our focus has been to reinforce strong practices in governance, risk management and value optimisation.
During the COVID-19 pandemic, BHP supported some of the work by the operator at certain of our NOJVs to address risks associated with the pandemic, including temporary shutdowns and restart. Subject matter experts from NOJV partners (including BHP) provided input to relevant NOJV operators in relation to HSE, communications and community engagement issues during the pandemic.
Throughout FY2020, we continued positively influencing the NOJVs to align with international standards (including ISO 31000). This included analysing and challenging completeness of their risk profile and prioritising management of those risks.
The NOJV team also continued to support the NOJVs to improve their operating performance and cost competitiveness in a challenging environment, delivering significant capital optimisation across the Antamina, Cerrejón and Resolution joint ventures and strengthening the capital returns from each of the operations.
More information on the health, safety and environment performance at our NOJVs is available at bhp.com.
Copper
Antamina (Peru)
Overview
We own 33.75 per cent of Antamina, a large, low-cost copper and zinc mine in north central Peru. Antamina is a joint venture between BHP (33.75 per cent), Glencore (33.75 per cent), Teck Resources (22.5 per cent) and Mitsubishi Corporation (10 per cent), and is operated independently by Compañía Minera Antamina S.A. Antamina by-products include molybdenum and silver.
Key developments during FY2020
Antamina continues to focus its efforts on safety and health improvements. Copper production for FY2020 decreased by 15 per cent to 125 kt and zinc decreased by 10 per cent to 88 kt reflecting lower copper head grades and the impact of operating with a reduced workforce following a six-week shutdown during the June 2020 quarter in response to COVID-19.
During FY2020, Antamina continued with a strong focus on developing a robust technology roadmap to secure a more sustainable operation in the long term and to maintain cost competitiveness. Antamina has progressed studies to debottleneck the operation through mine mechanisation projects and the first phase is expected to be completed in the next three years.
Antamina announced its intent to submit its Modified Environmental Impact Assessment (MEIA) for its life extension project from CY2028 to CY2036, which includes extension of current approved tailings capacity, additional waste dumps and new pit design.
Antamina’s operations were suspended between 13 April and 26 May 2020 due to COVID-19 implications. Strict controls were applied during the demobilisation to safeguard the health of workers and local communities. At the end of FY2020, its operations were at a ramp-up stage, while complying with government COVID-19 requirements and applying sector international standards for health and safety.
During the COVID-19 emergency, Antamina intensified its contribution to local communities, helping the Regional Government to strengthen its capabilities to cope with the pandemic, providing medical equipment, launching initiatives for local farmers and entrepreneurs to support the local economy (through the program Reactiva Ancash), and distributing food aid.
Looking ahead
Copper production of between 120 and 140 kt, and zinc production of between 140 and 160 kt is expected for FY2021.
Antamina will remain focused on improving productivity and reducing unit cash costs by identifying new technologies and innovative solutions in line with the technology roadmap. In addition, Antamina will continue to embed a culture of diversity and inclusion in its strategy and monitor the MEIA process, seeking final approval in a reasonable timeframe and community engagement. Once the MEIA process is finalised, it is anticipated Antamina will update its reserve and resource statement to reflect an approved life extension to CY2036.
Resolution Copper (United States)
Overview
BHP holds a 45 per cent interest in the Resolution Copper project in the US state of Arizona, which is operated by Rio Tinto (55 per cent interest). Resolution Copper is one of the largest undeveloped copper projects in the world and has the potential to become the largest copper producer in North America. The Resolution Copper deposit lies more than 1,600 metres beneath the surface. Resolution Copper is working with regulators and the community to plan the development of the resource and obtain the necessary permits.
Key developments during FY2020
The shaft No. 9 sinking project involves deepening the historic shaft from its current depth at 1,460 metres below the surface to a final depth of 2,086 metres and linking it with the existing No. 10 shaft via development activities underground. This project is on track with respect to schedule and budget. In December 2019, it passed the one-mile (1,600 metre) mark with zero safety events; a major milestone for shaft sinking works in the United States.
The multi-year National Environmental Policy Act permitting process and community engagement are progressing positively. The US Forest Service released the Draft Environmental Impact Statement on 9 August 2019 and the comment period closed on 7 November 2019.
Resolution continued to move forward to identify the best development pathway for the project as the PFS-A study progressed. BHP’s share of project expenditure for FY2020 was US$103 million.
Looking ahead
We remain focused on supporting Resolution Copper on optimising the project and working with the operator, Rio Tinto, to develop the project in a manner that creates sustainable benefits for all stakeholders.
Coal
Cerrejón (Colombia)
Overview
We have a 33.33 per cent interest in Cerrejón, which owns, operates and markets (through an independent company) one of the world’s largest open-cut energy coal mines, located in the La Guajira province of Colombia. Cerrejón is an equal partnership joint venture with Anglo American and Glencore. Cerrejón has lease agreements for several mining areas and owns integrated rail and port facilities. Coal product is marketed through an independent company and is exported mainly to European, North American and South American customers; a minor proportion is exported to Asia.
Cerrejón makes an important contribution to the Colombian economy and to the region of La Guajira, employing local people, contributing through taxes and royalties and investing in social and environmental initiatives. Cerrejón is also working with local Indigenous groups to address concerns raised by them in relation to the impacts of Cerrejón’s operations on their communities.
Key developments during FY2020
FY2020 concluded with stable safety and operational performance at Cerrejón. Production declined by 23 per cent to 7 Mt in FY2020, due to a temporary shutdown and workforce reduction during the COVID-19 pandemic and focus on higher-quality products due to market adjustment. Cerrejón reduced its operational costs by 15 per cent, which allowed it to remain cash flow neutral in spite of the decline in coal price.
Cerrejón supported the local community of La Guajira during the COVID-19 emergency by providing drinking water, food parcels and medical equipment, including the donation of a laboratory to carry out COVID-19 molecular testing in the community. Cerrejón continues to engage with communities and ensure its stakeholders are informed about the protocols and controls they have in place to keep the workforce and communities safe.
Looking ahead
Cerrejón is focused on stability of throughput with current installed capacity, targeting higher calorific value coal and market diversification. Production is expected to be approximately 7 Mt in FY2021.
Iron Ore
Samarco (Brazil)
BHP Billiton Brasil Ltda (BHP Brasil) and Vale S.A. (Vale) each have a 50 per cent shareholding in Samarco Mineração S.A. (Samarco), the owner of the Samarco iron ore mine in Brazil.
Overview
As a result of the tragic failure of the Fundão dam at Samarco in November 2015, operations at Samarco remain suspended.
Samarco comprises a mine and three concentrators located in the state of Minas Gerais and four pellet plants and a port located in Anchieta in the state of Espírito Santo. Three 400-kilometre pipelines connect the mine site to the pelletising facilities.
All geotechnical structures within the Germano facilities, including tailings dams, are monitored 24 hours a day by Samarco, using more than 800 pieces of monitoring and safety equipment, including cameras, weather forecast stations, drones and accelerometers. In addition, sirens are installed along the river up to 80 kilometres downstream of Samarco. Geotechnical engineers and technicians monitor data from the instrumentation in an integrated monitoring control room, undertake daily field inspections and perform monthly third party audits.
Key developments during FY2020
Samarco operations restart consists of three main pillars: Alegria Sul pit tailings disposal system, LOC (corrective operational licence) issuance and filtration plant construction together with operations readiness activities. Alegria Sul pit tailings disposal system implementation was completed in September 2019. The LOC was issued on 25 October 2019. US$44 million for BHP Billiton Brasil Ltda’s share was approved to fund the restart of production at Samarco from a single concentrator in the second half of CY2020 or early CY2021 (BHP mid-view is January 2021). The funds will be used for the first phase of installation of tailings filtration infrastructure and operational readiness activities. Work related to the construction of the filtration plant and operations readiness activities have been slowed as a result of a reduced workforce as part of our COVID-19 response without a significant impact on the restart schedule.
BHP Brasil and Vale approved the filtration plant and operational readiness activities investment in November 2019 and dam decommissioning program investment for CY2020–2021 was approved in April 2020.
Following Vale’s Brumadinho dam tragedy on 25 January 2019, Brazil’s National Mining Agency (ANM) announced a requirement for all upstream construction tailings dams to be decommissioned by various dates, depending on their size. As required under the regulatory requirements, a dam decommissioning conceptual design was filed with the ANM in August 2019 and a basic design was filed with the ANM in December 2019. Field works started in April 2020 for the program, which includes the decommissioning of the Germano pit dam and Germano main dam (including the main dam and the Sela, Tulipa and Selinha saddle dykes) to guarantee the long-term stability of the structures, as well as final regrading of the impoundment area and, finally, environmental rehabilitation.
Construction of a new retaining dam, following the failure of the Fundão dam, is now complete and was the last structure to be built in the Fundão valley to ensure the remaining tailings would not be remobilised. Further work relating to the starting dyke for the future tailings and waste piles is now incorporated into the Germano decommissioning program. This work will be completed by Samarco following transfer of the program from Fundação Renova in September 2019.
Looking ahead
The Samarco business plan considers an operations restart with one concentrator and tailings filtering, which changes the tailings disposal from the use of tailings dams to disposal of the coarse portion of the tailings in dry stack piles and the disposal of slimes in a previously mined out pit. Samarco is focused on completing the filtration plant construction for dry stacking and completing operational readiness activities. All filters are now installed and the electrical and mechanical installation services are progressing.
As part of the dam decommissioning process, the Germano pit dam gallery plugging and the Germano main dam preliminary services have started. Samarco is looking ahead to complete Germano main dam toe ground replacement, initial regrading and initial excavation of the spillway in FY2021.
Conventional petroleum
BHP has owned oil and gas assets since the 1960s. We have a world-class portfolio of high-margin conventional assets located in the US Gulf of Mexico, Australia, Trinidad and Tobago, and Algeria, as well as appraisal and exploration options in Mexico, deepwater Trinidad and Tobago, western Gulf of Mexico, Eastern Canada and Barbados. Our conventional petroleum business includes exploration, appraisal, development and production activities. We produce crude oil and condensate, gas and natural gas liquids (NGLs) that are sold on the international spot market or delivered domestically under contracts with varying terms, depending on location of the asset.
Our conventional petroleum business responded effectively to COVID-19, despite global market impacts in the second half of FY2020 as petroleum demand reduced due to collapsing transport activity. As always, the safety of our people came first and additional measures were put in place across each of our assets and projects to protect the health and safety of our workforce. All assets remained in operation as a result of these measures and through partnering with our communities, suppliers and contractors. Despite supply chain delays, all projects currently in execution remain on track to meet first production guidance.
United States
Gulf of Mexico
Overview
Our US Gulf of Mexico assets are large, long-life and expandable.
We operate two fields in the US waters of the Gulf of Mexico – Shenzi (44 per cent interest) and Neptune (35 per cent interest).
We hold non-operating interests in two other fields – Atlantis (44 per cent interest) and Mad Dog (23.9 per cent interest).
All our producing fields are located between 155 and 210 kilometres offshore from the US state of Louisiana. We also own 25 per cent and 22 per cent, respectively, of the companies that own and operate the Caesar oil pipeline and the Cleopatra gas pipeline. These pipelines transport oil and gas from the Green Canyon area, where our US Gulf of Mexico fields are located, to connecting pipelines that transport product onshore.
Key developments during FY2020
The Mad Dog Phase 2 project, located in the Green Canyon area of the deepwater US Gulf of Mexico, successfully progressed through FY2020 and remains on track for first production in CY2022. Mad Dog Phase 2 is an extension of the existing Mad Dog field and is one of the largest discovered and undeveloped resources in the Gulf of Mexico. The project builds on the successful Mad Dog South appraisal well, which confirmed significant hydrocarbons in the southern portion of this field, and will include a new floating production facility with the capacity to produce up to 140,000 gross barrels of crude oil per day from up to 14 production wells.
The Atlantis Phase 3 project, also located in the Green Canyon area, remained on schedule and on budget, achieving first production in July 2020. This project includes a subsea tie back of eight new production wells accessing infill resource opportunities identified through seismic imaging. Atlantis Phase 3 is expected to increase production by an estimated 38,000 gross barrels of oil equivalent per day at its peak.
For more information on Mad Dog Phase 2 and Atlantis Phase 3, refer to section 6.5.
Australia
Overview
Bass Strait
We have produced oil and gas from Bass Strait (50 per cent interest) for more than 50 years. Our operations are located between 25 and 80 kilometres off the southeastern coast of Australia. The Gippsland Basin Joint Venture, operated by Esso Australia (a subsidiary of ExxonMobil), participated in the original discovery and development of hydrocarbons in the basin. The Kipper gas field under the Kipper Unit Joint Venture (32.5 per cent interest), also operated by Esso Australia, has brought online additional gas and liquids production that are processed via existing Gippsland Basin Joint Venture facilities.
The majority of our Bass Strait crude oil and condensate production is sold to local refineries in Australia. Gas is piped onshore to the Gippsland Joint Venture’s Longford processing facility, from where we sell our share of production to domestic retailers and end users. Liquefied petroleum gas (LPG) is dispatched via pipeline, road tanker or sea tanker. Ethane is dispatched via pipeline to a petrochemical plant in western Melbourne.
North West Shelf
We are a joint venture participant in the North West Shelf project (12.5–16.67 per cent interest), located approximately 125 kilometres northwest of Dampier in Western Australia. The North West Shelf project supplies gas to the Western Australian domestic market and liquefied natural gas (LNG) to buyers primarily in Japan, South Korea and China.
North West Shelf gas is piped from offshore fields to the onshore Karratha Gas Plant for processing. LPG, condensate and LNG are transported to market by ship, while domestic gas is transported by the Dampier-to-Bunbury and Pilbara Energy pipelines to buyers.
We are also a joint venture partner in four nearby oil fields – Cossack, Wanaea, Lambert and Hermes – produced through the Okha floating production, storage and off-take (FPSO) facility (16.67 per cent interest). All North West Shelf gas and oil joint ventures are operated by Woodside Energy Limited (Woodside).
Pyrenees
BHP operates the Pyrenees FPSO facility, located approximately 23 kilometres off Northwest Cape, Western Australia. The facility produces from six offshore fields. We had an effective 62.36 per cent interest in the fields as at 30 June 2020 based on inception-to-date production from two permits in which we have interests of 71.43 per cent and 40 per cent, respectively.
Macedon
We are the operator of Macedon (71.43 per cent interest), an offshore gas field located around 75 kilometres west of Onslow, Western Australia and an onshore gas processing facility located around 17 kilometres southwest of Onslow.
The operation consists of four subsea wells, with gas piped onshore to the processing plant. After processing, the gas is delivered into a pipeline and sold to the Western Australian domestic market.
Minerva
BHP operates the Minerva Joint Venture (90 per cent interest), a gas field located 11 kilometres south-southwest of Port Campbell in western Victoria. The operation consists of two subsea wells, with gas piped onshore to a processing plant. After processing, the gas is delivered into a pipeline and sold domestically.
On 3 September 2019, the Minerva gas field reached end-of-field life and production ceased at the Minerva gas plant. On 1 May 2018, BHP entered into an agreement for the sale of its interests in the onshore gas plant with subsidiaries of Cooper Energy and Mitsui E&P Australia Pty Ltd. The agreement provided for the transfer of the plant and associated land after the cessation of current operations processing gas from the Minerva gas field. The sale was completed on 5 December 2019.
Key developments during FY2020
Scarborough
In the March 2020 quarter, BHP and Woodside (operator) agreed to align participating interests across the WA-1-R and WA-2-R titles resulting in BHP holding a 26.5 per cent interest in each title. BHP also holds a 50 per cent non-operated interest in Jupiter and Thebe titles (WA-61-R and WA-63-R) in the greater Scarborough area located offshore northwest Australia. Scarborough offers material growth potential in Western Australia and opportunities to develop the Scarborough gas field are progressing.
BHP and Woodside also signed a non-binding Heads of Agreement to progress the Scarborough gas development during the December 2019 quarter. Among other terms, this includes agreement on a competitive tariff for gas processing through the Pluto LNG facility. In March 2020, Woodside announced deferral of the Scarborough gas development to the second half of CY2021. A final investment decision by BHP is expected to align with this revised timing.
Bass Strait West Barracouta
Two new West Barracouta wells were completed under budget in the June 2020 quarter. Construction on production infrastructure linking the West Barracouta development to the existing Barracouta field is currently underway. First gas is expected in CY2021.
North West Shelf Greater Western Flank
A final investment decision was reached for Greater Western Flank Phase 3 (GWF-3) and Lambert Deep in January 2020. This four well tie back will take advantage of existing infrastructure and first gas is expected in CY2023.
Other conventional petroleum assets
Overview
Trinidad and Tobago
BHP operates the Greater Angostura field (45 per cent interest in the production sharing contract), an integrated oil and gas development located offshore 40 kilometres east of Trinidad. The crude oil is sold on a spot basis to international markets, while the gas is sold domestically under term contracts.
Algeria
Our Algerian asset comprises an effective 29.2 per cent interest in the Rhourde Ouled Djemma (ROD) Integrated Development, which consists of the ROD, Sif Fatima – Sif Fatima North East (SF SFNE) and four satellite oil fields that pump oil back to a dedicated processing train. The oil is sold to international markets. ROD Integrated Development is jointly operated by Sonatrach and ENI.
Key developments during FY2020
Building on our existing position in the region, Ruby is an offshore shallow water oil and gas development in Trinidad and Tobago that will consist of five production wells tied back into existing operated processing facilities. The BHP Board approved its development on 8 August 2019 with an expected investment of US$283 million (BHP share). First production is targeted in CY2021. The project is estimated to have the capacity to produce up to 16,000 gross barrels of oil per day and 80 million gross standard cubic feet of natural gas per day.
For more information on Ruby, refer to section 6.5.
BHP’s Commercial function maximises commercial and social value and minimises costs across the end-to-end supply chain. The function is organised around our core value chain activities – Sales and Marketing; Maritime and Supply Chain Excellence; Procurement; and Warehousing Inventory and Logistics and Property – supported by short- and long-term market insights, strategy and planning activities, and close partnership with our assets.
Our Operating Model enables us to provide improved service levels to our assets and customers, by harnessing deep subject matter expertise, simpler processes and centralisation of standardised activities. By embracing our strategic end-to-end supply chain mandate and partnership with our suppliers and customers, the Commercial function also creates social value through supply chain integrity, community and sustainability focus.
Sales and Marketing
Sales and Marketing connects BHP’s resources to market through commercial expertise, optimised sales and operations planning, deep customer insights and proactive risk management. They present a single face to markets across multiple assets, with a view to realising maximum value for our products.
Maritime and Supply Chain Excellence
Maritime and Supply Chain Excellence manages BHP’s enterprise-wide transportation strategy and chartering ocean freight to meet BHP’s inbound and outbound transportation needs. They work to ensure consistent safety standards across BHP’s maritime supply chain and lead the industry toward a safer and more sustainable global ecosystem. The team focuses on supply chain excellence and sourcing marine freight coverage at the lowest available cost.
Procurement
Our global Procurement sub-functions purchase the goods and services used by our projects, assets and functions. Procurement works with our business to optimise equipment performance, reduce operating costs and improve working capital. They manage supply chain risk and develop sustainable relationships with global suppliers and local businesses in the communities in which we operate.
Warehousing Inventory and Logistics and Property
Warehousing Inventory and Logistics and Property design and operate our inbound supply chain networks for the delivery of spare parts, operating supplies and consumables. They design and operate our office workspaces globally.
Market Analysis and Economics
Our Market Analysis and Economics team develops BHP’s independent view on the outlook for commodity demand and commodity prices. The team works with our Procurement, Maritime, and Sales and Marketing sub-functions to help optimise end-to-end commercial value, and with the Finance and External Affairs functions to identify and respond to long-run strategic changes in our operating environment.
1.10 Summary of financial performance
We prepare our Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. We publish our Consolidated Financial Statements in US dollars. All Consolidated Income Statement, Consolidated Balance Sheet and Consolidated Cash Flow Statement information below has been derived from audited Financial Statements. For more information, refer to section 5.
Information in this section has been presented on a Continuing operations basis to exclude the contribution from Onshore US assets, unless otherwise noted. Details of the contribution of the Onshore US assets to the Group’s results are disclosed in note 28 ‘Discontinued operations’ in section 5.
Year ended 30 June US$M | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Consolidated Income Statement (section 5.1.1) | ||||||||||||||||||||
Revenue (1) | 42,931 | 44,288 | 43,129 | 35,740 | 28,567 | |||||||||||||||
Profit from operations | 14,421 | 16,113 | 15,996 | 12,554 | 2,804 | |||||||||||||||
Profit/(loss) after taxation from Continuing operations | 8,736 | 9,520 | 7,744 | 6,694 | (312 | ) | ||||||||||||||
Loss after taxation from Discontinued operations | – | (335 | ) | (2,921 | ) | (472 | ) | (5,895 | ) | |||||||||||
Profit/(loss) after taxation from Continuing and Discontinued operations attributable to BHP shareholders (Attributable profit/(loss)) (2) | 7,956 | 8,306 | 3,705 | 5,890 | (6,385 | ) | ||||||||||||||
Dividends per ordinary share – paid during the period (US cents) | 143.0 | 220.0 | 98.0 | 54.0 | 78.0 | |||||||||||||||
Dividends per ordinary share – determined in respect of the period (US cents) | 120.0 | 235.0 | 118.0 | 83.0 | 30.0 | |||||||||||||||
Basic earnings/(loss) per ordinary share (US cents) (2)(3) | 157.3 | 160.3 | 69.6 | 110.7 | (120.0 | ) | ||||||||||||||
Diluted earnings/(loss) per ordinary share (US cents) (2)(3) | 157.0 | 159.9 | 69.4 | 110.4 | (120.0 | ) | ||||||||||||||
Basic earnings/(loss) from Continuing operations per ordinary share (US cents) (3) | 157.3 | 166.9 | 125.0 | 119.8 | (10.2 | ) | ||||||||||||||
Diluted earnings/(loss) from Continuing operations per ordinary share (US cents) (3) | 157.0 | 166.5 | 124.6 | 119.5 | (10.2 | ) | ||||||||||||||
Number of ordinary shares (million) | ||||||||||||||||||||
– At period end | 5,058 | 5,058 | 5,324 | 5,324 | 5,324 | |||||||||||||||
– Weighted average | 5,057 | 5,180 | 5,323 | 5,323 | 5,322 | |||||||||||||||
– Diluted | 5,069 | 5,193 | 5,337 | 5,336 | 5,322 | |||||||||||||||
Consolidated Balance Sheet (section 5.1.3) (4) | ||||||||||||||||||||
Total assets | 104,783 | 100,861 | 111,993 | 117,006 | 118,953 | |||||||||||||||
Net assets | 52,246 | 51,824 | 60,670 | 62,726 | 60,071 | |||||||||||||||
Share capital (including share premium) | 2,686 | 2,686 | 2,761 | 2,761 | 2,761 | |||||||||||||||
Total equity attributable to BHP shareholders | 47,936 | 47,240 | 55,592 | 57,258 | 54,290 | |||||||||||||||
Consolidated Cash Flow Statement (section 5.1.4) | ||||||||||||||||||||
Net operating cash flows (5) | 15,706 | 17,871 | 18,461 | 16,804 | 10,625 | |||||||||||||||
Capital and exploration expenditure (6) | 7,640 | 7,566 | 6,753 | 5,220 | 7,711 | |||||||||||||||
Other financial information | ||||||||||||||||||||
Net debt (7)(8) | 12,044 | 9,446 | 11,605 | 17,201 | 25,590 | |||||||||||||||
Underlying attributable profit (7) | 9,060 | 9,124 | 8,933 | 6,732 | 1,215 | |||||||||||||||
Underlying EBITDA (7) | 22,071 | 23,158 | 23,183 | 19,350 | 11,720 | |||||||||||||||
Underlying EBIT (7) | 15,874 | 17,065 | 16,562 | 13,190 | 5,324 | |||||||||||||||
Underlying basic earnings per share (US cents) (7) | 179.2 | 176.1 | 167.8 | 126.5 | 22.8 | |||||||||||||||
Underlying Return on Capital Employed (per cent) (7) | 16.9 | 15.9 | 14.2 | 9.8 | 2.4 |
(1) | FY2018 and FY2017 have been restated to reflect the impact of the accounting standard, IFRS 15 Revenue from Contracts with Customers, which came into effect from 1 July 2018 with restatements applied to comparative periods in section 5. FY2016 has not been restated. For more information on revenue, refer to note 2 ‘Revenue’ in section 5. |
(2) | Includes Loss after taxation from Discontinued operations attributable to BHP shareholders. |
(3) | For more information on earnings per share, refer to note 7 ‘Earnings per share’ in section 5. |
(4) | The Consolidated Balance Sheet for FY2018 includes the assets and liabilities held for sale in relation to Onshore US as IFRS 5/AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ does not require the Consolidated Balance Sheet to be restated for comparative periods. |
(5) | Net operating cash flows are after dividends received, net interest paid and net taxation paid and includes Net operating cash flows from Discontinued operations. |
(6) | Capital and exploration expenditure is presented on a cash basis and represents purchases of property, plant and equipment plus exploration expenditure from the Consolidated Cash Flow Statement in section 5 and includes purchases of property, plant and equipment plus exploration expenditure from Discontinued operations. For more information, refer to note 28 ‘Discontinued operations’ in section 5. Purchase of property, plant and equipment includes capitalised deferred stripping of US$698 million for FY2020 (FY2019: US$1,022 million) and excludes capitalised interest. Exploration expenditure is capitalised in accordance with our accounting policies, as set out in note 11 ‘Property, plant and equipment’ in section 5. |
(7) | We use Alternative Performance Measures to reflect the underlying performance of the Group. Underlying attributable profit, Underlying basic earnings per share and Underlying Return on Capital Employed includes Continuing and Discontinued operations. Refer to section 6.1 for a reconciliation of Alternative Performance Measures to their respective IFRS measure. Refer to section 6.1.1 for the definition and method of calculation of Alternative Performance Measures. Refer to note 19 ‘Net debt’ in section 5 for the composition of Net debt. |
(8) | With effect from 1 July 2019, the net debt definition includes the fair value of derivative financial instruments used to hedge cash and borrowings. Prior period comparatives have been restated to reflect the change in net debt calculation. As a result of the adoption of IFRS 16 ‘Leases’ from 1 July 2019, the current period ‘Total Interest bearing liabilities’ includes all leases under the new definition. The Group elected to apply the modified retrospective transition approach, with no restatement of comparative periods. Refer to note 38 ‘New and amended accounting standards and interpretations’ in section 5. Vessel lease contracts that are priced with reference to a freight index, which did not meet the definition of a lease under IAS 17, now meet the definition of a lease under IFRS 16. These contracts are measured at each reporting date based on the prevailing freight index. The freight index has historically been volatile which creates significant short-term fluctuation in these liabilities. Continued volatility throughout FY2020 has meant that as of 1 January 2020, the Group excludes these liabilities from its net debt calculation. |
The following table expands on the Consolidated Income Statement in section 5.1.1, to provide more information on the revenue and expenses of the Group in FY2020.
Year ended 30 June | 2020 US$M | 2019 US$M | 2018 US$M | |||||||||
Continuing operations | ||||||||||||
Revenue (1) | 42,931 | 44,288 | 43,129 | |||||||||
|
|
|
|
|
| |||||||
Other income | 777 | 393 | 247 | |||||||||
|
|
|
|
|
| |||||||
Employee benefits expense | (4,055 | ) | (4,032 | ) | (3,990 | ) | ||||||
Changes in inventories of finished goods and work in progress | 326 | (496 | ) | 142 | ||||||||
Raw materials and consumables used | (5,509 | ) | (4,591 | ) | (4,389 | ) | ||||||
Freight and transportation | (1,981 | ) | (2,378 | ) | (2,294 | ) | ||||||
External services | (4,404 | ) | (4,745 | ) | (4,786 | ) | ||||||
Third party commodity purchases | (1,139 | ) | (1,069 | ) | (1,374 | ) | ||||||
Net foreign exchange gains/(losses) | 603 | 147 | 93 | |||||||||
Fair value of derivatives | (422 | ) | (8 | ) | (208 | ) | ||||||
Government royalties paid and payable | (2,362 | ) | (2,538 | ) | (2,168 | ) | ||||||
Exploration and evaluation expenditure incurred and expensed in the current period | (517 | ) | (516 | ) | (641 | ) | ||||||
Depreciation and amortisation expense | (6,112 | ) | (5,829 | ) | (6,288 | ) | ||||||
Impairment of assets | (494 | ) | (264 | ) | (333 | ) | ||||||
Lease costs | (675 | ) | (405 | ) | (421 | ) | ||||||
All other operating expenses | (2,034 | ) | (1,298 | ) | (870 | ) | ||||||
|
|
|
|
|
| |||||||
Expenses excluding net finance costs | (28,775 | ) | (28,022 | ) | (27,527 | ) | ||||||
|
|
|
|
|
| |||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (512 | ) | (546 | ) | 147 | |||||||
|
|
|
|
|
| |||||||
Profit from operations | 14,421 | 16,113 | 15,996 | |||||||||
|
|
|
|
|
| |||||||
Net finance costs | (911 | ) | (1,064 | ) | (1,245 | ) | ||||||
Total taxation expense | (4,774 | ) | (5,529 | ) | (7,007 | ) | ||||||
|
|
|
|
|
| |||||||
Profit after taxation from Continuing operations | 8,736 | 9,520 | 7,744 | |||||||||
|
|
|
|
|
| |||||||
Discontinued operations | ||||||||||||
Loss after taxation from Discontinued operations | – | (335 | ) | (2,921 | ) | |||||||
|
|
|
|
|
| |||||||
Profit after taxation from Continuing and Discontinued operations | 8,736 | 9,185 | 4,823 | |||||||||
|
|
|
|
|
| |||||||
Attributable to non-controlling interests | 780 | 879 | 1,118 | |||||||||
Attributable to BHP shareholders | 7,956 | 8,306 | 3,705 | |||||||||
|
|
|
|
|
|
(1) | Includes the sale of third party products. |
Profit after taxation attributable to BHP shareholders decreased from a profit of US$8.3 billion in FY2019 to a profit of US$8.0 billion in FY2020.
Revenue of US$42.9 billion decreased by US$1.4 billion, or 3 per cent, from FY2019. This decrease was primarily attributable to lower average realised prices for coal, petroleum and copper, and lower volumes due to natural field decline at Petroleum and lower grade at Escondida and Spence, combined with planned maintenance across a number of our assets. This was partially offset by higher average realised prices for iron ore, record production at WAIO, record average concentrator throughput at Escondida and improved operational stability. For information on our average realised prices and production of our commodities, refer to section 1.11.
Total expenses of US$28.8 billion increased by US$0.8 billion, or 3 per cent, from FY2019. The decrease in changes in inventories of finished goods and work in progress of US$822 million was primarily driven by FY2019 inventory drawdowns at Escondida in line with the Los Colorados Extension commissioning compared to planned rebuilds for operational stability following drawdowns in the prior year. Raw materials and consumables used increased by US$918 million driven by the cancellation of power contracts at Escondida and Spence as part of the shift towards 100 per cent renewable energy supply contracts. Freight and transportation decreased by US$397 million driven by the adoption of IFRS 16 where freight costs related to continuous voyage charters were brought onto the balance sheet as right-of-use assets and depreciated. Depreciation and amortisation expense increased by US$283 million driven by the adoption of IFRS 16 right-of-use assets partially offset by lower depreciation and amortisation at Petroleum in line with lower production volumes due to natural field decline. Impairment of assets increased by US$230 million driven by Cerro Colorado operations reflecting current mine plan. Other operating expenses increased by US$736 million driven by an increase in depletion of production stripping mainly at Escondida due to increased fine copper movement combined with closure provision adjustment for closed mines. Favourable movements in foreign exchange (FX) affected the majority of cost categories.
(Loss)/profit from equity accounted investments, related impairments and expenses of US$(512) million in FY2020 decreased by US$34 million from FY2019. The decrease reflects lower profits from Antamina and Cerrejón which was primarily due to lower prices and COVID-19-related outages offset by favourable FX movements on the Samarco dam failure provision.
Net finance costs of US$911 million decreased by US$153 million, or 14 per cent, from FY2019 mainly due to lower effective interest rates and lower average debt balance following the repayment on maturity of Group debt. For more information on net finance costs, refer to section 1.10.3 and note 21 ‘Net finance costs’ in section 5.
Total taxation expense of US$4,774 million reduced by US$755 million from FY2019. The decrease was primarily due to lower profits combined with FY2019 impacted by provisions for tax disputes and a higher net reduction in US tax credits related to Chilean taxes. For more information on income tax expense, refer to note 6 ‘Income tax expense’ in section 5.
Principal factors that affect Revenue, Profit from operations and Underlying EBITDA
The following table describes the impact of the principal factors that affected Revenue, Profit from operations and Underlying EBITDA for FY2020 and relates them back to our Consolidated Income Statement. For information on the method of calculation of the principal factors that affect Revenue, Profit from operations and Underlying EBITDA, refer to section 6.1.2.
With effect from 1 July 2019, the Change in volumes variance calculation has been changed to reference prior year price less variable unit cost instead of prior year Underlying EBITDA margin. This change to the Change in volumes variance calculation is offset in the Operating cash costs variance calculation. Management believes this amendment is useful because the entire impact of a Change in volumes will be reflected in one category instead of separately reporting the related fixed cost dilution impacts in the Operating cash costs category. Prior periods have not been restated for this change.
Revenue US$M | Total expenses, Other income and (Loss)/profit from equity accounted investments US$M | Profit from operations US$M | Depreciation, amortisation and impairments and Exceptional Items US$M | Underlying EBITDA US$M | ||||||||||||||||
Year ended 30 June 2019 | ||||||||||||||||||||
Revenue | 44,288 | |||||||||||||||||||
Other income | 393 | |||||||||||||||||||
Expenses excluding net finance costs | (28,022 | ) | ||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (546 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Total other income, expenses excluding net finance costs and (Loss)/profit from equity accounted investments, related impairments and expenses | (28,175 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Profit from operations | 16,113 | |||||||||||||||||||
Depreciation, amortisation and impairments (1) | 6,093 | |||||||||||||||||||
Exceptional items | 952 | |||||||||||||||||||
|
| |||||||||||||||||||
Underlying EBITDA | 23,158 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in sales prices | (1,038 | ) | (54 | ) | (1,092 | ) | – | (1,092 | ) | |||||||||||
Price-linked costs | – | (12 | ) | (12 | ) | – | (12 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net price impact | (1,038 | ) | (66 | ) | (1,104 | ) | – | (1,104 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in volumes | (378 | ) | (34 | ) | (412 | ) | – | (412 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating cash costs | – | 223 | 223 | – | 223 | |||||||||||||||
Exploration and business development | – | (115 | ) | (115 | ) | – | (115 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in controllable cash costs (2) | – | 108 | 108 | – | 108 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Exchange rates | (66 | ) | 1,020 | 954 | – | 954 | ||||||||||||||
Inflation on costs | – | (298 | ) | (298 | ) | – | (298 | ) | ||||||||||||
Fuel and energy | – | 77 | 77 | – | 77 | |||||||||||||||
Non-cash | – | (460 | ) | (460 | ) | – | (460 | ) | ||||||||||||
One-off items | 189 | 95 | 284 | – | 284 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in other costs | 123 | 434 | 557 | – | 557 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Asset sales | – | 1 | 1 | – | 1 | |||||||||||||||
Ceased and sold operations | (90 | ) | (328 | ) | (418 | ) | – | (418 | ) | |||||||||||
Other | 26 | 155 | 181 | – | 181 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Depreciation, amortisation and impairments | – | (104 | ) | (104 | ) | 104 | – | |||||||||||||
Exceptional items | – | (501 | ) | (501 | ) | 501 | – | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Year ended 30 June 2020 | ||||||||||||||||||||
Revenue | 42,931 | |||||||||||||||||||
Other income | 777 | |||||||||||||||||||
Expenses excluding net finance costs | (28,775 | ) | ||||||||||||||||||
(Loss)/profit from equity accounted investments, related impairments and expenses | (512 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Total other income, expenses excluding net finance costs and (Loss)/profit from equity accounted investments, related impairments and expenses | (28,510 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Profit from operations | 14,421 | |||||||||||||||||||
Depreciation, amortisation and impairments (1) | 6,606 | |||||||||||||||||||
Exceptional item included in Depreciation, amortisation and impairments | (409 | ) | ||||||||||||||||||
Exceptional items | 1,453 | |||||||||||||||||||
|
| |||||||||||||||||||
Underlying EBITDA | 22,071 |
(1) | Depreciation and impairments that we classify as exceptional items are excluded from depreciation, amortisation and impairments. Depreciation, amortisation and impairments includes non-exceptional impairments of US$85 million (FY2019: US$264 million). |
(2) | Collectively, we refer to the change in operating cash costs and change in exploration and business development as change in controllable cash costs. Operating cash costs by definition do not include non-cash costs. The change in operating cash costs also excludes the impact of exchange rates and inflation, changes in fuel and energy costs, changes in exploration and business development costs and one-off items. These items are excluded so as to provide a consistent measurement of changes in costs across all segments, based on the factors that are within the control and responsibility of the segment. Change in controllable cash costs and change in operating cash costs are not measures that are recognised by IFRS. They may differ from similarly titled measures reported by other companies. |
Lower average realised prices decreased Underlying EBITDA by US$1.1 billion in FY2020 reflecting lower average realised prices for metallurgical and energy coal, petroleum and copper, partially offset by higher average realised prices for iron ore and nickel.
Change in volumes decreased Underlying EBITDA by US$412 million primarily as a result of record production at WAIO, Caval Ridge and Poitrel, record average concentrator throughput at Escondida and improved operational stability following the prior period impacts of unplanned outages. These favourable movements were more than offset by the impacts from planned maintenance across a number of our assets (Queensland Coal, WAIO), unfavourable weather (Queensland Coal, WAIO, NSWEC), a change in product strategy at NSWEC to focus on higher-quality products, lower grade at Escondida and Spence and Petroleum natural field decline across the portfolio.
Lower costs reflect strong cost performance driven by consumption efficiencies at Escondida, favourable inventory movements across our assets in line with mine plans and planned rebuilds for operational stability following drawdowns in the prior year, supported by further reductions in overheads, partially offset by increased planned maintenance activities at a number of assets during the year. This was offset by higher business development costs in Mexico following the successful exploration program at Trion.
A stronger US dollar against the Australian dollar and Chilean peso increased Underlying EBITDA by US$954 million during the period.
Non-cash reflects higher deferred stripping depletion and lower overburden movement in line with mine plan at Escondida, decreasing Underlying EBITDA by US$460 million.
Higher ceased and sold operations reflects higher closure and rehabilitation provision adjustments for closed mines of US$362 million, sale of our interests in the Bruce and Keith oil and gas fields in the prior period, and cessation of operations at Minerva in FY2020.
Other includes the favourable impacts from the first year of application of IFRS 16 Leases offset by lower profits from our equity accounted investments (Antamina and Cerrejón) due to lower prices and COVID-19 related outages.
Cash flow
The following table provides a summary of the Consolidated Cash Flow Statement contained in section 5.1.4 to show the key sources and uses of cash during the periods presented:
Year ended 30 June | 2020 US$M | 2019 US$M | 2018 US$M | |||||||||
Cash generated from operations | 22,268 | 23,428 | 22,949 | |||||||||
Dividends received | 137 | 516 | 709 | |||||||||
Net interest paid | (840 | ) | (903 | ) | (887 | ) | ||||||
Proceeds/(settlements) of cash management related instruments | 85 | 296 | (292 | ) | ||||||||
Net taxation paid | (5,944 | ) | (5,940 | ) | (4,918 | ) | ||||||
|
|
|
|
|
| |||||||
Net operating cash flows from Continuing operations | 15,706 | 17,397 | 17,561 | |||||||||
|
|
|
|
|
| |||||||
Net operating cash flows from Discontinued operations | – | 474 | 900 | |||||||||
|
|
|
|
|
| |||||||
Net operating cash flows | 15,706 | 17,871 | 18,461 | |||||||||
|
|
|
|
|
| |||||||
Purchases of property, plant and equipment | (6,900 | ) | (6,250 | ) | (4,979 | ) | ||||||
Exploration expenditure | (740 | ) | (873 | ) | (874 | ) | ||||||
|
|
|
|
|
| |||||||
Subtotal: Capital and exploration expenditure | (7,640 | ) | (7,123 | ) | (5,853 | ) | ||||||
|
|
|
|
|
| |||||||
Exploration expenditure expensed and included in operating cash flows | 517 | 516 | 641 | |||||||||
Net investment and funding of equity accounted investments | (618 | ) | (630 | ) | 204 | |||||||
Other investing activities | 125 | (140 | ) | (52 | ) | |||||||
|
|
|
|
|
| |||||||
Net investing cash flows from Continuing operations | (7,616 | ) | (7,377 | ) | (5,060 | ) | ||||||
|
|
|
|
|
| |||||||
Net investing cash flows from Discontinued operations | – | (443 | ) | (861 | ) | |||||||
Proceeds from divestment of Onshore US, net of its cash | – | 10,427 | – | |||||||||
|
|
|
|
|
| |||||||
Net investing cash flows | (7,616 | ) | 2,607 | (5,921 | ) | |||||||
|
|
|
|
|
| |||||||
Net repayment of interest bearing liabilities | (1,690 | ) | (2,514 | ) | (3,878 | ) | ||||||
Share buy-back – BHP Group Limited | – | (5,220 | ) | – | ||||||||
Dividends paid | (6,876 | ) | (11,395 | ) | (5,220 | ) | ||||||
Dividends paid to non-controlling interests | (1,043 | ) | (1,198 | ) | (1,582 | ) | ||||||
Other financing activities | (143 | ) | (188 | ) | (171 | ) | ||||||
|
|
|
|
|
| |||||||
Net financing cash flows from Continuing operations | (9,752 | ) | (20,515 | ) | (10,851 | ) | ||||||
|
|
|
|
|
| |||||||
Net financing cash flows from Discontinued operations | – | (13 | ) | (40 | ) | |||||||
|
|
|
|
|
| |||||||
Net financing cash flows | (9,752 | ) | (20,528 | ) | (10,891 | ) | ||||||
|
|
|
|
|
| |||||||
Net (decrease)/increase in cash and cash equivalents | (1,662 | ) | (10,477 | ) | 1,649 | |||||||
|
|
|
|
|
| |||||||
Net (decrease)/increase in cash and cash equivalents from Continuing operations | (1,662 | ) | (10,495 | ) | 1,650 | |||||||
|
|
|
|
|
| |||||||
Net increase/(decrease) in cash and cash equivalents from Discontinued operations | – | 18 | (1 | ) | ||||||||
|
|
|
|
|
|
Net operating cash inflows of US$15.7 billion decreased by US$2.2 billion. This reflects weaker commodity prices in coal and petroleum and field and grade declines, partially offset by stronger iron ore prices and strong underlying performance across the portfolio.
Net investing cash outflows of US$7.6 billion increased by US$10.2 billion. This reflects the proceeds from the divestment of Onshore US, net of its cash in FY2019, partially offset by continued investment in high-return latent capacity projects and investment in South Flank, Spence Growth Option and Mad Dog 2 in FY2020.
For more information and a breakdown of capital and exploration expenditure on a commodity basis, refer to section 1.11.
Net financing cash outflows of US$9.8 billion decreased by US$10.8 billion. This reflects the off-market buy-back of BHP Group Limited shares of US$5.2 billion in December 2018, the special dividend of US$5.2 billion paid in January 2019 from the Onshore US asset sale (net proceeds), lower repayments of interest bearing liabilities of US$0.8 billion and lower dividends to non-controlling interests of US$0.2 billion, partially offset by higher dividends to BHP shareholders in FY2020 of US$0.7 billion.
For more information, refer to section 1.10.3 and note 19 ‘Net debt’ in section 5.
Underlying Return on Capital Employed (ROCE) of 16.9 per cent increased by 1.0 per cent (FY2019: 15.9 per cent) reflecting the impact of the sale of Onshore US in FY2018. The Return on Capital Employed in FY2020 includes US$12.5 billion of Assets under Construction (average of ending balances for FY2020 of US$13.8 billion and FY2019 of US$11.1 billion) including major projects in Potash, Spence Growth Option, South Flank and Mad Dog which are not yet producing their planned contribution to earnings.
For more information on Assets under Construction refer to note 11 ‘Property, plant and equipment’ in section 5.
Comparisons for the year ended 30 June 2019 to 30 June 2018 in connection with Financial results, Principal factors that affect Revenue, Profit from operations and Underlying EBITDA and Cash flow have been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
1.10.3 Debt and sources of liquidity
Our policies on debt and liquidity management have the following objectives:
a strong balance sheet through the cycle
diversification of funding sources
maintain borrowings and excess cash predominantly in US dollars
Interest bearing liabilities, net debt and gearing
At the end of FY2020, Interest bearing liabilities were US$27.0 billion (FY2019: US$24.8 billion) and Cash and cash equivalents were US$13.4 billion (FY2019: US$15.6 billion). This resulted in net debt (1) of US$12.0 billion, which represented an increase of US$2.6 billion compared with the net debt position at 30 June 2019 primarily due to the application of IFRS 16. Gearing, which is the ratio of net debt to net debt plus net assets, was 18.7 per cent at 30 June 2020, compared with 15.4 per cent at 30 June 2019.
During FY2020, the Group decided not to refinance US$0.9 billion of Group-level debt (consisting of an A$1.0 billion bond and the remaining amount of the €600 million bond that matured). This extended BHP’s average debt maturity profile and enhanced BHP’s capital structure.
At the subsidiary level, Escondida refinanced US$0.5 billion of maturing long-term debt.
Funding sources
No new Group-level debt was issued in FY2020 and debt that matured during the year was not refinanced.
Our Group-level borrowing facilities are not subject to financial covenants. Certain specific financing facilities in relation to specific assets are the subject of financial covenants that vary from facility to facility, but this would be considered normal for such facilities. In addition to the Group’s uncommitted debt issuance programs, we hold the following committed standby facilities:
Facility available 2020 US$M | Drawn 2020 US$M | Undrawn 2020 US$M | Facility available 2019 US$M | Drawn 2019 US$M | Undrawn 2019 US$M | |||||||||||||||||||
Revolving credit facility (2) | 5,500 | – | 5,500 | 6,000 | – | 6,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total financing facilities | 5,500 | – | 5,500 | 6,000 | – | 6,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | We use Alternative Performance Measures to reflect the underlying financial performance of BHP, refer to section 6.1. For the definition and method of calculation of alternative performance measures, refer to section 6.1.1. For the composition of net debt, refer to note 19 ‘Net debt’ in section 5. |
(2) | BHP’s revolving credit facility was refinanced on 10 October 2019 and is due to mature on 10 October 2024. The committed US$5.5 billion revolving credit facility operates as a back-stop to the Group’s uncommitted commercial paper program. The combined amount drawn under the facility or as commercial paper will not exceed US$5.5 billion. As at 30 June 2020, US$ nil commercial paper was drawn (FY2019: US$ nil), therefore US$5.5 billion of committed facility was available to use (FY2019: US$6.0 billion). A commitment fee is payable on the undrawn balance and an interest rate comprising an interbank rate plus a margin applies to any drawn balance. The agreed margins are typical for a credit facility extended to a company with BHP’s credit rating. |
For more information on the maturity profile of our debt obligations and details of our standby and support agreements, refer to note 22 ‘Financial risk management’ in section 5.
In BHP’s opinion, working capital is sufficient for its present requirements. BHP’s credit ratings are currently A2/P-1 outlook stable (Moody’s – long-term/short-term) and A/A-1 outlook stable (Standard & Poor’s – long-term/short-term). A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by an assigning rating agency. Any rating should be evaluated independently of any other information.
The following table expands on the net debt, to provide more information on the cash and non-cash movements in FY2020.
Year ended 30 June | 2020 US$M | 2019 US$M | ||||||||||||||
Net debt at the beginning of the financial year | (9,446 | ) | (11,605 | ) | ||||||||||||
|
|
|
| |||||||||||||
Net operating cash flows | 15,706 | 17,871 | ||||||||||||||
Net investing cash flows | (7,616 | ) | 2,607 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Free cash flow | 8,090 | 20,478 | ||||||||||||||
|
|
|
| |||||||||||||
Carrying value of interest bearing liability repayments | 1,533 | 2,351 | ||||||||||||||
Net settlements of interest bearing liabilities and debt related instruments | (1,984 | ) | (2,781 | ) | ||||||||||||
Share buy-back – BHP Group Limited | – | (5,220 | ) | |||||||||||||
Dividends paid | (6,876 | ) | (11,395 | ) | ||||||||||||
Dividends paid to non-controlling interests | (1,043 | ) | (1,198 | ) | ||||||||||||
Other financing activities (1) | (143 | ) | (201 | ) | ||||||||||||
|
|
|
| |||||||||||||
Other cash movements | (8,513 | ) | (18,444 | ) | ||||||||||||
|
|
|
| |||||||||||||
Fair value adjustment on debt (including debt related instruments) (2) | 88 | 44 | ||||||||||||||
Foreign exchange impacts on cash (including cash management related instruments) | (26 | ) | 94 | |||||||||||||
IFRS 16 leases taken on at 1 July | (1,778 | ) | – | |||||||||||||
Lease additions | (363 | ) | – | |||||||||||||
Others | (96 | ) | (13 | ) | ||||||||||||
|
|
|
| |||||||||||||
Non-cash movements | (2,175 | ) | 125 | |||||||||||||
|
|
|
| |||||||||||||
Net debt at the end of the financial year (3) | (12,044 | ) | (9,446 | ) | ||||||||||||
|
|
|
|
(1) | Other financing activities mainly comprises purchases of shares by Employee Share Option Plan trusts of US$143 million (FY2019: US$188 million). |
(2) | The Group hedges against the volatility in both exchange and interest rates on debt, and also exchange on cash, with associated movements in derivatives reported in Other financial assets/liabilities as effective hedged derivatives (cross currency and interest rate swaps), in accordance with accounting standards. For more information, refer to note 22 ‘Financial risk management’ in section 5. |
(3) | Includes US$1,633 million of additional leases due to the implementation of IFRS 16. |
The comparison for the year ended 30 June 2019 to 30 June 2018 has been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
1.10.4 Alternative Performance Measures
We use various Alternative Performance Measures (APMs) to reflect our underlying performance.
These APMs are not defined or specified under the requirements of IFRS, but are derived from the Group’s Consolidated Financial Statements prepared in accordance with IFRS. The APMs are consistent with how management reviews financial performance of the Group with the Board and the investment community.
Section 6.1, which is incorporated into the Strategic Report by reference, includes our APMs and Section 6.1.1 outlines why we believe the APMs are useful and the calculation methodology. We believe these APMs provide useful information, but they should not be considered as an indication of, or as a substitute for, statutory measures as an indicator of actual operating performance (such as profit or net operating cash flow) or any other measure of financial performance or position presented in accordance with IFRS, or as a measure of a company’s profitability, liquidity or financial position.
Management believes the following financial information presented by commodity provides a meaningful indication of the underlying financial performance of the assets, including equity accounted investments, of each reportable segment. Information relating to assets that are accounted for as equity accounted investments is shown to reflect BHP’s share, unless otherwise noted, to provide insight into the drivers of these assets.
For the purposes of this financial information, segments are reported on a statutory basis in accordance with IFRS 8 ‘Operating Segments’. The tables for each commodity include an ‘adjustment for equity accounted investments’ to reconcile the equity accounted results to the statutory segment results.
For a reconciliation of alternative performance measures to their respective IFRS measure and an explanation as to the use of Underlying EBITDA and Underlying EBIT in assessing our performance, refer to section 6.1. For the definition and method of calculation of alternative performance measures, refer to section 6.1.1. For more information as to the statutory determination of our reportable segments, refer to note 1 ‘Segment reporting’ in section 5.
Unit costs (1) is one of the financial measures used to monitor the performance of our individual assets and is included in the analysis of each reportable segment.
(1) | For more information on alternative performance measures, refer to section 6.1. |
Detailed below is financial information for our Petroleum assets excluding Onshore US for FY2019 and an analysis of Petroleum’s financial performance for FY2020 compared with FY2019.
Year ended 30 June 2020 US$M | Revenue (4) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (6) | Exploration to profit (7) | ||||||||||||||||||||||||
Australia Production Unit (1) | 361 | 253 | 197 | 56 | 289 | 6 | ||||||||||||||||||||||||||
Bass Strait | 1,102 | 761 | 449 | 312 | 1,796 | 87 | ||||||||||||||||||||||||||
North West Shelf | 1,076 | 731 | 260 | 471 | 1,261 | 130 | ||||||||||||||||||||||||||
Atlantis | 561 | 431 | 175 | 256 | 1,061 | 197 | ||||||||||||||||||||||||||
Shenzi | 277 | 174 | 139 | 35 | 550 | 45 | ||||||||||||||||||||||||||
Mad Dog | 216 | 164 | 64 | 100 | 1,551 | 375 | ||||||||||||||||||||||||||
Trinidad/Tobago | 191 | 92 | 46 | 46 | 323 | 46 | ||||||||||||||||||||||||||
Algeria | 159 | 111 | 12 | 99 | 60 | 16 | ||||||||||||||||||||||||||
Exploration | – | (394 | ) | 41 | (435 | ) | 1,227 | (1 | ) | |||||||||||||||||||||||
Other (2) | 104 | (111 | ) | 77 | (188 | ) | 129 | 8 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum from Group production | 4,047 | 2,212 | 1,460 | 752 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Third party products | 39 | (2 | ) | – | (2 | ) | – | – | – | – | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum | 4,086 | 2,210 | 1,460 | 750 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3) | (16 | ) | (3 | ) | (3 | ) | – | – | – | – | – | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum statutory result | 4,070 | 2,207 | 1,457 | 750 | 8,247 | 909 | 564 | 394 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2019 Restated US$M | Revenue (4) | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross (6) | Exploration to profit (7) | ||||||||||||||||||||||||
Australia Production Unit (1) | 507 | 332 | 192 | 140 | 513 | 13 | ||||||||||||||||||||||||||
Bass Strait | 1,237 | 915 | 427 | 488 | 2,217 | 32 | ||||||||||||||||||||||||||
North West Shelf | 1,657 | 1,220 | 298 | 922 | 1,371 | 106 | ||||||||||||||||||||||||||
Atlantis | 979 | 824 | 261 | 563 | 1,060 | 31 | ||||||||||||||||||||||||||
Shenzi | 540 | 437 | 151 | 286 | 658 | 30 | ||||||||||||||||||||||||||
Mad Dog | 319 | 268 | 59 | 209 | 1,232 | 362 | ||||||||||||||||||||||||||
Trinidad/Tobago | 287 | 181 | 56 | 125 | 302 | 23 | ||||||||||||||||||||||||||
Algeria | 258 | 201 | 26 | 175 | 49 | 7 | ||||||||||||||||||||||||||
Exploration | – | (388 | ) | 58 | (446 | ) | 1,039 | – | ||||||||||||||||||||||||
Other (2) | 153 | 73 | 55 | 18 | (109 | ) | 41 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum from Group production | 5,937 | 4,063 | 1,583 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Third party products | 10 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum | 5,947 | 4,063 | 1,583 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3) | (17 | ) | (2 | ) | (2 | ) | – | – | – | – | – | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Petroleum statutory result | 5,930 | 4,061 | 1,581 | 2,480 | 8,332 | 645 | 685 | 409 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Australia Production Unit includes Macedon, Pyrenees and Minerva. |
(2) | Predominantly divisional activities, business development, UK (divested in November 2018), Neptune and Genesis. Also includes the Caesar oil pipeline and the Cleopatra gas pipeline, which are equity accounted investments. The financial information for the Caesar oil pipeline and the Cleopatra gas pipeline presented above, with the exception of net operating assets, reflects BHP’s share. |
(3) | Total Petroleum statutory result revenue excludes US$16 million (2019: US$17 million) revenue related to the Caesar oil pipeline and the Cleopatra gas pipeline. Total Petroleum statutory result Underlying EBITDA includes US$3 million (2019: US$2 million) D&A related to the Caesar oil pipeline and the Cleopatra gas pipeline. |
(4) | Total Petroleum statutory result revenue includes: crude oil US$2,033 million (2019: US$3,171 million), natural gas US$980 million (2019: US$1,259 million), LNG US$774 million (2019: US$1,179 million), NGL US$198 million (2019: US$263 million) and other US$85 million (2019: US$58 million) which includes third party products. |
(5) | Refer to section 6.1 for a reconciliation of Net operating assets to Net assets and section 6.1.1 for the definition and method of calculation of Net operating assets. |
(6) | Includes US$170 million of capitalised exploration (2019: US$297 million). |
(7) | Includes US$ nil of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2019: US$21 million). |
Key drivers of conventional petroleum’s financial results
Price overview
Trends in each of the major markets are outlined below.
Crude oil
Our average realised sales price for crude oil was US$49.53 per barrel (FY2019: US$66.59 per barrel). Crude oil prices dropped significantly in the second half of FY2020 due to a brief OPEC and its non-member allies’ (‘OPEC+’) price war in March 2020 and COVID-19, with Brent falling below US$20/bbl in April 2020 at the height of the global lockdowns and peak demand destruction. The prices have partially recovered since then mainly due to swift output cuts from OPEC+ and a partial recovery in mobility. Very large storage builds flipped to draws in late May 2020, which allowed benchmark prices to move up to approximately US$40/bbl. Demand is expected to recover to pre-COVID-19 levels no earlier than the end of CY2021. In our longer-term outlook, we believe oil will be attractive, even under a plausible low case, for a considerable time to come.
Liquefied natural gas
Our average realised sales price for LNG was US$7.26 per Mcf (FY2019: US$9.43 per Mcf). The Japan-Korea Marker (JKM) price for LNG performed poorly in FY2020, reflecting a deepening oversupply situation. JKM hit an all-time low in April 2020 as a slowdown in Asian demand growth due to warm weather and COVID-19 and large increments of new supply coming online weighed on the market. Longer term, the commodity offers a combination of systematic base decline and an attractive demand trajectory. However, gas resource is abundant and liquefaction infrastructure comes with large upfront costs and extended pay backs. North American exports are expected to provide the marginal supply across multiple longer-term scenarios for the LNG industry, with new supply likely to be required to balance the market in the middle of this decade, or slightly later. Within global gas, LNG is expected to gain share. Against this backdrop, LNG assets advantaged by their proximity to existing infrastructure or customers, or both, will be attractive.
Production
Total Petroleum production for FY2020 decreased by 10 per cent to 109 MMboe.
Crude oil, condensate and natural gas liquids production decreased by 11 per cent to 49 MMboe due to the impacts of Tropical Storm Barry in the Gulf of Mexico, Tropical Cyclone Damien at our North West Shelf operations, maintenance at Atlantis and natural field decline across the portfolio. Weaker market conditions, including impacts from COVID-19, also contributed to lower volumes in the June 2020 quarter. This decline was partially offset by higher uptime at Pyrenees following the 70-day dry dock maintenance program during the prior year.
Natural gas production decreased by 9 per cent to 360 bcf, reflecting a decrease in both production and tax barrels (in accordance with the terms of our Production Sharing Contract) due to weaker market conditions in Trinidad and Tobago, impacts of maintenance and Tropical Cyclone Damien at North West Shelf and natural field decline across the portfolio.
For more information on individual asset production in FY2020, FY2019 and FY2018, refer to section 6.3.
Financial results
Petroleum revenue for FY2020 decreased by US$1.9 billion to US$4.1 billion. Gulf of Mexico, which includes Atlantis, Shenzi and Mad Dog, decreased by US$784 million to US$1.1 billion. In Australia, Bass Strait and North West Shelf collectively decreased by US$716 million to US$2.2 billion. The Trinidad Production Unit decreased by US$96 million to US$0.2 billion while the Australian Production Unit, which includes Macedon, Pyrenees and Minerva, decreased by US$146 million to US$0.4 billion.
Underlying EBITDA for Petroleum decreased by US$1.9 billion to US$2.2 billion. Price impacts, net of price-linked costs, decreased Underlying EBITDA by US$1.1 billion. Controllable cash costs increased by US$30 million reflecting higher business development costs in Mexico following the successful exploration program at Trion, partially offset by lower maintenance activity at our Australian assets. Ceased and sold operations decreased by US$76 million reflecting the sale of our interests in the Bruce and Keith oil and gas fields in the prior period, and cessation of operations at Minerva in FY2020. Lower volumes decreased Underlying EBITDA by US$588 million mainly due to natural field decline across the portfolio, a decrease in tax barrels at Trinidad and Tobago, weaker market conditions, the impacts from Tropical Cyclone Barry and Tropical Cyclone Damien and planned maintenance at Atlantis. Other items such as exchange rate and inflation also negatively impacted Underlying EBITDA by US$27 million.
Petroleum unit costs decreased by 8 per cent to US$9.74 per barrel of oil equivalent due to a reduction in price-linked costs, cost efficiencies and lower maintenance activities at our Australian operations due to COVID-19, partially offset by lower volumes. The calculation of conventional petroleum unit costs is set out in the table below.
Petroleum unit costs | FY2020 | FY2019 | ||||||
Revenue | 4,070 | 5,930 | ||||||
Underlying EBITDA | 2,207 | 4,061 | ||||||
|
|
|
| |||||
Gross costs | 1,863 | 1,869 | ||||||
|
|
|
| |||||
Less: exploration expense (1) | 394 | 388 | ||||||
Less: freight | 110 | 152 | ||||||
Less: development and evaluation | 166 | 46 | ||||||
Less: other (2) | 131 | 8 | ||||||
|
|
|
| |||||
Net costs | 1,062 | 1,275 | ||||||
|
|
|
| |||||
Production (MMboe, equity share) | 109 | 121 | ||||||
|
|
|
| |||||
Cost per Boe (US$) (3) | 9.74 | 10.54 | ||||||
|
|
|
|
(1) | Exploration expense represents conventional petroleum’s share of total exploration expense. |
(2) | Other includes non-cash profit on sales of assets, inventory movements, foreign exchange, provision for onerous lease contracts and the impact from the revaluation of embedded derivatives in the Trinidad and Tobago gas contract. |
(3) | FY2020 based on an average exchange rate of AUD/USD 0.67. |
Delivery commitments
We have delivery commitments of natural gas and LNG of approximately 1 billion cubic feet through FY2034 (83 per cent Australia and Asia, 17 per cent others), and crude and condensate commitments of 7 million barrels through FY2021 (57 per cent United States, 35 per cent Australia and Asia, 8 per cent others). We have sufficient proved reserves and production capacity to fulfil these delivery commitments.
We have obligation commitments of US$43 million for contracted capacity on transportation pipelines and gathering systems through FY2025, on which we are the shipper. The agreements have annual escalation clauses.
Other information
Drilling
The number of wells in the process of drilling and/or completion as of 30 June 2020 was as follows:
Exploratory wells | Development wells | Total | ||||||||||||||||||||||
Gross | Net (1) | Gross | Net (1) | Gross | Net (1) | |||||||||||||||||||
Australia | – | – | 2 | 1 | 2 | 1 | ||||||||||||||||||
United States | – | – | 26 | 8 | 26 | 8 | ||||||||||||||||||
Other (2) | – | – | 1 | 0 | 1 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | – | – | 29 | 9 | 29 | 9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents our share of the gross well count. |
(2) | Other is comprised of Algeria. |
Conventional petroleum
BHP’s net share of capital development expenditure in FY2020, which is presented on a cash basis within this section, was US$909 million (FY2019: US$645 million). While the majority of the expenditure in FY2020 was incurred by operating partners at our Australian and Gulf of Mexico non-operated assets, we also incurred capital expenditure at our operated Australian, Gulf of Mexico, Algeria and Trinidad and Tobago assets.
Australia
BHP’s net share of capital development expenditure in FY2020 was US$223 million. The expenditure was primarily related to:
Scarborough gas field development
North West Shelf: Karratha Gas Plant refurbishment projects and external corrosion compliance
Bass Strait: West Barracouta subsea tie back development and Snapper A21a development project
Gulf of Mexico
BHP’s net share of capital development expenditure in FY2020 was US$617 million. The expenditure was primarily related to:
Atlantis: execution of approved development on Atlantis Phase 3 Project and Brownfield subsea tie back to existing Atlantis facility in Gulf of Mexico
Mad Dog: execution phase of Phase 2 development
Trinidad and Tobago
BHP’s net share of capital development expenditure in FY2020 was US$46 million. The expenditure was primarily related to:
Ruby: execution of approved development of Block 3a resources in the Ruby and Delaware reservoirs
Conventional petroleum exploration and appraisal
The majority of the expenditure incurred in FY2020 was in our focus areas, including Gulf of Mexico (US and Mexico) and Trinidad and Tobago. We also incurred expenditure in Canada.
Access
In the US Gulf of Mexico, we expanded our acreage positions through lease sale participation. In FY2020, the regulator awarded two blocks(1) in Green Canyon, central Gulf of Mexico and 19 blocks(2) in the western Gulf of Mexico. In July 2020, the regulator awarded two blocks(3) in Green Canyon, central Gulf of Mexico and three blocks(4) in the western Gulf of Mexico.
In Barbados, the offshore exploration licences for the Carlisle Bay and Bimshire blocks were declared effective as of 27 January 2020. The first exploration phase is a three-year program with commitment of seismic data.
(1) | Leases were awarded in blocks: GC124 and GC168. |
(2) | Leases were awarded in blocks: GB721, GB630, GB574, GB575, GB619, GB676, GB677, EB655, EB656, EB701, GB762, GB805, GB806, GB851, GB852, GB895, GB672, GB716 and GB760. |
(3) | Leases were awarded in blocks: GC80 and GC123. |
(4) | Leases were awarded in blocks: AC36, AC80 and AC81. |
Exploration program expenditure details
Our gross expenditure on exploration was US$564 million in FY2020, of which US$394 million was expensed.
Exploration and appraisal wells drilled, or in the process of drilling, during the year included:
Well | Location | Target | BHP equity | Spud date | Water | Total well | Status | |||||||
Trion-3DEL | Mexico Block AE-0093 | Oil | 60% (BHP operator) | 9 July 2019 | 2,596 m | 4,615 m | Hydrocarbons encountered; plugged and abandoned | |||||||
Boom-1 | Trinidad & Tobago Block 14 | Gas | 70% (BHP operator) | 28 August 2019 | 2,207 m | 5,035 m | Hydrocarbons encountered; plugged and abandoned | |||||||
Carnival-1 | Trinidad & Tobago Block 14 | Gas | 70% (BHP operator) | 30 September 2019 | 2,119 m | 4,347 m | Dry hole; plugged and abandoned |
In Trinidad and Tobago, we drilled two exploration wells in our northern licences and completed Phase 4 of our deepwater drilling campaign in the first half of FY2020. The campaign included two wells; Boom-1 encountered hydrocarbons and Carnival-1 was a dry hole. Technical work is ongoing to evaluate an appraisal program, development planning and commercial options for the discoveries in the Northern Gas play.
In Mexico, we drilled the Trion 3DEL appraisal well in the first half of FY2020 where we encountered oil in the reservoirs up dip from all previous well intersections. The results provided greater confidence around the scale, and quality, of the resource and we now have sufficient information to underpin development planning.
In Eastern Canada, technical evaluation is ongoing on our two licences in the Orphan Basin to support exploration well planning.
For information on conventional petroleum exploration, refer to section 1.5.3.
Outlook
In our conventional business, volumes are expected to be between 95 and 102 MMboe in FY2021 as a result of expected lower gas demand in Eastern Australia and Trinidad and Tobago, the previously announced delay of several small and medium sized projects with short lifecycles and natural field decline across the portfolio.
Unit costs are expected to be between US$11 and US$12 per barrel (based on an average exchange rate of AUD/USD 0.70) in FY2021 reflecting the impact of lower volumes and forecasted lower price-linked costs. In the medium-term, we expect an increase in unit costs to less than US$13 per barrel (based on an average exchange rate of AUD/USD 0.70) as a result of natural field decline.
Petroleum capital and exploration expenditure of approximately US$1.6 billion is now planned in FY2021 as a result of a delay of the Scarborough gas development and several small and medium sized projects, and an approximately US$250 million reduction in our exploration and appraisal program.
Onshore US: Discontinued operations
On 28 September 2018, BHP completed the sale of 100 per cent of the issued share capital of BHP Billiton Petroleum (Arkansas) Inc. and 100 per cent of the membership interests in BHP Billiton Petroleum (Fayetteville) LLC, which held the Fayetteville assets, for a gross cash consideration of US$0.3 billion.
On 31 October 2018, BHP completed the sale of 100 per cent of the issued share capital of Petrohawk Energy Corporation, the BHP subsidiary that held the Eagle Ford (being Black Hawk and Hawkville), Haynesville and Permian assets, for a gross cash consideration of US$10.3 billion (net of preliminary customary completion adjustments of US$0.2 billion). Results from the Onshore US assets are disclosed as Discontinued operations.
For further information, refer to note 28 ‘Discontinued operations’ in section 5.
The comparison for the year ended 30 June 2019 to 30 June 2018 has been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
Detailed below is financial information for our Copper assets for FY2020 and FY2019 and an analysis of Copper’s financial performance for FY2020 compared with FY2019.
Year ended 30 June 2020 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (6) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Escondida (1) | 6,719 | 3,535 | 1,143 | 2,392 | 12,013 | 919 | ||||||||||||||||||||||||||
Pampa Norte (2) | 1,395 | 599 | 316 | 283 | 3,187 | 955 | ||||||||||||||||||||||||||
Antamina (3) | 832 | 468 | 114 | 354 | 1,453 | 205 | ||||||||||||||||||||||||||
Olympic Dam | 1,463 | 212 | 291 | (79 | ) | 7,651 | 538 | |||||||||||||||||||||||||
Other (3)(4) | – | (202 | ) | 58 | (260 | ) | 103 | 22 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Copper from Group production | 10,409 | 4,612 | 1,922 | 2,690 | 24,407 | 2,639 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | 1,089 | 41 | – | 41 | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper | 11,498 | 4,653 | 1,922 | 2,731 | 24,407 | 2,639 | 62 | 57 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (5) | (832 | ) | (306 | ) | (165 | ) | (141 | ) | – | (205 | ) | (8 | ) | (3 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper statutory result | 10,666 | 4,347 | 1,757 | 2,590 | 24,407 | 2,434 | 54 | 54 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Year ended 30 June 2019 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (6) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Escondida (1) | 6,876 | 3,384 | 1,245 | 2,139 | 12,726 | 1,036 | ||||||||||||||||||||||||||
Pampa Norte (2) | 1,502 | 701 | 381 | 320 | 2,937 | 1,194 | ||||||||||||||||||||||||||
Antamina (3) | 1,144 | 723 | 108 | 615 | 1,345 | 229 | ||||||||||||||||||||||||||
Olympic Dam | 1,351 | 273 | 331 | (58 | ) | 7,133 | 485 | |||||||||||||||||||||||||
Other (3)(4) | – | (315 | ) | 8 | (323 | ) | (53 | ) | 21 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Copper from Group production | 10,873 | 4,766 | 2,073 | 2,693 | 24,088 | 2,965 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | 1,109 | 116 | – | 116 | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper | 11,982 | 4,882 | 2,073 | 2,809 | 24,088 | 2,965 | 66 | 65 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (5) | (1,144 | ) | (332 | ) | (110 | ) | (222 | ) | – | (230 | ) | (4 | ) | (3 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Copper statutory result | 10,838 | 4,550 | 1,963 | 2,587 | 24,088 | 2,735 | 62 | 62 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Escondida is consolidated under IFRS 10 and reported on a 100 per cent basis. |
(2) | Includes Spence and Cerro Colorado. |
(3) | Antamina, SolGold and Resolution are equity accounted investments and their financial information presented above with the exception of net operating assets reflects BHP Group’s share. |
(4) | Predominantly comprises divisional activities, greenfield exploration and business development. Includes Resolution and SolGold (acquired in October 2018). |
(5) | Total Copper statutory result revenue excludes US$832 million (2019: US$1,144 million) revenue related to Antamina. Total Copper statutory result Underlying EBITDA includes US$165 million (2019: US$110 million) D&A and US$141 million (2019: US$222 million) net finance costs and taxation expense related to Antamina, Resolution and SolGold that are also included in Underlying EBIT. Total Copper Capital expenditure excludes US$205 million (2019: US$229 million) related to Antamina and US$ nil (2019: US$1 million) related to SolGold. Exploration gross excludes US$8 million (2019: US$4 million) related to SolGold of which US$3 million (2019: US$3 million) was expensed. |
(6) | Refer to section 6.1 for a reconciliation of Net operating assets to Net assets and section 6.1.1 for the definition and method of calculation of Net operating assets. |
Key drivers of Copper’s financial results
Price overview
Our average realised sales price for FY2020 was US$2.50 per pound (FY2019: US$2.62 per pound). Copper prices fell sharply in the early stages of the COVID-19 pandemic but have since rebounded, first on improving sentiment towards pro-growth assets, and more recently on news of COVID-19 related supply-side challenges. In the medium term, we believe that the effect of the pandemic will be to delay the timing of the anticipated structural deficit for copper by one or two years from prior expectations. Longer term, traditional end-use demand is expected to be solid, while broad exposure to the electrification mega-trend offers attractive upside. Our view is that the price setting marginal tonne a decade from now will come from either a lower-grade brownfield expansion in a lower-risk jurisdiction, or a higher-grade greenfield project in a higher-risk jurisdiction. Prices are expected to rise on the back of grade decline, resource depletion, increased input costs, water constraints and a scarcity of high-quality future development opportunities after a poor decade for industry-wide exploration.
Production
Total Copper production for FY2020 increased by 2 per cent to 1,724 kt.
Escondida copper production increased by 4 per cent to 1,185 kt, with record June 2020 quarter concentrator throughput of 382 ktpd lifting annual concentrator throughput to a record 371 ktpd. This offsets the impact of a 3 per cent decline in copper grade, stoppages associated with the social unrest in Chile (7 kt impact) and a reduced workforce due to COVID-19 preventative measures.
Pampa Norte copper production decreased by 2 per cent to 243 kt, with strong operating performance offset by grade decline of approximately 14 per cent.
Olympic Dam copper production increased by 7 per cent to 172 kt supported by solid underground mine performance with strong development metres achieved, record grade and the prior period acid plant outage. This was partially offset by the impact of planned preparatory work undertaken in the September 2019 quarter related to the replacement of the refinery crane and unplanned downtime at the smelter during the March 2020 quarter.
Antamina copper production decreased by 15 per cent to 125 kt and zinc production decreased by 10 per cent to 88 kt, reflecting lower copper head grades and the impacts of operating with a reduced workforce and a six-week shutdown during the June 2020 quarter in response to COVID-19.
For more information on individual asset production in FY2020, FY2019 and FY2018, refer to section 6.3.
Financial results
Copper revenue decreased by US$0.2 billion to US$10.7 billion in FY2020. Escondida revenue decreased by US$0.2 billion to US$6.7 billion.
Underlying EBITDA for Copper decreased by US$0.2 billion to US$4.3 billion. Price impacts, net of price-linked costs, decreased Underlying EBITDA by US$0.3 billion. Higher volumes increased Underlying EBITDA by US$112 million mainly driven by record concentrator throughput at Escondida, offset by expected lower concentrator head grade and lower by-product volumes. Higher copper volumes at Olympic Dam were supported by solid underground mine performance, record grade and the prior period acid plant outage. Increased volumes at Spence reflecting greater operating stability partially offset by expected grade decline.
Controllable cash costs decreased by US$221 million, due to strong cost performance driven by consumption efficiencies at Escondida, and end-of-negotiation bonus payments at Escondida and Cerro Colorado in the prior year. A favourable inventory movement at Escondida due to higher ore movement in line with planned development phase of the mines was partially offset by a higher inventory drawdown at Spence and a lower build of inventory at Olympic Dam due to the prior period outages, and the Olympic Dam acid plant outage self-insurance recoveries in the prior period.
Non-cash costs increased by US$451 million due to increased deferred stripping depletion at Escondida in line with planned development phase of the mines. Other items such as exchange rate and net of inflation, positively impacted Underlying EBITDA by US$210 million.
Unit costs at Escondida decreased by 11 per cent to US$1.01 per pound, reflecting record concentrator throughput, strong cost management and favourable inventory and exchange rate movements. This decrease was achieved despite the impact of a 3 per cent decline in copper grade, lower by-product credits, higher desalinated water costs and higher deferred stripping costs.
Escondida unit costs | ||||||||
US$M | FY2020 | FY2019 | ||||||
Revenue | 6,719 | 6,876 | ||||||
Underlying EBITDA | 3,535 | 3,384 | ||||||
|
|
|
| |||||
Gross costs | 3,184 | 3,492 | ||||||
|
|
|
| |||||
Less: by-product credits | 407 | 490 | ||||||
Less: freight | 178 | 149 | ||||||
|
|
|
| |||||
Net costs | 2,599 | 2,853 | ||||||
|
|
|
| |||||
Sales (kt) | 1,164 | 1,131 | ||||||
Sales (Mlb) | 2,567 | 2,493 | ||||||
|
|
|
| |||||
Cost per pound (US$) (1)(2) | 1.01 | 1.14 | ||||||
|
|
|
|
(1) | FY2020 based on average exchange rates of USD/CLP 771. |
(2) | FY2020 excludes COVID-19 related costs of US$0.01 per pound that are reported as exceptional items. |
Outlook
Total Copper production of between 1,480 and 1,645 kt is expected in FY2021. Escondida production of between 940 and 1,030 kt is expected in FY2021, as a result of COVID-19 impacts and a decline in copper concentrator feed grade of approximately 4 per cent. Production at Pampa Norte is expected to be between 240 and 270 kt in FY2021, reflecting the reduced operational workforce due to COVID-19, the start-up of the Spence Growth Option project and expected grade decline of approximately 7 per cent. At Olympic Dam, production is expected to be between 180 and 205 kt in FY2021.
Escondida unit costs are expected to be between US$1.00 and US$1.25 per pound (based on an average exchange rate of USD/CLP 769) in FY2021 reflecting lower volumes partially offset by lower stripping costs. In the medium term, unit costs have been revised to less than US$1.10 per pound reflecting updated guidance exchange rates (based on an average exchange rate of USD/CLP 769), with expected higher power and water costs offset by further operational efficiency improvements and optimised maintenance strategies.
The comparison for the year ended 30 June 2019 to 30 June 2018 has been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
Detailed below is financial information for our Iron Ore assets for FY2020 and FY2019 and an analysis of Iron Ore’s financial performance for FY2020 compared with FY2019.
Year ended 30 June 2020 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (4) | Capital expenditure | Exploration gross (5) | Exploration to profit | ||||||||||||||||||||||||
Western Australia Iron Ore | 20,663 | 14,508 | 1,606 | 12,902 | 20,177 | 2,326 | ||||||||||||||||||||||||||
Samarco (1) | – | – | – | – | (2,045 | ) | – | |||||||||||||||||||||||||
Other (2) | 119 | 53 | 24 | 29 | 268 | 2 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Iron Ore from Group production | 20,782 | 14,561 | 1,630 | 12,931 | 18,400 | 2,328 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products (3) | 15 | (7 | ) | – | (7 | ) | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Iron Ore | 20,797 | 14,554 | 1,630 | 12,924 | 18,400 | 2,328 | 87 | 47 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Iron Ore statutory result | 20,797 | 14,554 | 1,630 | 12,924 | 18,400 | 2,328 | 87 | 47 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Year ended 30 June 2019 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (4) | Capital expenditure | Exploration gross (5) | Exploration to profit | ||||||||||||||||||||||||
Western Australia Iron Ore | 17,066 | 11,053 | 1,707 | 9,346 | 19,208 | 1,600 | ||||||||||||||||||||||||||
Samarco (1) | – | – | – | – | (1,908 | ) | – | |||||||||||||||||||||||||
Other (2) | 157 | 62 | 25 | 37 | 186 | 11 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Iron Ore from Group production | 17,223 | 11,115 | 1,732 | 9,383 | 17,486 | 1,611 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products (3) | 32 | 14 | – | 14 | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
| ||||||||||||||||
Total Iron Ore | 17,255 | 11,129 | 1,732 | 9,397 | 17,486 | 1,611 | 93 | 41 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Iron Ore statutory result | 17,255 | 11,129 | 1,732 | 9,397 | 17,486 | 1,611 | 93 | 41 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Samarco is an equity accounted investment and its financial information presented above, with the exception of net operating assets, reflects BHP Billiton Brasil Ltda’s share. All financial impacts following the Samarco dam failure have been reported as exceptional items in both reporting periods. |
(2) | Predominantly comprises divisional activities, towage services, business development and ceased operations. |
(3) | Includes inter-segment and external sales of contracted gas purchases. |
(4) | Refer to section 6.1 for a reconciliation of Net operating assets to Net assets and section 6.1.1 for the definition and method of calculation of Net operating assets. |
(5) | Includes US$40 million of capitalised exploration (2019: US$52 million). |
Key drivers of Iron Ore’s financial results
Price overview
Iron Ore’s average realised sales price for FY2020 was US$77.36 per wet metric tonne (wmt) (FY2019: US$66.68 per wmt). The Platts 62% Fe Iron Ore Fines price index has been elevated since the Brumadinho tailings dam tragedy in Brazil first disrupted the market in late January 2019. In the last half year, the combination of strong Chinese pig iron production and constrained exports from Brazil have more than offset record shipments from Australia and weakness in ex-China regions. Prices can be expected to ease as Brazilian supply recovers. In the long term, prices are expected to be determined by high cost production, on a value-in-use adjusted basis, from Australia or Brazil. Quality differentiation will remain a factor in determining iron ore prices. China’s demand for iron ore is expected to be lower than today in the second half of the 2020s as crude steel production plateaus and the scrap-to-steel ratio rises. At the same time, the likelihood of new supply of iron ore from West Africa has increased. This implies that it will be even more important to create competitive advantage and to grow value through driving exceptional operational performance.
Production
Total Iron Ore production from WAIO for FY2020 increased by 4 per cent to 248 Mt (281 Mt on a 100 per cent basis).
WAIO achieved record production, with higher volumes reflecting record production at Jimblebar and Yandi. Weather impacts from Tropical Cyclone Blake and Tropical Cyclone Damien were offset by strong performance across the supply chain, with significant improvements in productivity and reliability following a series of targeted maintenance programs over the past four years.
For more information on individual asset production in FY2020, FY2019 and FY2018, refer to section 6.3.
Financial results
Total Iron Ore revenue increased by US$3.5 billion to US$20.8 billion in FY2020.
Underlying EBITDA for Iron Ore increased by US$3.4 billion to US$14.6 billion including favourable price impacts, net of price-linked costs, of US$2.4 billion. Higher volumes increased Underlying EBITDA by US$523 million driven by record production at Jimblebar and Yandi, and significant improvements in productivity and reliability across the supply chain following a series of targeted maintenance programs over the past four years. This was partially offset by the impacts from Tropical Cyclone Blake and Tropical Cyclone Damien.
Other items such as exchange rate, inflation and one-off items (including prior year impact of Tropical Cyclone Veronica) positively impacted Underlying EBITDA by US$516 million.
WAIO unit costs decreased by 11 per cent to US$12.63 per tonne reflecting record volumes following strong performance and continued productivity improvements across the supply chain and favourable exchange movements. The calculation of WAIO unit costs is set out in the table below.
WAIO unit costs US$M | FY2020 | FY2019 | ||||||
Revenue | 20,663 | 17,066 | ||||||
Underlying EBITDA | 14,508 | 11,053 | ||||||
|
|
|
| |||||
Gross costs | 6,155 | 6,013 | ||||||
|
|
|
| |||||
Less: freight | 1,459 | 1,308 | ||||||
Less: royalties | 1,531 | 1,322 | ||||||
|
|
|
| |||||
Net costs | 3,165 | 3,383 | ||||||
|
|
|
| |||||
Sales (kt, equity share) | 250,598 | 238,836 | ||||||
|
|
|
| |||||
Cost per tonne (US$) (1)(2) | 12.63 | 14.16 | ||||||
|
|
|
|
(1) | FY2020 based on an average exchange rate of AUD/USD 0.67. |
(2) | FY2020 excludes COVID-19 related costs of US$0.30 per tonne (including US$0.04 per tonne of demurrage) that are reported as exceptional items. |
Outlook
WAIO production of between 244 and 253 Mt, or between 276 and 286 Mt on a 100 per cent basis, is expected in FY2021.
WAIO unit costs are expected to be between US$13 and US$14 per tonne (based on an exchange rate of AUD/USD 0.70). In the medium term, we expect to lower our unit costs to less than US$13 per tonne (based on an exchange rate of AUD/USD 0.70).
The comparison for the year ended 30 June 2019 to 30 June 2018 has been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
Detailed below is financial information for our Coal assets for FY2020 and FY2019 and an analysis of Coal’s financial performance for FY2020 compared with FY2019.
Year ended 30 June 2020 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Queensland Coal | 5,357 | 1,935 | 684 | 1,251 | 8,168 | 523 | ||||||||||||||||||||||||||
New South Wales Energy Coal (1) | 972 | (19 | ) | 152 | (171 | ) | 841 | 73 | ||||||||||||||||||||||||
Colombia (1) | 364 | 69 | 112 | (43 | ) | 776 | 24 | |||||||||||||||||||||||||
Other (2) | – | (155 | ) | 11 | (166 | ) | (276 | ) | 8 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Coal from Group production | 6,693 | 1,830 | 959 | 871 | 9,509 | 628 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | – | – | – | – | – | – | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal | 6,693 | 1,830 | 959 | 871 | 9,509 | 628 | 22 | 9 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3)(4) | (451 | ) | (198 | ) | (138 | ) | (60 | ) | – | (25 | ) | – | – | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal statutory result | 6,242 | 1,632 | 821 | 811 | 9,509 | 603 | 22 | 9 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 June 2019 US$M | Revenue | Underlying EBITDA | D&A | Underlying EBIT | Net operating assets (5) | Capital expenditure | Exploration gross | Exploration to profit | ||||||||||||||||||||||||
Queensland Coal | 7,679 | 3,722 | 532 | 3,190 | 8,232 | 549 | ||||||||||||||||||||||||||
New South Wales Energy Coal (1) | 1,527 | 431 | 166 | 265 | 920 | 102 | ||||||||||||||||||||||||||
Colombia (1) | 698 | 274 | 101 | 173 | 853 | 104 | ||||||||||||||||||||||||||
Other (2) | 2 | (110 | ) | 2 | (112 | ) | (331 | ) | 5 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Coal from Group production | 9,906 | 4,317 | 801 | 3,516 | 9,674 | 760 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Third party products | 19 | (1 | ) | – | (1 | ) | – | – | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal | 9,925 | 4,316 | 801 | 3,515 | 9,674 | 760 | 23 | 15 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Adjustment for equity accounted investments (3)(4) | (804 | ) | (249 | ) | (134 | ) | (115 | ) | – | (105 | ) | – | – | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Coal statutory result | 9,121 | 4,067 | 667 | 3,400 | 9,674 | 655 | 23 | 15 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Newcastle Coal Infrastructure Group and Cerrejón are equity accounted investments and their financial information presented above with the exception of net operating assets reflects BHP Group’s share. |
(2) | Predominantly comprises divisional activities and ceased operations. |
(3) | Total Coal statutory result revenue excludes US$364 million (2019: US$698 million) revenue related to Cerrejón. Total Coal statutory result Underlying EBITDA includes US$112 million (2019: US$101 million) D&A and US$25 million (2019: US$70 million) net finance costs and taxation expense related to Cerrejón, that are also included in Underlying EBIT. Total Coal statutory result Capital expenditure excludes US$24 million (2019: US$104 million) related to Cerrejón. |
(4) | Total Coal statutory result revenue excludes US$87 million (2019: US$106 million) revenue related to Newcastle Coal Infrastructure Group. Total Coal statutory result excludes US$61 million (2019: US$78 million) Underlying EBITDA, US$26 million (2019: US$33 million) D&A and US$35 million (2019: US$45 million) Underlying EBIT related to Newcastle Coal Infrastructure Group until future profits exceed accumulated losses. Total Coal Capital expenditure excludes US$1 million (2019: US$1 million) related to Newcastle Coal Infrastructure Group. |
(5) | Refer to section 6.1 for a reconciliation of Net operating assets to Net assets and section 6.1.1 for the definition and method of calculation of Net operating assets. |
Key drivers of Coal’s financial results
Price overview
Metallurgical coal
Our average realised sales price for FY2020 was US$143.65 per tonne for hard coking coal (FY2019: US$199.61 per tonne) and US$92.59 per tonne for weak coking coal (FY2019: US$130.18 per tonne). Metallurgical coal prices were under downward pressure for most of FY2020. Broad-based demand weakness in all major import regions but China was a weight on the price. This was amplified during the second half of FY2020 with each of the major importers going into lockdown. In China, uncertainty regarding the approach to the volume of coal imports was an additional headwind for the physical trade at times. In the short term, metallurgical coal still has to navigate a difficult period as major importing regions manage their re-openings. COVID-19 permitting, a sustained improvement is possible in the second half of FY2021. Over time, premium-quality coking coals are expected to be particularly advantaged given the drive by steelmakers to improve blast furnace productivity, partly to reduce emissions intensity. We believe that a wholesale shift away from blast furnace steelmaking, which requires metallurgical coal, is still decades in the future given the high cost of conversion and operation associated with alternative steelmaking technologies.
Energy coal
Our average realised sales price for FY2020 was US$57.10 per tonne (FY2019: US$77.90 per tonne). The Newcastle 6,000 kcal/kg price reached its high for the financial year in July 2019. It then declined gradually over the course of the first half of FY2020, the rate of decline accelerated in second half of FY2020 due to lockdowns in major consumption markets. Tighter import controls at Chinese ports also contributed to lower prices. Longer term, we expect total primary energy derived from coal (power and non-power) to expand at a compound rate slower than that of global population growth.
Production
Metallurgical coal production for FY2020 decreased by 3 per cent to 41 Mt (73 Mt on a 100 per cent basis) as a result of significant wet weather events and geotechnical constraints at South Walker Creek. At Queensland Coal strong underlying operational performance, including record underground coal mined at Broadmeadow and record annual production at Caval Ridge and Poitrel, was offset by planned major wash plant shutdowns in the first half of the year and significantly higher rainfall during January and February 2020 compared with historical averages.
Energy coal production decreased by 16 per cent to 23 Mt. NSWEC production decreased by 12 per cent to 16 Mt as a result of the change in product strategy to focus on higher quality products and unfavourable weather impacts from December 2019 to February 2020. This was partially offset by a strong performance in the June 2020 quarter driven by record truck utilisation. Cerrejón production decreased by 23 per cent to 7 Mt due to a temporary shutdown during the June 2020 quarter in response to COVID-19, as well as a focus on higher quality products. The temporary shutdown lasted for approximately 6 weeks and allowed for completion of COVID-19 control measures to meet the Colombian Government’s regulations.
For more information on individual asset production in FY2020, FY2019 and FY2018, refer to section 6.3.
Financial results
Coal revenue decreased by US$2.9 billion to US$6.2 billion in FY2020.
Underlying EBITDA for Coal decreased by US$2.4 billion to US$1.6 billion including lower price impacts, net of price-linked costs, of US$2.1 billion. Controllable cash costs decreased Underlying EBITDA by US$124 million driven by increased maintenance costs at Queensland Coal due to major planned wash plant shutdowns and higher contractor costs due to the mobilisation of additional equipment to address increased strip ratio at South Walker Creek and increased contractor stripping at NSWEC. This was partially offset by favourable inventory movements as a result of good dragline performance. Lower volumes decreased Underlying EBITDA by US$374 million as a result of the change in NSWEC product strategy to focus on higher-quality products and unfavourable weather impacts from December 2019 to February 2020. There were lower volumes at Queensland Coal, as record annual production at Caval Ridge and Poitrel was offset by planned major wash plant shutdowns in the first half of the year and significantly higher rainfall across our operations in January and February 2020.
Queensland Coal unit costs decreased by 3 per cent to US$68 per tonne, due to a build in inventory, as a result of solid dragline performance across the majority of operations, and favourable impacts from exchange rate movements and the application of IFRS 16 Leases. This was partially offset by lower volumes due to significant wet weather during the March 2020 quarter and planned maintenance. NSWEC unit costs increased by 13 per cent to US$57 per tonne, reflecting lower volumes from the change in product strategy to focus on higher-quality products and unfavourable weather impacts, and higher stripping costs. The calculation of Queensland Coal’s and NSWEC’s unit costs is set out in the table below.
Queensland Coal unit costs | NSWEC unit costs | |||||||||||||||
US$M | FY2020 | FY2019 | FY2020 | FY2019 | ||||||||||||
Revenue | 5,357 | 7,679 | 886 | 1,421 | ||||||||||||
Underlying EBITDA | 1,935 | 3,722 | (79 | ) | 353 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross costs | 3,422 | 3,957 | 965 | 1,068 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less: freight | 147 | 156 | – | – | ||||||||||||
Less: royalties | 498 | 805 | 68 | 114 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net costs | 2,777 | 2,996 | 897 | 954 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Sales (kt, equity share) | 41,086 | 43,145 | 15,868 | 19,070 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost per tonne (US$) (1)(2) | 67.59 | 69.44 | 56.53 | 50.03 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | FY2020 based on an average exchange rate of AUD/USD 0.67. |
(2) | FY2020 excludes COVID-19 related costs of US$0.37 per tonne and US$0.06 per tonne that are reported as exceptional items relating to Queensland Coal and NSWEC respectively. |
Outlook
Metallurgical coal production is expected to be between 40 and 44 Mt, or 71 and 77 Mt on a 100 per cent basis, in FY2021, a similar level to the prior year as it reflects an expected deterioration in market outlook due to the impact of COVID-19. With Blackwater returning to full capacity towards the end of the September 2020 quarter after flooding in the March 2020 quarter, volumes will be weighted to the second half of the year. Energy coal production is expected to be between 22 and 24 Mt in FY2021.
Queensland Coal unit costs are expected to be between US$69 and US$75 per tonne (based on an average exchange rate of AUD/USD 0.70) in FY2021, as a result of higher strip ratios and contractor stripping costs partially offset by higher volumes and improved productivity. In the medium term, we expect to lower our unit costs to between US$58 and US$66 per tonne (based on an exchange rate of AUD/USD 0.70). This reflects reduced volumes due to a focus on higher quality coals and a market responsive approach to bringing new tonnes into the markets.
NSWEC unit costs are expected to be between US$55 and US$59 per tonne (based on an average exchange rate of AUD/USD 0.70) in FY2021. Work is underway at NSWEC to review mine planning and operating alternatives to structurally reduce costs in the near term and ensure a viable mining operation which is resilient during low price cycles.
The comparison for the year ended 30 June 2019 to 30 June 2018 has been omitted from this Form 20-F, but can be found in our Form 20-F for the fiscal year ended 30 June 2019, filed on 17 September 2019.
Nickel West
Key drivers of Nickel West’s financial results
Price overview
Our average realised sales price for FY2019FY2020 was US$12,46213,860 per tonne (FY2018:(FY2019: US$12,59112,462 per tonne). The average nickel price in FY2020 was 13 per cent higher than FY2019, was similarmainly due to the previous financial year. Decreasinghigher prices in the first half of FY2020 (+25 per cent year-on-year). Prices started moving up in July 2019 as rumours of Indonesia’s ore export ban being brought forward circulated and, following confirmation of the year could be attributedban, moved to trade uncertainty and a slow-downtheir highest monthly average since FY2015 in industrial activities, while improvements inSeptember 2019. Prices dropped at the beginning of the second half were linkedof FY2020 due to stronger stainless steel output in China. Exchange stocksthe impact of refined nickel metal continued to decline throughout FY2019.the COVID-19 pandemic, but recovered from April onwards, supported by macro and market sentiment factors. In the near term, we expect Indonesian supply of stainless steel and nickel intermediatespig iron (NPI) to continue to grow. However,grow, offsetting lost production in China. Longer term, we believe that nickel will be a substantial beneficiary of the industry wide impactglobal electrification mega-trend and that nickel sulphides will be particularly attractive given the relatively lower cost of Indonesia’sproduction of battery-suitable class-1 nickel ore export policiesthan for laterites, which will set the long-run nickel price. This view is a sourcesupported by our assessment of uncertainty. In the long term, the battery sector is expected to provide stronglikely rate of growth in demand for high-purity nickel supply.electric vehicles and of the likely battery chemistry that will underpin this.
Production
Nickel West production in FY2019FY2020 decreased by 68 per cent to 8780 kt following a firedue to the major quadrennial maintenance shutdowns at the Kwinana refinery and the Kalgoorlie smelter, in September 2018.as well as planned routine maintenance at the concentrators.
For more information on individual asset production in FY2020, FY2019 FY2018 and FY2017,FY2018, refer to section 6.2.6.3.
Financial results
Lower production and lowerpartially offset by higher realised sales prices resulted in revenue decreasing by US$1044 million to US$1.2 billion in FY2019.FY2020.
Underlying EBITDA for Nickel West decreased by US$189139 million to a loss of US$10237 million in FY2019 due toFY2020 reflecting lower volumes as a result of the major quadrennial maintenance shutdowns at the refinery and the smelter, as well as costs associated with the transition toand ramp-up of new ore bodies, which resulted in a drawdown of inventoriesmines. This decrease was partially offset by higher prices and unfavourable fixed cost dilution from reduced volumes at Leinsterfavourable inventory and Mt Keith, and the impact from a fire at the Kalgoorlie smelter in the December 2018 half year.exchange rate movements.
Potash
Potash recorded an Underlying EBITDA loss of US$127 million in FY2019, compared toFY2020, and a loss of US$135127 million in FY2018.FY2019.
The comparison for the year ended 30 June 20182019 to 30 June 20172018 has been omitted from this Form20-F, but can be found in our Form20-F for the fiscal year ended 30 June 2018,2019, filed on 1817 September 2018.
1262019.
Application of critical accounting policies, judgements and estimates
The preparation of the Financial Statements requires management to make judgements and estimates and form assumptions that affect the amounts of assets, liabilities, contingent liabilities, revenues and expenses reported in the Financial Statements. OnAll judgements, estimates and assumptions are based on most current facts and circumstances and are reassessed on an ongoing basis, management evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other factors it believes to be reasonable under the circumstances, the results of which form the basis of the reported amounts that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
The Group has identified a number of critical accounting policies under which significant judgements, estimates and assumptions are made. Actual results may differ for these estimates under different assumptions and conditions. This may materially affect financial results and the financial position to be reported in future. Thesefuture periods.
The Group’s critical accounting policies where significant judgements, estimates and assumptions applied are as follows:
significant events – Samarco dam failure;failure
taxation;taxation
inventories;inventories
exploration and evaluation;evaluation
development expenditure;expenditure
overburden removal costs;costs
depreciation of property, plant and equipment;equipment
impairments ofnon-current assets – recoverable amount;amount
closure and rehabilitation provisions.provisions
leases
impairment of investments accounted for using the equity method
In accordance with IFRS, we are required to include information regarding the nature of the judgements and estimates, and potential impacts on our financial results or financial position in the Financial Statements. This information can be found in section 5.1.
Quantitative and qualitative disclosures about market risk
We identified our principal market risks in section 1.6.4.1.5.4. A description of how we manage our market risks, including both quantitative and qualitative information about our market risk sensitive instruments outstanding at 30 June 2019,2020, is contained in note 2122 ‘Financial risk management’ in section 5.1.
Off-balance sheet arrangements and contractual commitments
Information in relation to our materialoff-balance sheet arrangements, principally contingent liabilities, commitments for capital expenditure and commitments under leases at 30 June 20192020 is provided in note 32 ‘Commitments’11 ‘Property, plant and equipment’, note 20 ‘Leases’ and note 33 ‘Contingent liabilities’ in section 5.1.
Subsidiary information
Information about our significant subsidiaries is included in note 2829 ‘Subsidiaries’ in section 5.1 and in Exhibit 8.1 – List of Subsidiaries.
Related party transactions
Related party transactions are outlined in note 3132 ‘Related party transactions’ in section 5.1.
Significant changes since the end of the year
Significant changes since the end of the year are outlined in note 34 ‘Subsequent events’ in section 5.1.
The Strategic Report is made in accordance with a resolution of the Board.
Ken MacKenzie
ChairmanChair
Dated: 53 September 2019
1272020
Section 2
Governance at BHP
In this section
2.1 Governance at BHP
2.2 Board of Directors and Executive Leadership Team
2.3 Shareholder engagement
2.4 Role and responsibilities of the Board
2.5 Board membership
2.6 Chairman
2.7 Renewal andre-election
2.8 Director skills, experience and attributes
2.9 Director induction, training and development
2.10 Independence
2.11 Board evaluation
2.12 Board meetings and attendance
2.13 Board committees
2.14 Risk management governance structure
2.15 Management
2.16 Our conduct
2.17 Market disclosure
2.18 Remuneration
2.19 Directors’ share ownership
2.20 Conformance with corporate governance standards
2.21 Additional UK disclosure
128
2.1 | Chair’s letter | 142 | ||
2.2 | Board of Directors and Executive Leadership Team | 143 | ||
2.2.1 | Board of Directors | 143 | ||
2.2.2 | Executive Leadership Team | 152 | ||
2.3 | Role and responsibilities of the Board | 155 | ||
2.4 | Board meetings and attendance | 156 | ||
2.5 | Key Board activities during FY2020 | 156 | ||
2.6 | Stakeholder engagement | 159 | ||
2.6.1 | Shareholder engagement | 159 | ||
2.6.2 | Workforce engagement | 162 | ||
2.7 | Director skills, experience and attributes | 163 | ||
2.8 | Board evaluation | 166 | ||
2.9 | Nomination and Governance Committee Report | 167 | ||
2.10 | Risk and Audit Committee Report | 171 | ||
2.11 | Sustainability Committee Report | 178 | ||
2.12 | Remuneration Committee Report | 179 | ||
2.13 | Risk management governance structure | 181 | ||
2.14 | Management | 181 | ||
2.15 | Our conduct | 182 | ||
2.16 | Market disclosure | 183 | ||
2.17 | Conformance with corporate governance standards | 183 | ||
2.18 | Additional UK disclosure | 185 |
2.1 Governance at BHPChair’s letter
2.1.1 Chairman’s letter
‘In this unprecedented year, through our people’s steadfast commitment to keeping our operations running safely, we have continued to contribute to local economies through the jobs we create and the taxes and royalties we pay.’ Ken MacKenzie Chair |
Dear Shareholder,
At the 2018 Annual General Meeting, I once again discussedWe have made good progress on our key priorities of safety, our portfolio, capital discipline, culture and capability and culture, and social value. We made good progress with these prioritiesvalue during FY2019, and I want to touch on a few aspects here that are relevant to governance.FY2020.
Safety
Safety remains our first priority. We never forgetOur highest priority is the impact a fatality has on the families, friends and colleagues. The tragic deathsafety of our colleague Allan Houston at BMA’s Saraji Mine in Queensland was a stark reminder of this. The results of an investigation into the fatality were considered by both the Sustainability Committee and the Board, and for the first time in many years, the cause was unable to be determined. However, our investigation identified a number of improvement areas and work is underway to implement these. Leaders have also shared findings broadly through interactive safety briefings with employees and contractors in our operations and the communities in which we operate. There were no fatalities at all sitesour operations in FY2020 and major offices.our injury frequency rates are trending in the right direction. Our focus must remain on exceptional safety performance and eliminating near misses with fatality potential.
With regards to Samarco,Nearly five years have passed since the Board has continued to focus on respondingtragic dam failure at Samarco. We remain committed to the tragedy.full and fair remediation and compensation of impacts to the people and the environment in the Rio Doce region, in a challenging and complex operating context. Please see section 1.71.8 for information on our ongoing response to the Samarco dam failure.response.
Portfolio
At BHP, our strategy is to have the best capabilities, commodities and assets to create long-term shareholder value and high returns. DuringWe continue to invest and plan for the future while at the same time delivering strong cash returns to our shareholders. Our commodity portfolio has remained resilient throughout FY2020.
We believe our products will play an essential role in a decarbonising world, and will help us grow value for many decades to come. We are confident that we have the right portfolio to meet the world’s needs today and for the energy transition to a low carbon future. We are pleased to release the BHP Climate Change Report this year, we continued to reshape the portfolio with the completion of the salewhich contains a detailed review of our Onshore US assetsupdated portfolio analysis, comparing two BHP planning cases; a non-linear, higher temperature Climate Crisis scenario, and a new 1.5°C scenario, as well as a set of challenging targets and goals for net proceeds of US$10.4 billion.
In addition, we have continued to explore for petroleumemissions reduction across our business and copper assets. In Petroleum the Board approved US$696 million in funding to develop the Atlantis Phase 3 project in the US Gulf of Mexico, and US$256 million in funding to drill an additional appraisal well and perform further studies in the Trion field in Mexico, along with the successful bid for exploration blocks in the offshore Orphan Basin in Eastern Canada. In copper we confirmed the potential new iron oxide, copper and gold mineralised system located 65 kilometres south east of Olympic Dam. Our US$2.46 billion Spence Growth Option project in Chile, which is expected to extend the mining operations by more than 50 years, is on schedule and on budget.value chain.
Capital discipline
OurBHP’s strong balance sheet, disciplined approach and Capital Allocation Framework remains keyallows us to how we assess decisions aboutweather downturns and unexpected issues, such as the deploymentCOVID-19 pandemic, from a position of capital. financial strength.
At the end of FY2020, BHP had six major projects under development in copper, iron ore, potash and petroleum, with a combined budget of US$11.4 billion over the life of the projects.
During FY2019,FY2020, we have kept capital expenditure below US$8 billion per annum and reduced ourwith net debt toat US$9.2 billion, reflecting strong cash generation. As a result of the sale of our Onshore US assets, BHP also completed the return12 billion. The Board announced total dividends of US$10.4 billion1.20 per share in respect of FY2020, equivalent to shareholders througha 67 per cent payout ratio. This is the combination of anoff-market buyback and a special dividend. These returns, when added to dividends determined in FY2019, delivered record annualthird consecutive year cash returns to shareholders.shareholders have exceeded US$6 billion.
Culture and capability
There is significant opportunity ahead to create more shareholder value from BHP’s assets. This will be made possibleOur approach to developing our culture and capability is underpinned by building capability in our leaders consistent with the practices set out in the BHP Operating System. We invest in our people and capability to support exceptional performance. We aim to build on our engaged, empowered and inclusive culture that drives continuous improvement with strengthened self-accountability, performance edge, a hunger to learn and improve, and a commercial mindset.
Social value through BHP’s Transformation work.COVID-19
We recognise that we must work with others to address issues and opportunities, inside and outside the mine gate, and we must work with a range of stakeholders to create mutual benefit. That is consistent with our longer-term interests and those of our shareholders. Without the overt support of the communities where we operate and other stakeholders, BHP cannot succeed. That is why social value is a company priority and is embedded in late 2018, a dedicated Transformation Officeour five-year planning process. Our immediate response to the COVID-19 pandemic clearly demonstrates the positive contribution we have made this year, where it was establishedneeded most. In this unprecedented year, through our people’s steadfast commitment to focus on simplification, workforce capabilitykeeping our operations running safely, we have continued to contribute to local economies through the jobs we create and the taxes and royalties we pay. This includes employing hundreds of additional people from the local regions where we operate, establishing social investment funds to accelerate adoption ofhelp protect the technology requiredmost vulnerable from infection, and reducing payment terms for small, local and Indigenous businesses to deliver greater efficiencies.support our host communities around the world.
The Transformation programs will make BHP saferWe also contribute to social value through trust and operations more efficienttransparency. In FY2020, our total direct economic contribution was US$37.2 billion. This includes payments to supply partners, wages and predictable. They will also help develop workforce capability so that our people are equipped for the rapid pace of change that lies ahead.
Alongside a leanemployee benefits, dividends to shareholders, and agile management culture, transformation has the potentialtaxes and royalties to unlock value worth billions of dollars in the short and medium term.governments.
Board composition
The Board has 1112 members, including the CEO. I am a proponent of a relatively small Board. However, for a company like BHP, which has four key Board committees,Committees, a Board size of 10 to 12 is appropriate. In addition, diversity remains a focus, and BHP has an aspirationaspirational goal to achieve gender balance on our Board by FY2025.
As referenced in last year’s Corporate Governance Statement, we have a refreshed board skills matrix which we have used through FY2019 in our Board succession planning. This year, Wayne Murdy retired from the Board after the 2018 Annual General Meetings (AGMs). On behalf of shareholders, I thank Wayne for his dedicated service and leadership.CY2025.
We alsohave previously stated that our searchwe were searching for a newan additional Non-executive Director with mining experience. Gary Goldberg, who has more than 35 years of global mining industry experience, was well under wayincluding in executive, operational and strategic roles, joined the Board on 1 April 2019February 2020.
When we updated our Board Skills and Experience Matrix in 2018, we identified a need to further deepen the understanding of technology on our Board, and we focused on attracting that experience. As a result, in May 2020 we announced the appointment of Dion Weisler and Xiaoqun Clever.
Dion Weisler was appointed Ian Cockerill to the Board. Ianwith effect from 1 June 2020. Dion has extensive miningglobal executive experience, including in chief executive operational, strategicofficer and technicaloperational roles. He was formerlyserved as the President and Chief Executive Officer of Anglo Coal and Gold Fields Limited, and a senior executive with AngloGold Ashanti and Anglo American Group. IanHP Inc. from 2015 to 2019. He has considerable public company board experience, including as Chairmanhaving recently joined the board of Polymetal International plc,Intel Corporation and as a formerNon-executiveDirector of Orica Limited, Ivanhoe Mines LtdThermo Fisher Scientific, Inc. since 2017 and Endeavour Mining Corporation, and the former Chairman of Blackrock World Mining Trust plc.HP Inc. from 2015 until 2019.
129
Susan Kilsby also joinedXiaoqun Clever will join the Board on 1 April 2019. SheOctober 2020. Xiaoqun has extensiveover 20 years of global experience in financetechnology with a focus on software engineering, data and strategy, havinganalytics, cybersecurity and digitalisation. She held severalvarious roles in global investment banking. From 1996 to 2014, she held senior executive roles at Credit Suisse, including as a Senior Adviser,with SAP SE, Ringier AG and ChairmanProSiebenSat.1 Media SE. She currently serves on the board of EMEA MergersCapgemini SE, Infineon Technologies AG and Acquisitions. Susan brings to the BHP Board herNon-executive experience across multiple industries. Until recently, she was the Chairman of Shire plc and Senior Independent Director of BBA Aviation plc. She is currently aNon-executive Director of Unilever N.V and Unilever plc, Diageo plc and Fortune Brands Home & Security Inc.Amadeus IT Group SA.
I would also wantlike to acknowledge Carolyn Hewson, aLindsay Maxsted and Shriti Vadera – members of Board member for overmore than nine years, whoyears. Lindsay will be retiring from the Board,retire on 4 September this year and Shriti will retire, as planned, at this year’s Annual General Meeting. On behalf of her colleagues on the Board, I thank Lindsay for his counsel and the many employees she has closely interacted with over her term, I wantfor his exceptional contribution to thank Carolyn for her counsel on the Board and as ChairmanChair of the RemunerationRisk and Audit Committee. CarolynI also thank Shriti for her support to me as Senior Independent Director and her commitment to our shareholders through her regular engagement. Shriti has made an outstanding contribution to BHP and we wish her all the very bestBHP.
Executive Leadership team renewal
The Board appointed Mike Henry as BHP’s new Chief Executive Officer (CEO) in January, replacing Andrew Mackenzie. Mike is a strong advocate for the future.
Socialresources industry, driving higher standards of safety and contributing to our local communities and global stakeholders. He is committed to unlocking and accelerating greater value
Throughout its history, in our assets and operations. In doing so he will make BHP has recognised its corporate responsibility. Over the last decade, the business landscape has shiftedsafer, leaner, high performing and the expectations offuture fit. Andrew was instrumental in turning BHP into a simpler and more productive company, and one that is financially stronger and sharply focused on value for shareholders and stakeholders have changed.society. I would like to thank Andrew for his outstanding contribution as CEO.
As a Company, we recognise we must work with others to address issuesConclusion
Transparency and opportunities, both inside and outside the mine gate, and we must work with a range of stakeholders to make a positive contribution. That is consistent with our longer-term interests and the long-term interests of our shareholders. Without the overt support of communities and other stakeholders, BHP cannot succeed.
We also strive to build social value through trust and transparency. That is why we disclose that in FY2019, our total direct economic contribution was US$46.2 billion. This includes payments to suppliers, wages and employee benefits, dividends to shareholders, and taxes and royalties to government.
We consider social value throughout the value chain, from our local operational footprint,listening to our impact on society. We continue to focus on local businesses through initiatives such as the Local Buying Program to support suppliers in our communities. We also take a global perspective. This year we announced measures to address global warming, including a five-year US$400 million Climate Investment Program (CIP).
Conclusion
stakeholders help us make better decisions. During the past year, I have continued to meet with many of our institutional shareholders along with members of our retail shareholder base. Direct engagement with investors remains invaluable to the Board and the management of BHP.
I have also continuedcontinue to visit as many of our operations around the world.as I can. These visits reinforce the quality of BHP’s assets and people, which gives me confidence that BHPwe can create long-term value for our shareholders.
Ken MacKenzie
Chairman
130Chair
2.1.2 Governance structure
Our philosophy of governance goes beyond compliance. We believe high-quality governance supports long-term value creation: simply put, good governance is good business. Our approach is to adopt what we consider to be the best of the prevailing governance standards in Australia, the United Kingdom and the United States.
In the same spirit, we do not see governance as just a matter for the Board. Good governance is also the responsibility of executive management and is embedded throughout BHP. In this, the Board and management are guided byOur Charter values, including our value of Sustainability, in how we operate our business, interact with our stakeholders and plan for the future.
Update on governance reforms in Australia and the United Kingdom
In July 2018, the Financial Reporting Council released the 2018 UK Corporate Governance Code and the Guidance on Board Effectiveness. The UK Code emphasises the importance of demonstrating, through reporting, how the governance of a company contributes to its long-term sustainable success and achieves wider objectives. We agree that good governance contributes to sustainable success, and we recognise the renewed emphasis on a business building trust by forging strong relationships with key stakeholders. We also understand the importance of a corporate culture that is aligned with BHP’s purpose and strategy, and which promotes integrity and includes diversity.
As anticipated in last year’s Annual Report, BHP is well placed to comply with the UK Code. We have begun implementing new policies and procedures in line with the new Code, and will report against it in full in next year’s Annual Report.
One of the main UK Code changes relates to how the Board engages with the workforce and takes into account their views. During the year under review, the Board for example:
visited operational sites in a number of countries and engaged with a broad cross-section of the working population, both in the field and in small-group discussions and meetings to hear first-hand the views our people;
during a Board meeting in Brisbane, met with employees in a range of settings and at multiple levels to hear their perspectives, and learn more about theirday-to-day work experience including working in one of our Integrated Remote Operations Centres and a virtual reality underground mine walkthrough;
attended the annual HSEC awards, which celebrate excellence in HSEC implementation, and met with employees and award finalists to hear their improvement ideas and projects;
heard from a range of employees at each Board meeting on topics such as the health and safety of our people, workforce relations, our purpose as a company, human rights, conduct concerns and diversity;
participated in ahalf-day immersive in Melbourne led by employees on different transformation projects and their impact on the experience of our workforce, communities and suppliers;
discussed the results of the annual employee Engagement and Perception Survey which covers employees’ engagement levels, the state of the culture and level of inclusiveness and development.
The Board continues to consider additional mechanisms for workforce engagement.
In addition, the Terms of Reference of the Remuneration Committee have been updated so that the Committee will periodically review workforce remuneration and related policies and the alignment of incentives and reward with the Group’s culture and will also engage with the workforce to explain how executive remuneration aligns with the wider company pay policy. The Board is finalising its approach to ensure it meets the spirit of the revised UK Code and more details on employee engagement and the other Code provisions will be provided in the 2020 Annual Report.
The Fourth Edition of the ASX Corporate Governance Council’s Principles and Recommendations was released in February 2019 and takes effect from 1 July 2020. We are currently reviewing our practices to determine any changes needed to align fully with the revised Principles and Recommendations and will adopt early to the extent possible.
BHP governance structure
The following diagram describes the governance framework at BHP. It shows the interaction between our shareholders and the Board, as well as the relationship between the Board and the CEO. It also illustrates the flow of delegation from shareholders.
Robust processes are in place to ensure the delegation flows through the Board and its committees to the CEO, the Executive Leadership Team (ELT) and into the organisation. At the same time, accountability flows upwards from the Group to shareholders. This process helps ensure alignment with shareholders.
Our Charter is central to the governance framework of BHP. It embodies our corporate purpose, strategy and values and defines when we are successful. We foster a culture that values and rewards high ethical standards, personal and corporate integrity and respect for others.
131
BHP governance structure
2.2 Board of Directors and Executive Leadership Team
Ken MacKenzie
BEng, FIEA, FAICD, 5556
ChairmanChair and IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since September 2016.
ChairmanChair of BHP Group Limited and BHP Group Plc from 1 September 2017.
Skills and experience:Mr MacKenzie has extensive global and executive experience and a deeply strategic approach, with a focus on capital discipline and the creation of long-term shareholder value. He has insight and understanding in relation to organisational culture, the external environment, the diverse interests of our stakeholders and emerging issues related to the creation of social value.
Mr MacKenzieKen was the Managing Director and Chief Executive Officer of Amcor Limited, a global packaging company with operations in over 40 countries, from 2005 until 2015. During his23-year career with Amcor, Mr MacKenzieKen gained extensive experience across all of Amcor’s major business segments in developed and emerging markets in the Americas, Australia, Asia and Europe.
Other directorships and offices (current and recent):
Advisory Board member of American Securities Capital Partners LLC (since January 2016)
Former Managing Director and Chief Executive Officer of Amcor Limited (from July 2005 to April 2015)
Former Advisory Board member of Adamantem Capital (from September 2016 to May 2019)
Former Senior Adviser to McKinsey & Company (from January 2016 to June 2017)
Former Managing Director and Chief Executive Officer of Amcor Limited (from July 2005 to April 2015)
Board Committee membership:
ChairmanChair of the Nomination and Governance Committee
Andrew MackenzieMike Henry
BSc (Geology), PhD (Chemistry), 6254
Non-independent Director
Director of BHP Group Limited and BHP Group Plc since May 2013.
Mr MackenzieJanuary 2020. He was appointed Chief Executive Officer on 10 May 2013.1 January 2020.
132
Skills and experience:Mr MackenzieHenry has over 30 years’ experience including in oilthe global mining and gas, minerals, strategypetroleum industry, spanning operational, commercial, safety, technology and capital discipline over long-term cycles, technology, global markets, public policy and commodity value chains. He also hasnon-executive director experience.marketing roles.
Mr MackenzieMike joined BHP in November 2008 as2003, initially in business development and then in marketing and trading of a range of mineral and petroleum commodities based in The Hague, where he was also accountable for BHP’s ocean freight operations. He went on to hold various positions in the Company, including President Operations Minerals Australia, President Coal, President HSE, Marketing and Technology, and Chief ExecutiveNon-Ferrous, with responsibility for over half of BHP’s 100,000 strong workforce across four continents. HeMarketing Officer. Mike was appointed Chief Executive Officer in May 2013. on 1 January 2020 and has been a member of the Executive Leadership Team since 2011.
Prior to joining BHP, Mr Mackenzie held various executive roles at Rio Tinto, including as Chief Executive of DiamondsMike worked in the resources industry in Canada, Japan and Minerals, and at BP, where he held a number of senior roles, including as Group Vice President for Technology and Engineering, and Group Vice President for Chemicals. Mr Mackenzie was previously anon-executive director of Centrica plc.Australia.
Other directorships and offices (current and recent):
Fellow of the Royal Society of London (since May 2014)
Director (since May 2013)Council member and Deputy Chair (since November 2017)Treasurer of the International Council on Mining and Metals (ICMM) (since 2020)
Former Director of the Grattan Institute (from May 2013 to November 2017)
FormerNon-executive Director of Centrica plc (from September 2005 to May 2013)
Terry Bowen
BAcct, FCPA, MAICD, 5253
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since October 2017.
Skills and experience:Mr Bowen has significant executive experience across a range of diversified industries. He has deep financial expertise, and extensive experience in capital allocation discipline, commodity value chains and strategy.
Terry is currently Chair of the Operations Group at BGH Capital, and a Non-executive Director of Transurban Group.
Prior to this, Terry served as Managing Partner and Head of Operations at BGH Capital. He also previously served as an Executive Director and Finance Director of Wesfarmers Limited from 2009 to 2017, which included chairing a number of Wesfarmers’ operating divisions. Wesfarmers is a conglomerate with interests predominantly in Australian and New Zealand retail, chemicals, fertilisers, coal mining and industrial and safety products. Prior to this, Mr BowenTerry held various senior executive roles within Wesfarmers, including as Finance Director of Coles, Managing Director of Industrial and Safety and Finance Director of Wesfarmers Landmark. He also served as the inaugural Chief Financial Officer of Jetstar Airways Limited from 2003 to 2005 and before this, held senior finance roles over an11-year career with Tubemakers of Australia Limited. Mr BowenTerry is a former Director of Gresham Partners and past President of the National Executive of the Group of 100 Inc. He is also currently the Head of the Operations Group at BGH Capital.
The Board is satisfied that Mr BowenTerry meets the criteria for financial experience as outlined in the 2018 UK Corporate Governance Code (UK Code), competence in accounting and auditing as required by the UK Financial Conduct Authority’s Corporate GovernanceAuthority (FCA) Disclosure and Transparency Rules and the audit committee financial expert requirements under the US Securities and Exchange Commission (SEC)Rules. In addition, he is the Board’s nominated ‘audit committee financial expert’ for the purposes of the US Securities and Exchange Commission Rules.
Other directorships and offices (current and recent):
Non-executive Director of Transurban Group (since February 2020)
Director of Navitas Pty Limited (since July 2019)
Chair (since 2020) and Former Head of the Operations Group at BGH Capital (since 2018)(from January 2018 to January 2020)
Director of West Coast Eagles Football Club (since May 2017)
Director of Navitas (since 2019)
Former Executive Director and Finance Director of Wesfarmers Limited (from April 2009 to November 2017)
Former ChairmanChair of West Australian Opera Company Incorporated (from July 2014 to December 2017)
Former Director of Gresham Partners Holdings Limited and Gresham Partners Group Limited (from April 2009 to August 2017)
Former Director of the Harry Perkins Institute of Medical Research Incorporated (from 2010 to 2013)
Former Chief Financial Officer of Jetstar Airways Limited (from 2003 to 2005)
Board Committee membership:
MemberChair of the Risk and Audit Committee
133
Malcolm Broomhead
AO, MBA, BE, FAICD, 6768
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since March 2010.
Skills and experience:Mr Broomhead has extensive experience as anon-executive director of global organisations, and as a chief executive of large global industrial and mining companies. Mr BroomheadMalcolm has a broad strategic perspective and understanding of the long-term cyclical nature of the resources industry and commodity value chains, with proven health, safety and environment, and capital allocation performance.
Mr BroomheadMalcolm was Managing Director and Chief Executive Officer of Orica Limited (a global mining services and chemicals company) from 2001 until September 2005. Prior to joining Orica, he held a number of senior positions at North Limited, including Managing Director and Chief Executive Officer and, prior to that, held senior management positions with Halcrow (UK), MIM Holdings, Peko Wallsend and Industrial Equity.
Other directorships and offices (current and recent):
ChairmanChair of Orica Limited (since January 2016) and a Director (since December 2015)
Director of the Walter and Eliza Hall Institute of Medical Research (since July 2014)
Former ChairmanChair of Asciano Limited (from October 2009 to August 2016)
Former Director of Coates Group Holdings Pty Ltd (from January 2008 to July 2013)
Director of the Walter and Eliza Hall Institute of Medical Research (since July 2014)
Former ChairmanChair of the Australia China One Belt One Road Advisory Board (from August 2016 to February 2019)
Board Committee membership:
ChairmanMember of the Sustainability Committee
Member of the Nomination and Governance Committee
Ian Cockerill
MSc (Mineral Production Management)(Mining and Mineral Engineering), BSc (Hons.) (Geology), AMP – Oxford Templeton College, 6566
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since April 2019.
Skills and experience:Mr Cockerill has extensive global mining operational, project and executive experience having initially trained as a geologist. He was formerly the Chief Executive Officer of Anglo American Coal and Chief Executive Officer and President of Gold Fields Limited, and a senior executive with AngloGold Ashanti and Anglo American Group. Mr CockerillIan is the ChairmanChair of Polymetal International plc.plc and Non-executive Director of I-Pulse Inc.
Mr CockerillIan is the former ChairmanChair of BlackRock World Mining Trust plc and the former Lead Independent Director of Ivanhoe Mines Ltd and former Director of Orica Limited and Endeavour Mining Corporation. He is a Director of the Leadership for Conservation in Africa (a not-for-profit organisation) and is the Chair of Conservation 360, a Botswanan conservation NGO dealing with anti-poaching initiatives. He is a former Director of Business Leadership South Africa, the South African Business Trust and the World Gold Council.
Other directorships and offices (current and recent):
ChairmanChair of Polymetal International plc (since April 2019)
Non-executive Director of I-Pulse Inc (since September 2010)
Former Director of Orica Limited (from 2010 to August 2019)
Former Director (from 2013 to 2019) and ChairmanChair (from 2016 to May 2019) of BlackRock World Mining Trust plc
Former Director (from 2011 to June 2019) and Lead Independent Director (from 2012 to June 2019) of Ivanhoe Mines Ltd
Former Director of Endeavour Mining Corporation (from 2013 to 2019)
Former Executive Director and executive ChairmanChair (from 2010 to 2013) andNon-executive ChairmanChair (from 2013 to 2017) of Petmin Limited
Former ChairmanChair of Hummingbird Resources plc (from 2009 to 2014)
Board Committee membership:
Member of the Risk and Audit Committee
Member of the Sustainability Committee
134
Anita Frew
BA (Hons), MRes, Hon. D.Sc, 6263
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since September 2015.
Skills and experience:Ms Frew has an extensive breadth ofnon-executive experience in diverse industries, including chemicals, engineering, industrial and finance. In particular, Ms FrewAnita has valuable insight and experience in the creation of shareholder value, organisational change, mergers and acquisitions, financial andnon-financial risk, and health, safety and environment.
Ms FrewAnita is the ChairmanChair of Croda International Plc (a British speciality chemicals company) and until recently, was also the Deputy ChairmanChair and Senior Independent Director of Lloyds Banking Group Plc. Prior to this, she was the ChairmanChair of Victrex Plc, Senior Independent Director of Aberdeen Asset Management Plc and IMI Plc and aNon-executive Director of Northumbrian Water.
Other directorships and offices (current and recent):
Director (since March 2015) and ChairmanChair (since September 2015) of Croda International Plc
Former Director (since 2010)(from 2010 to May 2020), Deputy Chairman (sinceChair (from December 2014)2014 to May 2020) and Senior Independent Director (since(from May 2017)2017 to December 2019) of Lloyds Banking Group Plc
Former Senior Independent Director of Aberdeen Asset Management Plc (from October 2004 to September 2014)
Former Senior Independent Director of IMI Plc (from March 2006 to May 2015)
Former ChairmanChair of Victrex Plc (from 2008 to October 2014)
Board Committee membership:
Member of the Remuneration Committee
Member of the Risk and Audit Committee
Carolyn HewsonGary Goldberg
AO, BEc (Hons), MA, FAICD, 64BS, MBA, 61
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since March 2010.February 2020.
Skills and experience:Ms HewsonMr Goldberg has extensiveover 35 years of global executive experience, including deep experience in mining, strategy, risk, commodity value chain, capital allocation discipline and public policy. Gary served as the Chief Executive Officer of one of the largest gold producers, Newmont Corporation, from 2013 until October 2019, with responsibility for Newmont’s 37,000 employees and contractors, and operations in United States, Australia, Argentina, Canada, Dominican Republic, Mexico, Peru, Ghana and Suriname. Prior to joining Newmont, Gary was President and Chief Executive Officer of Rio Tinto Minerals, and served in executive leadership roles in Rio Tinto’s coal, gold, copper and industrial minerals businesses.
Gary is the former Vice Chair of the World Gold Council and the former Treasurer of the International Council on Mining and Metals, and previously served as Chair of the National Mining Association in the United States from 2008 to 2010. Gary also has non-executive director experience, in a numberhaving previously served on the board of sectors, as well as executive experience in financial markets, risk management and investment management. Through hernon-executive roles, Ms Hewson brings a breadth of experience and insight on strategy and portfolio optimisation through cycles, financial andnon-financial risk, social value, organisational culture and the changing external environment.
Ms Hewson is a former investment banker with over 35 years’ experience in the finance sector. She was previously an Executive Director of Schroders AustraliaPort Waratah Coal Services Limited and has extensive financial markets, risk management and investment management expertise. Ms Hewson is a former Director of Stockland Group, BT Investment Management Limited, Westpac Banking Corporation, AMP Limited, CSR Limited, AGL Energy Limited, the Australian Gas Light Company, South Australian Water and the Economic Development Board of South Australia.Rio Tinto Zimbabwe.
Other directorships and offices (current and recent):
Member of Federal Government Growth Centres Advisory Committee (since January 2015)Former Advisor, Newmont (from October 2019 to March 2020)
DirectorFormer President and Chief Executive Officer of Infrastructure SA (since JanuaryNewmont Corporation (from 2013 to October 2019)
Former Director (from 2013 to October 2019) and Treasurer (from 2017 to October 2019) of Stockland Group (from March 2009 to September 2018)the International Council on Mining and Metals
Former Trustee Westpac FoundationVice Chair of World Gold Council (from May 20152017 to 2019)
Former MemberCo-Chair of Australian Federal Government Financial Systems InquiryWorld Economic Forum Mining and Metals Governors (from January 20142016 to December 2014)2017)
Former Member of the Advisory Board of Nanosonics Limited (from June 2007 to August 2015)
Former Director of BT Investment Management Limited (from December 2007 to December 2013)
Former Director of Australian Charities Fund Operations Limited (from June 2000 to February 2014)
Former Director and Patron of the Neurosurgical Research Foundation (from April 1993 to December 2013)
Former Trustee and Chairman of Westpac Buckland Fund (from January 2011 to December 2013) and Chairman of Westpac Matching Gifts Limited (from August 2011 to December 2013), together known as the Westpac Foundation
Former Director of Westpac Banking Corporation (from February 2003 to June 2012)
135
Board Committee membership:
ChairmanMember of the Remuneration Committee
Member of the Nomination and GovernanceSustainability Committee
Susan Kilsby
MBA, BA, 6061
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since April 2019.
Skills and experience:Ms Kilsby has extensive experience in mergers and acquisitions, and finance and strategy, having held several roles in global investment banking. From 1996 to 2014, she held senior executive roles at Credit Suisse, including as a Senior Adviser,Advisor, and ChairmanChair of EMEA Mergers and Acquisitions. Ms KilsbySusan also hasnon-executive experience across multiple industries. Until recently, sheSusan was previously the ChairmanChair of Shire plc and the Senior Independent Director at BBA Aviation plc. Ms KilsbyShe is currently the Senior Independent Director of Diageo plc, and aNon-executive Director of Unilever N.V and Unilever plc, Diageo plc and Fortune Brands Home & Security Inc.Inc and Unilever N.V and Unilever plc.
Other directorships and offices (current and recent):
Director (since 2018) and Senior Independent Director (since October 2019) of Diageo plc (since 2018)
Director of Fortune Brands Home & Security Inc. (since 2015)
Director of Unilever N.V and Unilever plc (since August 2019)
Member of the UK Takeover Panel
Former Director (from 2011 to 2019) and ChairmanChair (from 2014 to 2019) of Shire plc
Former Director (from 2012 to 2019) and Senior Independent Director (from 2016 to 2019) of BBA Aviation Plcplc
Former Director of Goldman Sachs International (from 2016 to 2018)
Former Director of Keurig Green Mountain (from 2013 to 2016)2015)
Former Director of Coca-Cola HBC (from 2013 to 2015)
Former Director of L’Occitane International (from 2010 to 2012)
Board Committee membership:
Chair of the Remuneration Committee
Member of the RemunerationNomination and Governance Committee
Lindsay Maxsted
DipBus (Gordon), FCA, FAICD, 6566
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since March 2011.
Skills and experience:Mr Maxsted has extensiveover 10 years’ experience innon-executive roles, including as chairmanchair of two global companies.Mr Maxsted Lindsay is also a corporate recovery specialist who has managed a number of Australia’s largest corporate insolvency and restructuring engagements and, until 2011, continued to undertake consultancy work in the restructuring advisory field. He was the Chief Executive Officer of KPMG Australia between 2001 and 2007.
Mr MaxstedLindsay has a breadth of understanding and insight in relation to the creation of long-termshareholder value through cycles, financial andnon-financial risk, capital allocation discipline and the external environment.
The Board is satisfied that Mr MaxstedLindsay meets the criteria for recent and relevant financial experience as outlined in the UK Corporate Governance Code, and competence in accounting and auditing as required by the UK Financial Conduct Authority’s Corporate GovernanceFCA’s Disclosure and Transparency Rules. In addition, he is the Board’s nominated ‘audit committee financial expert’ for the purposes of the SEC Rules.
Other directorships and offices (current and recent):
Chairman of Westpac Banking Corporation (since December 2011) and a Director (since March 2008)
ChairmanChair of Transurban Group (since August 2010) and a Director (since March 2008)
Director and Honorary Treasurer of Baker Heart and Diabetes Institute (since June 2005)
Former Chair (from December 2011 to March 2020) and Director (from March 2008 to March 2020) of Westpac Banking Corporation
Board Committee membership:
ChairmanMember of the Risk and Audit Committee
136
John Mogford
BEng, 6667
IndependentNon-executive Director
Director of BHP Group Limited and BHP Group Plc since October 2017.
Skills and experience: Mr Mogford has significant global executive experience, including in oil and gas, capital allocation discipline, commodity value chains and health, safety and environment. Mr MogfordJohn has also held roles as anon-executive director on a number of boards.
Mr MogfordJohn spent the majority of his career in various leadership, technical and operational roles at BP Plc. He was the Managing Director and an Operating Partner of First Reserve, a large global energy focused private equity firm, from 2009 until 2015, during which he served on the boards of First Reserve’s investee companies, including as ChairmanChair of Amromco Energy LLC and White Rose Energy Ventures LLP. Mr MogfordJohn retired from the boards of Weir Group Plc and one of First Reserve’s portfolio companies, DOF Subsea AS, in 2018, and is currently aNon-executivenon-executive Directordirector of ERM Worldwide Group Limited.
Other directorships and offices (current and recent):
Non-executive Director of ERM Worldwide Group Limited (since 2015)
FormerNon-executive Director of Network Rail Limited (from 2016 to 2017)
Former Managing Director (from 2012 to 2015) and Operating Partner (from 2009 to 2012) of First Reserve Corporation
FormerNon-executive Director of Midstates Petroleum Company Inc. (from 2011 to 2016)
FormerNon-executive Director of CHC Group Limited (from 2014 to 2015) and CHC Helicopters SA (from 2012 to 2015)
FormerNon-executive Director of DOF Subsea AS (from 2009 to 2018)
FormerNon-executive Director of Weir Group Plc (from 2008 to 2018)
Board Committee membership:
MemberChair of the Sustainability Committee
Shriti Vadera
MA, 5758
Senior Independent Director, BHP Group Plc
Director of BHP Group Limited and BHP Group Plc since January 2011.
Skills and experience:Ms Vadera brings wide-ranging and global experience in economics, public policy and strategy, as well as deep understanding and insight in relation to global and emerging markets and the macro-politicalmacro political and economic environment.
Ms VaderaShriti has held executive roles and has broad and extensive non-executive experience. She is Chairmancurrently Chair of Santander UK Group Holdings Plc and Santander UK Plc, a Non-executive Director of Prudential Plc, and is expected to become the next Chair of Prudential from 1 January 2021. Shriti was formerly aNon-executive Director of AstraZeneca Plc from(from 2011 to 2018.2018). She was an investment banker with S G Warburg/UBS from 1984 to 1999, on the Council of Economic Advisers, HM Treasury from 1999 to 2007, Minister in the UK Department of International Development in 2007, Minister in the Cabinet Office and Business Department from 2008 to 2009 with responsibility for dealing with the financial crisis and G20 Adviser from 2009 to 2010. Ms VaderaShriti advised governments, banks and investors on the Eurozone crisis, banking sector, debt restructuring and markets from 2010 to 2014.
Other directorships and offices (current and recent):
ChairmanNon-executive Director of Prudential Plc (since May 2020)
Chair of Santander UK Group Holdings Plc and Santander UK Plc (since March 2015)
Former Non-executiveDirector of AstraZeneca Plc (from January 2011 to December 2018)
Former Trustee of Oxfam (from 2000 to 2005)
Board Committee membership:
Member of the Nomination and Governance Committee
Member of the Remuneration Committee
Dion Weisler
137BASc (Computing), Honorary Doctor of Laws, 53
Independent Non-executive Director
Director of BHP Group Limited and BHP Group Plc since June 2020.
Skills and experience: Mr Weisler has extensive global executive experience, including in chief executive officer and operational roles. In particular, Dion has valuable transformation and commercial experience in the global information technology sector, a focus on capital discipline, as well as perspectives on current and emerging ESG issues.
Dion served as the President and Chief Executive Officer of HP Inc. from 2015 to 2019 and after stepping down from his President and CEO role, remained at HP Inc. as a Director and Senior Executive Adviser until May 2020. Prior to joining HP in 2012, Dion held a number of senior executive roles at Lenovo Group Limited, including as Vice President and Chief Operating Officer of the Product and Mobile Internet Digital Home Groups, and as Vice President and General Manager, South East Asia. Dion also has experience at Telstra Corporation as the General Manager Conferencing and Collaboration, and from 1987 to 2001 held various positions at Acer Inc., including as Managing Director, Acer UK. Dion is currently a Non-executive Director of Intel Corporation and Thermo Fisher Scientific.
Other directorships and offices (current and recent):
Director of Intel Corporation (since June 2020)
Director of Thermo Fisher Scientific Inc. (since 2017)
Former President and Chief Executive Officer (from 2015 to October 2019), Director (from 2015 to May 2020), and Senior Executive Adviser (from November 2019 to May 2020) at HP Inc.
Board Committee membership:
Member of the Remuneration Committee
Caroline Cox
BA (Hons), MA, LLB, BCL, 4950
Group General Counsel & Company Secretary and ChairmanChair of the Disclosure Committee
Ms Cox was appointed Group Company Secretary of BHP effective March 2019. Ms Cox joined BHP in 2015 as Vice President Legal and was appointed Group General Counsel in March 2016, a role she continues to hold. Prior to BHP, Ms Cox was a Partner at Herbert Smith Freehills, a firm she was with for 11 years, specialising in cross-border regulatory investigations, inquiries and disputes. Earlier in her career, Ms Cox was a solicitor at the Canadian law firm, Osler Hoskin & Harcourt and clerked for Judges at the Alberta Court of Appeal and Court of Queen’s Bench.
138For information on the announced appointment of Christine O’Reilly as an independent non-executive Director, please refer to Exhibit 15.3.
2.2.2 Executive Leadership Team
Andrew MackenzieAthalie Williams
BA (Hons), FAHRI, 50
Chief People Officer
Ms Williams joined BHP in 2007 and was appointed to the role of President, Human Resources in January 2015. Athalie’s title changed to Chief People Officer effective 1 July 2015. She has previously held senior Human Resources positions, including Vice President Human Resources Marketing, Vice President Human Resources for the Uranium business and Group HR Manager, Executive Resourcing & Development. Prior to BHP, Athalie was an organisation strategy adviser with Accenture (formerly Andersen Consulting) and National Australia Bank. She is a member of Chief Executive Women and a Director of the BHP Foundation.
Daniel Malchuk
BEng, MBA, 54
President Operations, Minerals Americas
Mr Malchuk was appointed President Operations, Minerals Americas in February 2016 and is based in Santiago, Chile. Previously he was President of the Copper Business. Danny has held a number of roles in BHP, including President Aluminium, Manganese and Nickel, President of Minerals Exploration, and Vice President Strategy and Development Base Metals. He has worked in four countries with BHP, since joining the Company in April 2002.
Edgar Basto
BSc, (Geology)Metallurgy, 53
President, Minerals Australia
Mr Basto was appointed President Minerals Australia on 1 July 2020 and is responsible for BHP’s iron ore and nickel operations in Western Australia, metallurgical and energy coal in Queensland and New South Wales, and copper in South Australia. Edgar was Asset President of Western Australia Iron Ore (WAIO) from March 2016 and Acting President Operations Minerals Australia from November 2019. Edgar has held senior leadership roles across a range of commodities including iron ore, copper, coal and nickel, and has deep technical capability in both mining and smelting operations. Originally from Colombia, Edgar has a Bachelor of Applied Science (Metallurgical Engineering) from the Universidad Industrial de Santander. He joined BHP in 1989.
Geoff Healy
BEc, LLB, 54
Chief External Affairs Officer
Mr Healy joined BHP as Chief Legal Counsel in June 2013 and was appointed Chief External Affairs Officer in February 2016. Prior to joining BHP, Geoff was a partner at Herbert Smith Freehills for 16 years and a member of its Global Partnership Council, working widely across its network of Australian and international offices.
Geraldine Slattery
BSc, Physics, MSc, International Management (Oil & Gas), PhD51
President Operations, Petroleum
Ms Slattery joined BHP in 1994 and was appointed President Operations, Petroleum in March 2019. Geraldine has 25 years of experience with BHP, most recently as Asset President Conventional and prior to that in several senior operational and business leadership roles across the Petroleum business in the United Kingdom, Australia and the United States.
Laura Tyler
BSc (Geology (Hons)), MSc (Mining Engineering), 53
Chief Geoscientist
Ms Tyler joined BHP in 2004 and was appointed Chief Geoscientist in 2019 in addition to her role as Asset President of Olympic Dam. Previously, Laura was Chief of Staff to the CEO, Asset President of the Cannington Mine and held technical and operational roles at the EKATI Diamond Mine in Canada and corporate HSEC in London. Prior to joining BHP, Laura worked for Western Mining Corporation, Newcrest Mining and Mount Isa Mines in various technical and operational roles.
Mike Henry
BSc (Chemistry), 6254
Chief Executive Officer
(See section 2.2.1 for biography)
Peter Beaven
BAcc, CA, 5253
Chief Financial Officer
Mr Beaven was appointed Chief Financial Officer in October 2014. Previously he was the President of Copper and prior to that appointment in May 2013, President of Base Metals, President of BHP’s Manganese Business, and Vice President and Chief Development Officer for Carbon Steel Materials. He has wide experience across a range of regions and businesses in BHP, UBS Warburg, Kleinwort Benson and PricewaterhouseCoopers.
Geoff Healy
BEc, LLB, 53
Chief External Affairs Officer
As noted in section 2.5, Peter will continue as CFO until 30 November 2020 to provide ongoing leadership through to Mr Healy joined BHP as Chief Legal Counsel in June 2013Lamont’s commencement, and was appointed Chief External Affairs Officer in February 2016. Prior to joining BHP,will support Mr Healy was a partner at Herbert Smith Freehills for 16 years and a member of its Global Partnership Council, working widely across its network of Australian and international offices.
Mike Henry
BSc (Chemistry), 53
President Operations, Minerals Australia
Mr Henry joined BHP in 2003. He served as President, Coal from January 2015 to February 2016 whenLamont with handover into early 2021, after which he was appointed President Operations, Minerals Australia. Prior to January 2015, he was President, HSE, Marketing & Technology. His earlier career with BHP included a number of commercial roles covering Minerals and Petroleum, including the role of Chief Marketing Officer.will leave BHP.
Diane Jurgens
BSEE, MSEE, MBA, 57
Chief Technology Officer
Ms Jurgens joined BHP in 2015 and was appointed Chief Technology Officer in February 2016. Prior to joining BHP, Ms Jurgens was based in China for nearly 10 years, serving as Board Member and Managing Director of Shanghai OnStar Telematics Company, in addition to prior roles as Chief Information Officer and Strategy Board member for General Motors’ International and China Operations. Ms Jurgens’ early career was with the Boeing Company where she worked for 12 years in engineering, information technology and business development leadership roles.
Daniel Malchuk
BEng, MBA, 53
President Operations, Minerals Americas
Mr Malchuk was appointed President Operations, Minerals Americas in February 2016 based in Santiago, Chile. Previously he was President of the Copper Business. Mr Malchuk has held a number of roles in BHP, including President Aluminium, Manganese and Nickel, President of Minerals Exploration, and Vice President Strategy and Development Base Metals. He has worked in four countries with BHP, since joining the Company in April 2002.
139
Vandita Pant
BCom (Hons), MBA, Business Administration, 4950
Chief Commercial Officer
Ms Pant joined BHP in 2016 and was appointed Chief Commercial Officer in July 2019, with global accountabilities for Marketing, Procurement, Maritime and Logistics and for developing the Company’sBHP’s views on global commodities markets. Prior to this role she was Group Treasurer and Head of Europe. Before joining BHP, she held roles with ABN Amro and Royal Bank of Scotland and has lived and worked in Singapore, India, Japan and the UK.United Kingdom.
Jonathan Price
MEng (Hons), Metallurgy & Materials Science, MBA, Business Administration, 43
Chief Transformation Officer2.3 Role and responsibilities of the Board
Mr Price joined BHP in 2006governance structure
Shareholders The Board uses formal and informal communication channels to understand the views of shareholders to ensure they are represented in governing BHP. For more information on shareholder engagement, refer to section 2.6.1. |
Board BHP’s purpose is to bring people and resources together to build a better world (our purpose). Our strategy is to have the best capabilities, best commodities and best assets, to create long-term value and high returns (our strategy). Transformation, capital discipline and social value enable the successful execution of our strategy. |
Independence – The Non-executive Directors are considered by the Board to be independent of management. They are free from any business relationship or other circumstance that could materially interfere with the exercise of objective, unfettered or independent judgement. For more information on the process for assessing independence, refer to section 2.9. Composition – The Board currently has 12 members. The Board believes there is an appropriate balance between Executive and Non-executive Directors to promote shareholder interests and govern BHP effectively. The Board has fewer Executive Directors than is common for UK-listed companies, but its composition is appropriate for the Dual Listed Company structure and is in line with Australian-listed company practice. In addition, the Board has extensive access to members of senior management who frequently attend Board meetings. Management makes presentations and engages in discussions with Directors, answers questions and provides input and perspective on their areas of responsibility. The Chief Financial Officer (CFO) attends all Board meetings. The Board, led by the Chair, also holds discussions in the absence of management at each Board meeting. The Directors of BHP, along with their profiles, are listed in section 2.2.1. |
Role and responsibilities of the Board | Matters reserved for the Board include: | |||||
The role of the Board, as set out in the Board Governance Document, isto represent shareholders and promote and protect the interests of BHP in the short and long term. The Board considers the interests of the Group’s shareholders as a whole and the interests of other relevant stakeholders. The Board Governance Document is a statement of the practices and processes the Board has adopted to fulfil its responsibilities. It includes the processes the Board has implemented to undertake its own tasks and activities; the matters it has reserved for its own consideration and decision-making; the authority it has delegated to the Chief Executive Officer (CEO), including the limits on the way the CEO can execute that authority; and guidance on the relationship between the Board and the CEO. | Succession | • CEO appointment and determination of the terms of the appointment • Approval of the appointment of Executive Leadership Team (ELT) members, and material changes to the organisational structure involving direct reports to the CEO | ||||
Strategic matters | • Strategy, annual budgets, balance sheet management and funding strategy • Determination of commitments, capital and non-capital items, acquisitions and divestments above specified limits | |||||
Monitoring | • Performance assessment of the CEO and the Group • Approving the Group’s values, Our Code of Conduct, purpose and risk appetite • Management of Board composition processes and performance | |||||
The Group Company Secretary is accountable to the Board and advises the Chair and, through the Chair, the Board and individual Directors on all matters of governance process. | Reporting and regulation | • Determination and adoption of documents (including the publication of reports and statements to shareholders) that are required by the Group’s constitutional documents, statute or by other external regulation | ||||
The Board Governance Document isavailable at bhp.com/governance. |
Chair | CEO | |||
The Chair is responsible for leading the Board and ensuring it operates to the highest governance standards. | The CEO is accountable to the Board for the authority that is delegated to the CEO and for the performance of the Group. The CEO works in a constructive partnership with the Board and is required to report regularly to the Board on progress. |
Board Committees The Board has established Committees to assist it in exercising its authority, including monitoring the performance of BHP to gain assurance that progress is being made towards our purpose within the limits imposed by the Board. Each of the permanent Committees has terms of reference under which authority is delegated by the Board. These are available at bhp.com/governance. | ||||||
Nomination and Governance | Risk and Audit Committee | Sustainability Committee | Remuneration Committee | |||
Oversees and monitors renewal and succession planning and advises and makes recommendations on the Group’s governance practices (See section 2.9) | Oversees and monitors financial reporting, other periodic reporting and external and internal audit and risk (See section 2.10) | Oversees and monitors material health, safety, environmental and community matters and social value (See section 2.11) | Oversees and monitors remuneration policy (See section 2.12) |
2.4 Board meetings and was appointed Chief Transformation Officer in March 2019. Prior to this, he was Transformation Director, and held senior roles in Nickel, Marketing, Iron Ore, and Finance, where he has worked with governments, joint venture partners, customers, industry peers, investors and advisors. Before joining BHP, he held roles at ABN AMRO investment bank in London, servicing metals and mining clients through a period of industry consolidation.
Geraldine Slattery
BSc, Physics, MSc, International Management (Oil & Gas), 50
President Operations, Petroleumattendance
Ms Slattery joinedThe Board meets as often as required. Directors must allocate sufficient time to BHP to perform their responsibilities effectively, including adequate time to prepare for Board meetings. During FY2020, the Board met 13 times. Twelve meetings were held in 1994Australia and was appointed President Operations, Petroleum in March 2019. Ms Slattery has 25 years’ of experience with BHP, most recently as Asset President Conventional, and prior to that in several senior operational and business leadership roles across the Petroleum businessone in the United Kingdom,Kingdom. The normal schedule, which includes Board meetings in the UK and in another global office location, was disrupted due to the travel impacts of COVID-19 resulting in virtual board meetings, and additional meetings were held regarding COVID-19. In total, four of the meetings were ad hoc – scheduled during the year.
Members of the ELT and other members of senior management attended meetings of the Board by invitation, with the CFO attending each meeting.
Board and Board Committee attendance in FY2020
Scheduled Board | Ad hoc Board | Risk and Audit Committee | Nomination and Governance Committee | Remuneration Committee | Sustainability Committee | Tenure as at 30 June 2020(1) | ||||||||||||||||||||
Terry Bowen | 9/9 | 4/4 | 11/11 | 2 years 9 months | ||||||||||||||||||||||
Malcolm Broomhead | 9/9 | 4/4 | 4/4 | 5/5 | 10 years 3 months | |||||||||||||||||||||
Ian Cockerill | 9/9 | 4/4 | 10/11 | (2) | 5/5 | 1 year 3 months | ||||||||||||||||||||
Anita Frew | 9/9 | 4/4 | 11/11 | 6/6 | 4 years 10 months | |||||||||||||||||||||
Gary Goldberg | 3/3 | 3/3 | 3/3 | 3/3 | 5 months | |||||||||||||||||||||
Mike Henry | 3/3 | 3/3 | 6 months | |||||||||||||||||||||||
Carolyn Hewson | 4/4 | 1/1 | 2/2 | 3/3 | Retired on 7 November 2019 | |||||||||||||||||||||
Susan Kilsby | 9/9 | 2/4 | (3) | 1/1 | 6/6 | 1 year 3 months | ||||||||||||||||||||
Andrew Mackenzie | 6/6 | 1/1 | Retired on 31 December 2019 | |||||||||||||||||||||||
Ken Mackenzie | 9/9 | 4/4 | 4/4 | 3 years 10 months | ||||||||||||||||||||||
Lindsay Maxsted | 9/9 | 4/4 | 11/11 | 9 years 3 months | ||||||||||||||||||||||
John Mogford | 9/9 | 4/4 | 5/5 | 2 years 9 months | ||||||||||||||||||||||
Shriti Vadera | 9/9 | 4/4 | 4/4 | 6/6 | 9 years 5 months | |||||||||||||||||||||
Dion Weisler | 1/1 | 1/1 | 1 month |
Table indicates the number of scheduled and ad hoc meetings attended and held during the period the Director was a member of the Board and/or committee.
(1) | See section 2.9 for further discussion about tenure. |
(2) | Ian Cockerill was unable to attend the Risk and Audit Committee meeting on 15 August 2019 due to pre-existing Board commitments in a transitional year. Ian provided detailed comments to the Chair of the Committee ahead of the meeting. |
(3) | Susan Kilsby was unable to attend ad hoc Board calls which were scheduled at short notice, on 30 October 2019 and 17 March 2020, due to pre-existing Board commitments and COVID-related travel disruptions. Ms Kilsby provided detailed comments to the Chair in advance of both meetings. |
2.5 Key Board activities during FY2020
Adoption of governance reforms in Australia and the United States.Kingdom
Laura TylerIn July 2018, the Financial Reporting Council released the UK Code and the Guidance on Board Effectiveness, and we comply in full. We also comply with the third edition of the ASX Corporate Governance Principles and Recommendations (ASX Third Edition) published by the ASX Limited’s Corporate Governance Council. In addition, we comply with the majority of the recommendations contained in the fourth edition of the ASX Corporate Governance Principles and Recommendations (ASX Fourth Edition) which was released in February 2019.
BSc (Geology (Hons)), MSc (Mining Engineering), 52
During FY2020, BHP implemented new policies and procedures in line with the UK Code and the ASX Fourth Edition, with an emphasis in seven main areas. These are: enhanced role for the Board in relation to codes of conduct and whistleblowing: risk assessment and management; diversity; requirement to disclose certain policies; consideration of stakeholder interests; engagement with the workforce and oversight of workforce policies and practices; and an enhanced role for the Board in relation to culture.
Chief Geoscientist
Board Governance Document and committee Terms of Reference updates | The Board Governance Document was updated to reflect our revised approach to risk management and reporting, and to reference the Board’s role in assessment and monitoring. In addition, areas relating to how information flows to the Board were clarified, and changes were made to reflect BHP’s revised purpose and strategy. Committee Terms of Reference were also updated as set out below. | |
Enhanced role for the Board in relation to codes of conduct and whistleblowing | From a UK perspective, the main changes are to ensure the Code of Conduct and whistleblowing are a Board-level responsibility, rather than a Committee responsibility, and to ensure the scope of reporting is ‘any matters of concern’. The RAC Terms of Reference confirm that the RAC provides a report-out to the Board, which includes significant Code of Conduct matters reported to the RAC at its meetings. In addition, an independent investigations team has been maintained within Ethics and Compliance, and its investigations and investigation trends are regularly reported to the RAC. (See sections 2.10 (effectiveness of systems of internal control and risk management) and 2.15.) | |
Risk assessment and management | The revised UK Code and ASX Fourth Edition were taken into account in the design of the Group Risk Framework and approach to risk management and reporting. In addition, the Board Governance Document and RAC Terms of Reference were amended to reflect our updated approach to risk management and reporting, including the importance of the Board having oversight of both financial and non-financial risks, the RAC assisting the Board in monitoring that the Group is operating with due regard to the risk appetite set by the Board, and that the Group Risk Framework deals adequately with contemporary and emerging risks. (See section 2.10.) | |
Diversity of the board and senior management, and enhanced role for nomination committee | The Board Governance Document was aligned with new UK Code provisions by ensuring that appointments and succession plans for both Board and senior management are both led by the Nomination and Governance Committee. At the end of CY2020 we will have 33 per cent women on the Board.(See sections 1.6.1 and 2.9.) | |
Requirement to disclose certain policies | BHP already disclosed its Communications Policy and OurCode of Conduct. The ‘Speaking up’ and ‘Anti-corruption’ sections of Our Code of Conduct cover BHP’s whistle-blower and anti-bribery and corruption policies. Our Market Disclosure policy has been updated for periodic market disclosures, including verification procedures. (See section 2.16.) | |
Consideration of stakeholder interests | BHP’s strategic framework, focus on social value, our purpose statement, section 172 statement, and risk appetite statement all reflect the consideration of external stakeholders in decision-making. (See sections 1.4.3 and 2.6.) | |
Engagement with the workforce and oversight of workforce policies and practices | The Board and its Committees receive information related to the workforce through a range of channels, including direct engagement at Board meetings and site visits, the Engagement and Perception Survey (EPS) findings, gender pay gap reports, and updates from the Chief Executive Officer and the Chief People Officer. In addition, as part of implementing the UK Code, the Chief People Officer presented to the Board a review of workforce policies and practices to ensure these are consistent with the Group’s values and support its long-term sustainable success. (See sections 1.4.3, 1.6 and 2.6.2.) | |
Enhanced role for the Board in relation to culture | The Board, supported by the Committees, considers a range of qualitative and quantitative information in relation to culture and monitors and assesses culture on an ongoing basis for alignment with our strategy, purpose and values. Board and committee papers include workforce planning in the context of COVID-19, Engagement and Perception Survey results, inclusion and diversity update, RAC report-outs on Code of Conduct investigations, the culture and capability required to execute the strategy, and culture as a part of asset reviews. The Board Governance Document was updated to expressly reference the Board’s role in relation to assessing and monitoring culture. (See sections 1.6, 2.6.2, 2.7 and 2.15.) |
Ms Tyler joined
CEO and ELT succession
A major piece of work for the Board during FY2020 was CEO succession. For BHP, succession of the CEO is an ongoing process, which continues to work well in 2004developing internal candidates for this critical role. This year, Andrew Mackenzie retired as CEO and Mike Henry was appointed CEO from 1 January 2020. The Board took account of Mike’s 30 years’ experience in the global mining and petroleum industry, spanning operational, commercial, safety, technology and marketing roles. As set out in section 1.4.3, in the 45 days between being announced CEO-Elect and becoming CEO, Mike Henry spent time engaging with employees from every asset and almost all major offices. In addition, Mike was able to get out and meet with other key stakeholders before COVID-19 struck, and COVID-19 has subsequently reinforced the advantages of an internal appointment. A critical component of succession at ELT level and below is the existence of a robust senior leadership program that operates across multiple organisational levels to build, develop, renew, recruit and promote our leaders. The Board is actively engaged and oversees the development of the senior team. Following his appointment, Mike Henry has begun to announce the new senior management team and continued focus on assets and their performance.
In June 2020, we announced the appointment of Mr Lamont as Chief GeoscientistFinancial Officer, effective 1 December 2020. David has been the CFO of the ASX-listed global biotech company CSL Limited since January 2016. Prior to joining CSL, he was the CFO and an Executive Director at MMG from 2010. Peter Beaven will continue as CFO until 30 November 2020 to provide ongoing leadership through to Mr Lamont’s commencement, and will support Mr Lamont with handover into early 2021, after which he will leave BHP.
In August 2020, CEO Mike Henry announced new roles and appointments on the ELT. Ragnar Udd will become President Minerals Americas, effective 1 November 2020, replacing Daniel Malchuk. Mr Malchuk will continue in 2019the role until that time, and leave BHP at the end of CY2020. Laura Tyler commenced in addition tothe new role of Chief Technical Officer on 1 September 2020. This role is an expansion of her current position on the ELT as Chief Geoscientist. She will relinquish her concurrent role as Asset President of Olympic Dam. Previously, Ms Tyler wasCaroline Cox will become Chief of Staff to the CEO, Asset President of the Cannington Mine, and held technical and operational roles at the EKATI Diamond Mine in Canada and corporate HSEC in London. Prior to joining BHP, Ms Tyler worked for Western Mining Corporation, Newcrest Mining and Mount Isa Mines in various technical and operational roles.
Athalie Williams
BA (Hons), FAHRI, 49
Chief People Officer
Ms Williams joined BHP in 2007 and was appointed to the role of President, Human Resources in January 2015. Ms Williams’ title changed to Chief PeopleExternal Affairs Officer, effective 1 July 2015. She has previously held senior Human Resources positions, including Vice President Human Resources Marketing, Vice President Human Resources forNovember 2020, replacing Geoff Healy. Mr Healy will continue in the Uranium businessrole until that time, and Group HR Manager, Executive Resourcing & Development. Prior toleave BHP Ms Williams was an organisation strategy adviser with Accenture (formerly Andersen Consulting) and National Australia Bank. Ms Williams is a memberat the end of CY2020. Johan van Jaarsveld commenced in the new role of Chief Executive Women and a Director ofDevelopment Officer on 1 September 2020.
Key matters considered by the BHP Foundation.Board during FY2020 are outlined below.
140
Chair’s matters | Board composition, succession planning, performance and culture | • CEO succession • CEO transition update • Approval of the appointment of the new CFO • Committee succession • Board composition and succession • Board evaluation • Inclusion and diversity update and FY2020 targets • Corporate governance updates • Board culture framework | ||
Strategic matters | Capital allocation (CAF, capital prioritisation and development outcomes) | • Dividend policy and dividend recommendations • Capital prioritisation and portfolio development options • Capital execution watch list | ||
Funding (annual budgets, balance sheet management, liquidity management) | • COVID-19 financial impacts, balance sheet and forecasts • Two-year budget • Funding updates | |||
Portfolio (Group scenarios, commodity and asset review, growth options, approving commitments, capital and non-capital items and acquisitions and divestments above a specified threshold,and geopolitical and macro-environmental impacts) | • COVID-19 update – including safety measures, wellbeing steps, workforce planning and community support • Portfolio review – options and alternatives • Risk Appetite Statement • Climate change scenarios and stakeholder analysis • Climate change – medium-term target, Scope 3 emissions, investment fund |
• Circular economy • Samarco strategy, funding and communications • Germano dam decommissioning • Energy Coal review • Petroleum plan • Jansen Potash project • Trinidad and Tobago gas • Resolution Copper project • Mexico Trion project update • Rail technology • Economic and geopolitical risk • Escondida and Spence power purchase agreements | ||||
Social value and other significant items | • Social value update • Industry associations review • Shareholder requisitioned resolutions • World Class Functions • Vendor rationalisation • Culture and capability • EPS survey and COVID-19 wellbeing survey | |||
Monitoring and assurance matters | Includes matters and/or documents required by the Group’s constitutional documents, statute or by other external regulation | • Tailings dams updates • Investor relations reports • CEO reports, including CEO transition • HSEC reports • RAC report-outs • Sustainability Committee report-outs, including site visit report-outs • Nomination and Governance Committee report-outs • Remuneration Committee report-outs • Approval of the CEO’s remuneration • Reviewing and approving the Annual Reporting suite • Site visits |
There are multiple ways the views of stakeholders, beyond shareholders (section 2.6.1) and the workforce (section 2.6.2), are brought to the Board and its Committees. For example, Health, Safety, Environment and Community (HSEC) updates, site visits involving engagement with community members and government, and engagement with the Forum on Corporate Responsibility. In addition, the RAC receives reports on engagement with regulators. It also receives reports on material litigation and disputes with third parties and complaints raised through the speak-up hotline, EthicsPoint, which allows our workforce to raise concerns in confidence. The strategic framework, focus on social value, our new purpose and Risk Appetite Statement reflect the significance of external stakeholders in decision-making.
The Annual Report includes additional information on our stakeholders, including non-governmental organisations. For more information, refer to sections 1.4.3, 1.6 and 1.7.
Part of the Board’s commitment to high-quality governance is expressed through the approach BHP takes to engaging and communicating with itsour shareholders. The Board uses formal and informal communication channels to understand and take into account the views of shareholders.
We encourage shareholders to make their views known to us. Shareholders can contact us at any time through our Investor Relations team, with contact details available at bhp.com. In addition, shareholders can communicate with us and our registrar electronically.
Our shareholders are based around the globe. As well as the two AGMs, which are an important part of the governance and investor engagement process, the Board uses a range of formal and informal communication channels to understand the views of shareholders. This ensures the Board represents shareholders in governing BHP. We regularly engage with institutional shareholders and investor representative organisations in Australia, South Africa, Europe and the United States. The purpose of these meetings is to discuss governance and strategy of BHP. The meetings are an important opportunity to build relationships and to engage directly with governance managers, fund managers and governance advisers. The Chairman and the CEO also meet regularly with retail shareholder representatives and their members, such as the Australian Shareholders’ Association, the UK Shareholders’ Association and ShareSoc.
We take a coordinated approach to engagement on corporate governance and during FY2019, we responded to a wide range of shareholders, their representatives andnon-governmental organisations. Issues covered included tailings dams, Samarco,non-operated joint ventures, industry associations, tax and transparency, corporate purpose, remuneration, human rights, climate change, social value and workforce relations. Engagement with other stakeholder groups, includingnon-governmental organisations, is outlined in section 1.10.
Investor engagement in FY2019FY2020
Topic | Led by | Purpose |
| |||
Strategy, governance and remuneration | Discuss Board priorities and seek shareholder | Meetings
| ||||
Remuneration | Remuneration policy consultation | Meetings held in Australia | ||||
Climate change and environmental, social and governance (ESG) | Board | Direct feedback | Direct engagement between a panel of institutional investors and the Board at the virtual Board meeting in June 2020. | |||
Strategy, finance and operating performance | CEO, CFO, senior management and Investor Relations | Update shareholders on results or other key announcements. We also engage with other capital | Live webcasts of
Face-to-face investor meetings held in Australia, Canada, Hong Kong SAR (China), Japan, Malaysia, Singapore, South Africa,
|
141
Topic | Led by | Purpose |
| |||
Debt investor meetings held in London in October 2019 with investors from the Netherlands, Singapore, the UK and the US, along with ad hoc meetings. Debt investor teleconferences held in August 2019 and February 2020 with investors in the Netherlands, the UK and the US. Management led engagement with retail investors in Australia in September 2019, and the Investor Relations team conducted retail broker briefings. | ||||||
Industry associations | CEO, External Affairs, Group Governance | Engaged with investors on shareholder resolutions, the 2019 Industry Association Review and a new approach to industry association membership | Multiple calls and face-to-face meetings were held between September 2019 and March 2020 with investors globally. This included face-to-face engagement between the CEO and certain investors in December 2019. In January 2020, briefings were held in Sydney, Melbourne, London, Edinburgh and Amsterdam. In March 2020, BHP commenced a global engagement and dialogue process with stakeholders to explore how the Group could improve its approach to industry associations, including to address issues raised by investors in our engagement on the 2019 shareholder resolutions. | |||
Social value and HSEC | Head of External Affairs and Head of Health, Safety and Environment | Update investors on key HSEC | Meetings held in Australia in September | |||
Corporate Governance | ESG, Group Governance and Investor Relations | Provides a conduit to enable the Board and its | ||||
Climate change | Vice President, Sustainability and Climate Change | Update investors on our | Ad hoc meetings held in Australia, Europe and the US, | |||
Annual General Meetings | Board and Senior Management, and external auditor | Respond to investor queries | Information on our AGMs is available at bhp.com/meetings. |
Shareholder communications
Shareholders can communicate
The Board has arrangements in place for workforce engagement, and has built on these arrangements further following the implementation of the UK Code. Alongside section 1.4.3, the table below describes the ways the Board engaged with BHPour workforce in FY2020, and our registrar electronically. Shareholders can contact us at any time through our Investor Relations team,how workforce considerations impacted key decisions. The Board considers these arrangements to be effective as they enable the Board to hear first-hand from a cross-section of the workforce, and to engage with contact details available online at bhp.com. Shareholderthem interactively (e.g. during site visits and analyst feedback is sharedsome Board briefing sessions), with the opportunity to consider the feedback received in subsequent Board through the Chairman, the Senior Independent Director, the Chairman of the Remuneration Committee, other Directors, the CEO, the CFO and the Group Company Secretary. In addition, Investor Relations and Group Governance provide regular reports to the Board on shareholder and governance manager feedback and analysis. This approach provides a robust mechanism to ensure that Directors are aware of issues raised and have a good understanding of current shareholder views.
Annual General Meetings
The AGMs provide a forum to facilitate the sharing of shareholder views and are important events in the BHP calendar. These meetings provide an update for shareholders on our performance and offer an opportunity for shareholders to ask questions and vote.
Key members of management, including the CEO and CFO, are present and available to answer questions. The External Auditor attends the AGMs and is also available to answer questions.
Proceedings at shareholder meetings are webcast live from our website. Copies of the speeches delivered by the Chairman and CEO to the AGMs are released to the relevant stock exchanges and posted on our website. A summary of proceedings and the outcome of voting on the items of business are released to the relevant stock exchanges and posted on our website as soon as they are available following completion of the BHP Group Limited AGM.
142
Information relating to our AGMs is available online at bhp.com/meetings.
Understanding shareholder views
2.4 Role and responsibilities of the Board
The Board’s role is to represent the shareholders. It is accountable to shareholders for creating and delivering value through the effective governance of BHP. This role requires a high-performing Board, with all Directors contributing to the Board’s collective decision-making processes.
TheBoard Governance Document is a statement of the practices and processes the Board has adopted to discharge its responsibilities. It includes the processes the Board has implemented to undertake its own tasks and activities; the matters it has reserved for its own consideration and decision-making; the authority it has delegated to the CEO, including the limits on the way in which the CEO can execute that authority; and guidance on the relationship between the Board and the CEO.
TheBoard Governance Document specifies the role of the Chairman, the membership of the Board and the role and conduct ofNon-executive Directors. It also provides that the Group Company Secretary is accountable to the Board and advises the Chairman and, through the Chairman, the Board and individual Directors on all matters of governance process.
The CEO is required to report regularly to the Board in a spirit of openness and trust on the progress being made by BHP. Open dialogue between individual members of the Board and the CEO and other members of the management team is encouraged to enable Directors to gain a better understanding of the Group.
For more information, refer to sections 2.5 to 2.8.
TheBoard Governance Document isavailable online at bhp.com/governance.
Matters reserved for Board decisiondiscussions.
practice |
| |
| Directors visited operational sites in several countries and informally engaged with a cross-section of our workforce in the field, in small group discussions and meetings to hear first-hand the views of our people. | |
Deep dives | In February 2020, Directors participated in an interactive presentation from Western Australia Iron Ore (WAIO) employees. The employees shared their perspectives on issues including peer comparison, strategic risks, people and investment options. | |
Board meetings |
Members of our workforce are able to raise matters of concern either through one of the
Conduct. | |
|
|
143
|
| |
| ||
|
Key Board activities during FY2019
The Board considered a range of matters during FY2019, as outlined below.
| ||||
| ||||
| ||||
|
|
144
|
The Board currently has 11 members. TheNon-executive Directors are considered by the Board to be independent of management and free from any business relationship or other circumstance that could materially interfere with the exercise of objective, unfettered or independent judgement. For more information on the process for assessing independence, refer to section 2.10.
The Nomination and Governance Committee retains the services of external recruitment specialists to assist in the identification of potential candidates for the Board.
The Board believes there is an appropriate balance between Executive andNon-executive Directors to promote shareholder interests and govern BHP effectively. While the Board includes a smaller number of Executive Directors than is common forUK-listed companies, its composition is appropriate for the Dual Listed Company structure and is in line with Australian-listed company practice. In addition, the Board has extensive access to members of senior management who frequently attend Board meetings, where they make presentations and engage in discussions with Directors, answer questions and provide input and perspective on their areas of responsibility. The CFO attends all Board meetings. The Board, led by the Chairman, also holds discussions in the absence of management at each Board meeting.
The Directors of BHP, along with their biographical details, are listed in section 2.2.1.
Inclusion and diversity
Our Charter and theOur Requirements for Human Resourcesstandardguide management on all aspects of human resource management, including inclusion and diversity. Underpinning theOur Requirements standards and supporting the achievement of diversity across BHP are principles and measurable objectives that define our approach to diversity and our focus on creating an inclusive work environment.
The Board considers that many facets of diversity are required for the Board, as set out in section 2.8, in order to meet the corporate purpose. Diversity is a core consideration in ensuring the Board and its committees have the right blend of perspectives so that the Board oversees BHP effectively for shareholders.
Part of the Board’s role is to consider and approve measurable objectives for workforce diversity each financial year and to assess annually both the objectives and our progress in achieving those objectives. This progress will continue to be disclosed in the Annual Report, along with the proportion of women in our workforce, in senior management positions and on the Board, with our aspirational goal being to achieve gender balance across the business and the Board by CY2025. For more information on inclusion and diversity at BHP, including our progress against our measurable objectives and our employee profile more generally, refer to section 1.9.
Mr MacKenzie was considered by the Board to be independent on his appointment as Chairman and was an independentNon-executive Director from his appointment to the Board effective 22 September 2016. The Board considered that none of Mr MacKenzie’s other commitments (set out in section 2.2.1) interfered with the discharge of his responsibilities to BHP during the year under review. The Board is satisfied that as Chairman, Mr MacKenzie made sufficient time available to serve BHP effectively.
Renewal
BHP adopts a structured and rigorous approach to Board succession planning. We consider Board size, tenure and the skills, experience and attributes required to effectively govern and manage risk within BHP. This process is continuous and planning is based on a nine-year tenure, allowing the Board to ensure we have the right balance on the Board between experience and fresh perspectives, noting the value ofnon-executive and executive experience. It also ensures the Board continues to befit-for-purpose and evolves to take account of the rapidly changing external environment and BHP’s circumstances. Further information is set out in section 2.13.3 Nomination and Governance Committee Report.
145
When considering new appointments to the Board, the Nomination and Governance Committee oversees the preparation of a role description, which includes the criteria and attributes set out in theBoard Governance Documentand section 2.8, which is provided to an external search firm retained to conduct a global search.
Once a candidate is identified, the Board, with the assistance of external consultants, conducts appropriate background and reference checks. The candidate is also interviewed by each Board member ahead of the Board deciding whether to appoint the candidate to the Board.
The Board has adopted a letter of appointment that contains the terms on whichNon-executive Directors will be appointed, including the basis upon which they will be indemnified by the Group. The letter of appointment clearly defines the role of Directors, including the expectations in terms of independence, participation, time commitment and continuous improvement.
A copy of the terms of appointment forNon-executive Directors is available online atbhp.com/governance.
Directorre-election
The Board adopted a policy in 2011, consistent with the UK Corporate Governance Code, under which all Directors must seekre-election by shareholders annually if they wish to remain on the Board. The Board believes annualre-election promotes and supports accountability to shareholders. The combined voting outcome of the BHP Group Plc and BHP Group Limited 2018 AGMs was that each Director received more than 96.9 per cent in support of theirre-election.
Board support forre-election is not automatic. Directors who are seekingre-election are subject to a performance appraisal overseen by the Nomination and Governance Committee. Annualre-election effectively means all Directors are subject to a performance appraisal annually. The Board, on the recommendation of the Nomination and Governance Committee, makes a determination as to whether it will endorse a retiring Director forre-election. The Board will not endorse a Director forre-election if his or her performance is not considered satisfactory. The Notice of Meeting provides information that is material to a shareholder’s decision whether or not tore-elect a Director, including whether or notre-election is supported by the Board.
2.8 Director skills, experience and attributes
Skills, experience and attributes required
The Board and its Nomination and Governance Committee work to ensure that the Board continues to have the right balance necessary to dischargefulfil its responsibilities in accordance with the highest standards of governance.responsibilities. The requirements for Board composition are articulateddescribed in an overarching statement, with the desired skills and experience included in the skills and experience matrix.matrix below. All Directors are expected to comply with the Group’s Code of Conduct, act with integrity, lead by example and promote the desired culture.
The overarching statement, skills, experience and attributes take into account,consider and respond to both the external environment and BHP’s core business characteristics, including:
BHP’s strategy and the long-term cyclical nature of the business;business
that BHP is a global natural resources company operating in global markets;markets
the continued need to focus on financial andnon-financial riskrisks (including HSEC risks);risks and the risks identified) (see section 1.5.4)
the increasing challenge related to social value and the many stakeholders that are impacted by BHP, including civil society, communities, investors, government, regulators, customers and employees;employees
the increasing importance of technology and innovation to the sustainability of BHP;BHP
ongoing and continued focus on capital allocation and improving shareholder and capital returns.returns
Overarching statement of Board requirements
The BHP Board will be diverse in terms of gender, background, nationality, skills, expertisegeography, age, personal strengths and geographic location.social and ethnic backgrounds. The Board will comprise Directors who have proven past performance and the level of business, executive andnon-executive experience required to:
provide the breadth and depth of understanding necessary to effectively create long-term shareholder value;value
protect and promote the interests of BHP and its social licence to operate;operate
ensure the talent, capability and culture of the GroupBHP to support the long-term delivery of BHP’s strategy.our strategy
Attributes
The Board considers thatbelieves each of theNon-executive DirectorsDirector has the followingthese attributes: sufficient time to undertake the responsibilities of the role; honesty and integrity; and a preparedness to question, challenge and critique. The Executive Director brings additional perspectives to the Board through a deeper understanding of BHP’s business andday-to-day operations.
146
Skills matrix
During FY2018, the Nomination and Governance Committee and the Board conducted a review of theThe Board skills matrix which took into accountidentifies the skills and experience the Board requiresneeds for the next period of BHP’s development, having regard toconsidering BHP’s circumstances and the changing external environment.environment as referred to above.
Fewer Directors meet each of the skills and experience contained in the updatedcurrent matrix than wasin the case previously.matrix used prior to FY2019. This is intentional to create a more diverse and well-rounded Board, but all Directors satisfy both the overarching statement and hold the key attributes. Furtherattributes discussed above. The Board collectively meets all the skills and experience set out in the skills matrix, and the matrix below reflects the Board composition as at 30 June 2020. For more information abouton the skills and attributes of each Director is set out in their biographies.the Directors, refer to section 2.2.1.
Skills and experience | Board | |||
Total Directors | ||||
Mining | ||||
Senior |
Oil and gas | ||||
Senior executive who has deep technical and operational oil and gas experience with a large company operating in multiple countries; successfully led production operations that have delivered consistent and sustaining levels of high performance (related to cost, returns and throughput); successfully led exploration projects with proven results and performance; delivered large capital projects that have been successful in terms of performance and returns; and a proven record in terms of health, safety and environmental performance and results. | 2 | |||
Global experience | ||||
Global experience working in multiple geographies over an extended period of time, including a deep understanding of and experience with global markets, and the macro-political and economic environment. | ||||
| 9 | |||
Strategy Experience in enterprise-wide strategy development and implementation in industries with long cycles, and developing and leading business transformation strategies. | ||||
| 11 | |||
Risk Experience and deep understanding of systemic risk and monitoring risk management frameworks and controls, and the ability to identify key emerging and existing risks to the organisation. | 12 | |||
Commodity value chain expertise | ||||
End-to-end value or commodity chain experience – understanding of consumers, marketing demand drivers (including specific geographic markets) and other aspects of commodity chain development. | 8 | |||
Financial expertise | ||||
Extensive relevant experience in financial regulation and the capability to evaluate financial statements and understand key financial drivers of the business, bringing a deep understanding of corporate finance, internal financial controls and experience probing the adequacy of financial and risk controls. | 12(1) | |||
Relevant public policy expertise | ||||
Extensive experience specifically and explicitly focused on public policy or regulatory matters, including ESG (in particular climate change) and community issues, social responsibility and transformation, and economic issues. | 4 | |||
Health, safety, environment and community | ||||
Extensive experience with complex workplace health, safety, environmental and community risks and frameworks. | 8 | |||
Technology | ||||
Recent experience and expertise with the development, selection and implementation of leading and business transforming technology and innovation, and responding to digital disruption. | 4 | |||
Capital allocation and cost efficiency | ||||
Extensive direct experience gained through a senior executive role in capital allocation discipline, cost efficiency and cash flow, with proven long-term performance. | 10 |
(1) |
|
147
Board skills and experience: Climate change
The strategic issues facing the Board change over time. It is important the Board is able to identify these issues and access the best possible advice.
Climate change is a multi-faceted issue that affects investment decisions, our portfolio, oversight of the sustainability of our operations and engagement with government, investors, suppliers and customers. The Board includes an appropriate mix of skills and experience to understand the implications of climate change on our operations, market and society.
Climate change is treated as a Board-level governance issue and is discussed regularly, including during Board strategy discussions, portfolio review and investment decisions, and in the context of scenario triggers and signposts. The Sustainability Committee spends a significant amount of time considering systemic climate change matters relating to the resilience of and opportunities for BHP’s portfolio.
As a Board-level governance issue requiring experience of managing in the context of uncertainty and an understanding of the risk environment of the Group, theNon-executive Directors bring relevant experience to our climate change discussions.
Board members bring significant sectoral experience whichfrom a range of sectors including resources, energy, finance, technology and public policy. This equips them to consider potential implications of climate change on the GroupBHP and its operational capacity. Board members also possess extensive experience in energy, governance and sustainability. There is also wide-ranging experience in finance, economics and public policy, which helps BHPcapacity, as well as understand the nature of the debate and the international policy response as it develops. In addition, there is a deep understanding of systemic risk and the potential impacts on our portfolio.
Collectively, this means the Board has the experience and skills to assist the Group in the optimal allocation of financial, capital and human resources for the creation of long-term shareholder value. It also means the Board understands the importance of meeting the expectations of stakeholders, including in respect of the natural environment.
To enhance that experience, the
The Board has taken a number of measures to ensure that its decisions are appropriately informed by climate change science and expert advisers.
The Board seeks the input of management (including Dr Fiona Wild, our Vice President Sustainability and Climate Change), and other independent advisers. In addition, our Forum on Corporate Responsibility (which advises the Board on sustainability issues and includes Don Henry, former CEO of the Australian Conservation Foundation and Changhua Wu, former Greater China Director, the Climate Group) advises operational management teams and other independent advisers.engages with the Sustainability Committee and the Board as appropriate.
During FY2020, the year the Board received an updateBoard:
undertook a deep dive relating to the Group’s climate change strategy and approvedstrategy. This included discussion about climate change scenarios and discussions on relative commodity attractiveness, including under a Climate Crisis scenario and a 1.5°C scenario. In addition, stakeholder attitudes, including those of investors, were considered in relation to climate change and the direction and momentum of the evolution of those expectations
held discussions on a range of actions to support ongoing delivery,other climate-related topics including the role of industry associations in climate policy advocacy, investor and government views on climate change issues (including in the context of shareholder requisitioned resolutions), reviews of supply and demand analysis and portfolio planning
Following extensive discussion by the ELT and the Sustainability Committee during FY2020, in August 2020, the Board approved our medium-term target, Scope 3 emission goals and the strengthening the linkof links between emissions performance and executive remuneration establishingand climate change performance measures.
For more information, refer to section 1.7.8 and the Climate Change Report 2020.
The Board is committed to transparency in assessing the performance of Directors. The Board conducts regular evaluations of its performance, the performance of its Committees, the Group Chair, Directors and the governance processes that support the Board’s work.
The evaluation considers the balance of skills, experience, independence and knowledge of the Group and the Board, its diversity, including gender diversity, and how the Board works together as a new medium-term, science-based target for scope oneunit.
* | May be internally or externally facilitated assessment. Our approach is to conduct an externally facilitated assessment of the Board or Directors and committees at least every three years. |
External Board review
As set out in last year’s Annual Report, the Board conducted an external evaluation using Consilium Board Review (Consilium), which considered Board, committee and two emissions in lineChair effectiveness, and assessed the Directors’ contribution. Consilium does not have any other connection with the Paris Agreement,Group or individual Directors.
This evaluation was completed in FY2020 with improvements agreed and implemented, including the reintroduction of an annual strategy day (in addition to the existing strategy sessions held at each Board meeting); and additional deep dives on BHP’s operations. Actions undertaken during FY2020 included an annual strategy day between the Board and the framework forELT, which was heavily focused on the portfolio, climate change and the impacts of COVID-19. In addition, the Board had a Climate Investment Program, which includesdeep dive on WAIO in February 2020 and site visits (including by new Directors) as described in the Training and Development table in section 2.9.
It was considered that Board composition could be improved by appointing Directors with experience in technology, Asian markets and mining. These factors were taken into account in the appointments of Gary Goldberg, Dion Weisler and Xiaoqun Clever. For more information, refer to section 2.1.
Director review
In FY2020, an amountassessment was conducted of US$400 million as set outDirectors’ performance with the assistance of an external service provider (Lintstock). Lintstock does not have any other connection with the Group or individual Directors. It has been used previously by the CEOGroup.
The assessment of Directors focused on the contribution of each Director to the work of the Board and its Committees, and the expectations of Directors as specified in July 2019.BHP’s governance framework. The performance of Directors was assessed against criteria including those described in the first three points in section 2.7.
In addition, the assessment focused on whether each Director contributes to Board tenurecohesion and diversity (as at 30 June 2019)effective relationships with fellow Directors, commits the time required to fulfil their role and effectively performs their responsibilities. Directors were asked to comment on areas where their fellow Directors contribute the greatest value and on potential areas for development.
Lintstock sought feedback from and provided feedback to the Chair and the Senior Independent Director, which was then discussed with the Directors.
As a result of these outcomes, the review supported the Board’s decision to endorse those Directors standing for re-election.
Committee assessments
148Following an assessment of its work, each committee concluded it had met its terms of reference in FY2020.
2.9 Nomination and Governance Committee Report
Role and focus
The Nomination and Governance Committee assists the Board in ensuring it comprises individuals who are best able to fulfil the responsibilities of a Director and who have regard to the highest standards of governance, the strategic direction of BHP and the diversity aspirations of the Board. It does so by focusing on:
the succession planning process for the Board and its Committees, including the identification of suitable candidates for appointment to the Board considering the skills, experience, independence and knowledge required on the Board, as well as the attributes required of potential Directors
the succession planning process for the Chair
the succession planning process for the CEO and periodic evaluation of the process
Board and Director performance evaluation, including evaluation of Directors seeking re-election prior to their endorsement by the Board as described in section 2.8
the provision of appropriate training and development opportunities for Directors
the independence of Non-executive Directors
the time required from Non-executive Directors
the assessment and, if appropriate, authorisation of situations of actual and potential conflict notified by Directors
BHP’s corporate governance practices
The Nomination and Governance Committee met four times during FY2020. In addition to regular business, the Committee considered CEO succession, the appointment as Non-executive Directors of Gary Goldberg and Dion Weisler, Xiaoqun Clever with effect from 1 October, and the retirement of Lindsay Maxsted on 4 September 2020, and Shriti Vadera after the 2020 AGMs. The Committee also oversaw other targeted searches for Non-executive Director candidates in FY2020, which are continuing.
External recruitment specialists
The Committee retained the services of external recruitment specialists. Russell Reynolds and MWM Consulting assisted with Non-executive Director candidate searches during FY2020. These recruitment specialists do not have any connection with the Group or any Director.
Nomination and Governance Committee members during the year
Name | Independent | Status | Attendance | |||
Ken MacKenzie (Chair) | Chair of the Board | Member for whole period | 4/4 | |||
Malcolm Broomhead | Yes | Member for whole period | 4/4 | |||
Carolyn Hewson | Yes | Member until 7 November 2019 | 2/2 | |||
Susan Kilsby | Yes | Member from 1 April 2020 | 1/1 | |||
Shriti Vadera | Yes | Member for whole period | 4/4 |
Committee activities in FY2020
Succession planning processes
CEO succession
Implementation of the skills and experience matrix
Identification of suitable Non-executive Director candidates
Board and committee succession
Partnering with new search firms regarding candidate searches
Technology and mining Non-executive Director search
Evaluation and training
Board evaluation and Director development
2020 training and development program
Director induction
Committee assessment
Corporate governance practices
Independence of Non-executive Directors
Authorisation of situations of actual or potential conflict
Advisory Committees
Corporate Governance Statement
Governance update – Section 172 mapping
Implementing provisions from the UK Code and the ASX Fourth Edition
Updated Director Deed of Indemnity Insurance and Access
Updated Terms of Appointment for Directors
Crisis management
Update of the Committee Terms of Reference
Policy on inclusion and diversity
The Board and management believe diversity is required to meet our purpose, which is outlined in section 1.6.1. Diversity is key to ensuring the Board and its Committees have the right blend of perspectives so that the Board oversees BHP effectively for shareholders. In CY2019, we updated the Nomination and Governance Committee Terms of Reference to explicitly refer to age, social and ethnic backgrounds and personal strengths. This is in addition to diversity of gender, nationality and geography.
Our aspiration is to achieve gender balance on our Board, among our senior executives and across our workforce by CY2025. We therefore welcome the ongoing Hampton-Alexander initiative for all FTSE 100 Boards to have at least 33 per cent female representation by the end of CY2020, and the objective of having at least 30 per cent of Directors of each gender in accordance with the ASX Fourth Edition. Our aspiration includes a fixed target of maintaining the level of Board diversity above 33 per cent, and we will be aligned with this requirement from 1 October 2020. We therefore satisfy the guidance in both the ASX Fourth Edition and also the UK Code. In addition, as at 30 June 2020, gender diversity among senior management (defined as the ELT plus Company Secretary and their direct reports) was 31 per cent.
We also welcome the final Parker Report into ethnic diversity of UK boards and continue to seek additional ethnic diversity on our Board, and throughout BHP. On our Board we meet the target of having ‘at least one Director of colour by 2021’ as recommended by the Parker Review.
Part of the Board’s role continues to be to consider and approve BHP’s measurable objectives for workforce diversity each financial year and to oversee our progress in achieving those objectives. For more information, including our progress against our FY2020 measurable objectives and our employee profile more generally, refer to sections 1.6.1 and 1.6.2.
Renewal and re-election
The Board adopted a policy in 2011, consistent with the UK Code, under which all Directors must seek re-election by shareholders annually if they wish to remain on the Board. The Board believes annual re-election promotes and supports accountability to shareholders.
When considering new appointments, the Board’s Nomination and Governance Committee takes the following approach:
Step 1: Rigorous approach | BHP adopts a structured and rigorous approach to Board succession planning and oversees the development of a diverse pipeline. The Nomination and Governance Committee considers Board diversity, size, tenure and the skills, experience and attributes needed to effectively govern and manage risk within BHP. | |
Step 2: Continuous approach | This process is continuous and for Non-executive Directors planning is based on a nine-year tenure as a guide, allowing the Board to ensure the right balance on the Board between experience and fresh perspectives. It also ensures the Board continues to be fit-for-purpose and evolves to take account of the changing external environment and BHP’s circumstances. It also prepares pipelines for Nomination and Governance Committee membership, considering relevant skills and requirements. | |
Step 3: Role description | When considering new appointments to the Board, the Nomination and Governance Committee oversees the preparation of a role description, which includes the criteria and attributes described in the Board Governance Document and section 2.7. | |
Step 4: Selection and appointment of search firm | The role description is provided to an external search firm retained to conduct a global search based on the Board’s criteria. | |
Step 5: Board interviews | The shortlisted candidates are considered by the Nomination and Governance Committee and interviewed by the Chair initially. Meetings for selected candidates are held with each Board member ahead of the Board deciding whether to appoint the candidate. |
Step 6: Committee recommendation | The Nomination and Governance Committee recommends the Board appoint the preferred candidate. | |
Step 7: Background checks | The Board, with the assistance of external consultants, conducts appropriate background and reference checks. | |
Step 8: Letter of appointment | The Board has adopted a letter of appointment that contains the terms on which Non-executive Directors will be appointed, including the basis upon which they will be indemnified by the Group. The letter of appointment defines the role of Directors, including the expectations in terms of independence, participation, time commitment and continuous improvement. Written agreements are in place for all Non-executive Directors. |
A copy of the terms of appointment for Non-executive Directors is available atbhp.com/governance.
Senior management succession
A robust senior management succession process is also conducted to ensure pipeline stability for critical roles. A talent deep dive is conducted by the Board at least once a year to evaluate these pipelines. Senior management succession is viewed from a five-year perspective that considers the readiness of successors across time horizons, contexts and future capability demands. Select Board members are involved in the interview process for executive-level appointments one level below the CEO, and occasionally for roles two levels below the CEO. BHP has a written agreement with each ELT member setting out the terms of their appointment. Further information about CEO and ELT succession is set out in sections 2.1 and 2.5.
Director induction, training and development
The development of industry and Group knowledge is a continuous and ongoing process. The Board’s development activity reflects the diversification of the portfolio through the provision of regular updates to Directors on BHP’s assets, commodities, geographies and markets, and on the changing external environment, to enable the Board to remainup-to-date.
Upon appointment, each newNon-executive Director undertakes an induction program specifically tailored to his or hertheir needs.
A copy of an indicative induction program is available online at bhp.com/governance.
Following the induction program,Non-executive Directors participate in continuous improvement activities (Training(training and Development Program)development program), which are overseen by the Nomination and Governance Committee. The Trainingtraining and Development Programdevelopment program covers a range of matters of a business nature, including environmental, social and governance matters.matters and provides updates on BHP’s assets, commodities, geographies and markets. Programs are designed and periodically reviewed to maximise effectiveness, and the effectivenessresults of the Directors throughout their tenure and reflect their individualDirector performance evaluations.evaluations are incorporated into these programs.
Training and development in FY2019FY2020
Area | Purpose |
| ||
Briefings and development sessions | Provide each Director with a deeper understanding of the activities, environment, key issues and direction of the assets, along with HSEC and public policy considerations. | •
• Climate change sessions
•
•
| ||
Site visits | Briefings on the assets, operations and other relevant issues and meetings with key personnel. During FY2020, several site visits were cancelled due to COVID-19 restrictions. | • • Jansen, Potash, Canada • Nickel West, Nickel, Australia
•
• • Santiago office and Escondida, Copper, Chile (Group Chair only) |
These sessions and site visits also allow an opportunity to discuss in detail the changing risk environment and the potential for impacts on the achievement of our corporate purpose and strategy. For information on the management of principal risks, refer to section 1.6.4.1.5.4.
The Chairman throughoutThroughout the year, the Chair discusses development areas with each Director. Board committees in turnCommittees review and agree their training needs.needs for more briefings. The benefit of this approach is that induction and learning opportunities can be tailored to Directors’ committee memberships, as well as the Board’s specific areas of focus. This approach also ensures a coordinated process in relation toon succession planning, Board renewal, training and development and committee composition, whichcomposition.
These processes are all relevant to the Nomination and Governance Committee’s role in identifying appropriateNon-executive Director candidates.
Each Board committee provides a standing invitation for anyNon-executive Director to attend committee meetings (rather than just limiting attendance to committee members). Committee agendas and papers are provided to all Directors to ensure Directorsthey are aware of matters to be considered by the committees and any Director can elect to attend meetings where appropriate.considered.
149
The Board is committed to ensuring a majority of Directors isare independent. The Board considers that all of the currentNon-executive Directors, including the Chairman,Chair, are independent.
Process to determine independence
The Board has adopted a policy whichthat it uses to determine the independence of its Directors. This determination is carried out upon appointment, annually and at any other time where the changedchange in circumstances of a Director warrant reconsideration.
A copy of the policy on Independence of Directors is available online at bhp.com/governance.
Under the policy, an ‘independent’ Director is one who is:‘independent of management and any business or other relationship that could materially interfere with the exercise of objective, unfettered or independent judgement by the Director or the Director’s ability to act in the best interests of the BHP Group’.
Where a Director is considered by the Board to be independent but is affected by circumstances that appear relevant to the Board’s assessment of independence, the Board has undertaken to explain the reasons why it reached its conclusion. In applying the independence test, the Board considers relationships with management, major shareholders, subsidiary and associated companies and other parties with whom BHP transacts business againstpre-determined materiality thresholds, all of which are set out in the policy.
Tenure
As atAt the end of the year under review,FY2020, Malcolm Broomhead, and Carolyn Hewson, who werewas appointed in March 2010, Shriti Vadera, appointed in January 2011 and Lindsay Maxsted, appointed in March 2011, had each served on the Board for more than nine years. The Board does not believe that their tenure materially interferes with their ability to act in the best interests of the Group.BHP. The Board believes they have retained independence of character and judgement and have not formed associations with management (or others) that might compromise their ability to exercise independent judgement or act in the best interests of the Group. The Board was comfortable extending Mr Broomhead’s tenure for another year from the FY2020 AGMs in order to provide continued access to his corporate memory and his extensive experience in the mining sector. Mr Maxsted will retire on 4 September 2020, having completed the handover of the Risk and Audit Committee Chair position to Terry Bowen, and seen through the Group’s FY2020 financial reporting schedule. As previously disclosed, Ms Vadera is not standing for re-election at the 2020 AGMs.
Relationships and associations
Lindsay Maxsted was the CEO of KPMG in Australia from 2001 until 2007. The Board believes this prior relationship with KPMG does(BHP’s former external auditor) did not materially interfere with Mr Maxsted’s exercise of objective, unfettered or independent judgement, or his ability to act in the best interests of BHP.BHP while KPMG was the Group’s auditor. The Board has determined, consistent with its policy on the independence of Directors, that Mr Maxsted is independent. The Board notes in particular that:
at the time of his appointment to the Board, more than three years had elapsed since Mr Maxsted’s retirement from KPMG. The Director independence rules and guidelines that apply to the Group – which are a combination of Australian, UK and US rules and guidelines – all use three years as the benchmark ‘cooling off’ period for former audit firm partners;
Mr Maxsted has no financial (e.g. pension, retainer or advisory fee) or consulting arrangements with KPMG;
Mr Maxsted was not part of the KPMG audit practice after 1980, and while at KPMG was not in any way involved in, or able to influence, any audit activity associated with BHP.
The Board believes Mr Maxsted’s financial acumen and extensive experience in the corporate restructuring field to be important in the discharge of the Board’s responsibilities. His membership of the Board and Chairmanship of the Risk and Audit Committee are considered by the Board to be appropriate and desirable.
Some of the Directors hold or have previously held positions in companies with whichthat BHP has commercial relationships.relationships with. Those positions and companies are set outlisted in the Director profiles in section 2.2.1. The Board has assessed all of the relationships between the Group and the companies in which our Directors hold or held positions, and has concluded that in all cases the relationships do not interfere with the Directors’ exercise of objective, unfettered or independent judgement or their ability to act in the best interests of BHP.
A specific instance isFor example, Malcolm Broomhead and Ian Cockerill who were both Directors of Orica Limited (a company with which BHP has commercial dealings)dealings with) during the year under review.FY2020. Orica provides commercial explosives, blasting systems and mineral processing chemicals and services to the mining and resources industry, among others. Mr Cockerill was appointed to the Orica Board in 2010 (prior to his appointment to the BHP Board) and Mr Broomhead was appointed to the Orica Board in 2016 (after his appointment to the BHP Board). At the time of Mr Broomhead’s appointment to the Board of Orica, and at the time of IanMr Cockerill’s appointment to the Board of BHP, the BHP Board assessed the relationship between BHP and Orica and determined (and remains satisfied) that Mr Broomhead and Mr Cockerill arewere, during FY2020, and Mr Broomhead remains, able to apply objective, unfettered and independent judgement and to act in the best interests of BHP. IanMr Cockerill retired from the Board of Orica duringin August 2019.
Transactions during FY2019FY2020 that amounted to related party transactions with Directors or Director-related entities under International Financial Reporting Standards (IFRS) are outlined in note 3132 ‘Related party transactions’ in section 5.
Conflicts of interest
BHP Group Plc’s Articles of Association allow the Directors to authorise conflicts and potential conflicts where appropriate. A procedure operates to ensure the disclosure of conflicts and for the consideration and, if appropriate, the authorisation of those conflicts by non-conflicted Directors. The Nomination and Governance Committee supports the Board in this process by reviewing requests from Directors for authorisation of situations of actual or potential conflict and making recommendations to the Board. It also regularly reviews any situations of actual or potential conflict that have previously been authorised by the Board and makes recommendations on whether the authorisation remains appropriate. In addition, in accordance with Australian law, if a situation arises for consideration where a Director has a material personal interest, the affected Director takes no part in decision-making unless authorised by non-interested Directors. Provisions for Directors’ interests are set out in the Constitution of BHP Group Limited.
The terms of reference for the Nomination and Governance Committee are available at bhp.com/governance.
2.10 Risk and Audit Committee Report
Role and focus
The RAC assists the Board in monitoring the decisions and actions of the CEO and the Group and gaining assurance that progress is being made towards achieving our purpose within the limits imposed by the Board, as described in the Board Governance Document.
The RAC oversees:
150the integrity of BHP’s Financial Statements and Annual Report
the appointment, performance and remuneration of the External Auditor and integrity of the external audit process
the effectiveness of the systems of risk management, including financial and non-financial risk, and internal control
the plans, performance, objectivity and leadership of the Internal Audit function and the integrity of the internal audit process
capital management (capital structure and funding, and capital management planning and initiatives) and other matters
For more information on our approach to risk management, refer to section 1.5.4.
The RAC met 11 times during FY2020. For information on Committee members’ qualifications, which include competence relevant to the mining sector, refer to section 2.2.1.
The terms of reference for the RAC were updated in FY2020 to align with revisions made to the UK Code, the ASX Fourth Edition, and the revised Remuneration Committee Terms of Reference that were approved by the Board in August 2019.
Risk and Audit Committee members during the year
Name | Independent | Status | Attendance | |||
Lindsay Maxsted (Chair until 1 May 2020) | Yes | Member for whole period | 11/11 | |||
Terry Bowen (Chair from 1 May 2020)(1) | Yes | Member for whole period | 11/11 | |||
Ian Cockerill(2) | Yes | Member for whole period | 10/11 | |||
Anita Frew | Yes | Member for whole period | 11/11 |
(1) | Mr Bowen is the Committee’s financial expert nominated by the Board. |
(2) | Mr Cockerill was unable to attend the RAC meeting scheduled for 15 August 2019 due to the need to fly to London at that time in order to attend another board meeting in London the following day. As this was his transitional year, there were some inevitable clashes with pre-existing meetings, and this was one that could not be resolved. Since then, all meetings have been rescheduled where necessary to avoid clashes. Mr Cockerill provided detailed comments to the Chair of the Committee ahead of the meeting. |
Committee activities in FY2020
Integrity of Financial Statements and funding matters
Accounting matters for consideration, materiality limits, half-year and full-year results
Commentary and explanatory notes to the Financial Statements
Closure and rehabilitation provision
Sarbanes-Oxley Act compliance
Financial governance procedures
Reserves and resources
FY2020 portfolio valuation review
Weighted average cost of capital review
Funding updates
Business RAC meetings
Inter-company loans and group guarantees update
Deed of Cross Guarantee
External auditor and integrity of the audit process
External audit report
External audit letters of engagement, external audit fees and non-audit services
Management and external auditor closed sessions
Audit plan, review of performance and quality of service
Ernst & Young (EY) independence and non-audit services
EY audit transition
Effectiveness of systems of internal control and risk management
Material risk reports
Approach to emerging risks
Group risk profile
Viability statement
Robust risk assessment
Practical application of the new Risk Framework
Updates to and review of the Risk Appetite Statement and confirmation that the Group is operating with due regard to that appetite
Monitoring performance against risk appetite through key risk indicators
Approval of the internal audit plan, plan principles and regular reports on progress against the internal audit plan
Cultural assessments in internal audits
Matters of note arising from internal audits
Internal audit reports
Internal assessments of performance of Internal Audit and Advisory
Fraud report
Committee and Group Assurance Officer and Chief Risk Officer closed sessions
Ethics and compliance reports, grievance and investigation processes
Insurance update and Directors’ and Officers’ insurance update
Tax updates
Material disputes updates
Data protection and privacy risk update
Updates on control framework and risks regarding COVID-19
Other governance matters
Samarco dam failure provision
Tailings storage facility failure material risk
Escondida, Cerro Colorado, BMA guarantees
Revolving credit facility
Sexual harassment material risk
Update of the Committee Terms of Reference
Update of the Internal Audit and Advisory Terms of Reference
Update of the Provision of Audit and Other Services Policy by the External Auditor
Fair, balanced and understandable
The RAC confirmed its view to the Board that BHP’s Annual Report 2020 taken as a whole is fair, balanced and understandable. For the Board’s statement on the Annual Report, refer to the Directors’ Report in section 4.
In making this assessment, the RAC considers the substantial governance framework that is in place for the Annual Report. This includes management representation letters, certifications, RAC oversight of the Financial Statements and other financial governance procedures focused on the financial section of the Annual Report, together with verification procedures for the narrative reporting section of the Annual Report.
Integrity of Financial Statements
The RAC assists the Board in assuring the integrity of the Financial Statements. The RAC evaluates and makes recommendations to the Board about the appropriateness of accounting policies and practices, areas of judgement, compliance with accounting standards, stock exchange and legal requirements and the results of the external audit. It reviews the half-yearly and annual Financial Statements and makes recommendations on specific actions or decisions (including formal adoption of the Financial Statements and reports) the Board should consider in order to maintain the integrity of the Financial Statements.
CEO and CFO assurance
For the FY2020 full year and half year, the CEO and CFO have certified that BHP’s financial records have been properly maintained and the FY2020 Financial Statements present a true and fair view, in all material respects, of our financial condition and operating results and are in accordance with accounting standards and applicable regulatory requirements.
The CEO and CFO have also certified to the Board that the Financial Statements for the full year and half year are founded on a sound system of risk management and internal control and the system is operating efficiently and effectively.
Significant issues
In addition to the Group’s key judgements and estimates disclosed throughout the FY2020 Financial Statements, the Committee considered these significant issues relating to financial reporting:
Carrying value of long-term assets
The assessment of carrying values of long-term assets uses a number of significant judgements and estimates.
The Committee examined management’s review of impairment triggers and potential impairment charges or reversals for the Group’s cash generating units.
Specific consideration was given to the most recent short, medium and long-term price forecasts (including the significant petroleum price volatility observed to date in CY2020), expected production volumes and updated development plans, operating and capital costs, the impacts of climate change and COVID-19, discount rates and other market indicators of fair value.
The Committee concurred with management’s conclusion on significant impairments recognised, including the impairment of Cerro Colorado,and that no impairment reversals were appropriate.
Conclusions from these reviews are reflected in note 11 ‘Property, plant and equipment’ in section 5.
Samarco dam failure
On 5 November 2015, the Samarco Mineração S.A (Samarco) iron ore operation in Minas Gerais, Brazil experienced a tailings dam failure that resulted in a release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream. Samarco is jointly owned by BHP Brasil and Vale S.A.
BHP Brasil’s 50 per cent interest in Samarco is accounted for as an equity accounted joint venture investment.
Samarco’s provisions and contingent liabilities
The Committee reviewed updates to matters relating to the Samarco dam failure, including developments on existing and new legal proceedings, and changes to the estimated costs of remediation and compensation.
BHP Brasil’s loss from Equity Accounted Investments includes impairments arising from working capital funding provided to Samarco and revisions to the Samarco dam failure and Germano decommissioning provisions during the year ended 30 June 2020.
Potential direct financial impacts to BHP Brasil
The Committee considered:
changes to the estimated cost of remediation and compensatory programs under the Framework Agreement
developments in existing and new legal proceedings, on the provision related to the Samarco dam failure and related disclosures
the provisions recognised and contingent liabilities disclosed by BHP Brasil or other BHP entities
Based on currently available information, the Committee concluded that the accounting for the equity investment in Samarco, the provision recognised by BHP Brasil (including the decommissioning of the Germano tailings dam complex) and contingent liabilities disclosed in the Group’s Financial Statements are appropriate.
For more information, refer to note 4 ‘Significant events – Samarco dam failure’ in section 5.
Closure and rehabilitation provisions
Determining the closure and rehabilitation provision is a complex area requiring significant judgement and estimates, particularly given the timing and quantum of future costs, the unique nature of each site and the long timescales involved.
The Committee considered the various changes in estimates for closure and rehabilitation provisions recognised during the year, including a reduction to the discount rates applied.
Specific consideration was given to the results of the most recently completed survey data and characterisation activity, changes to current cost estimates and the appropriate inclusion of contingency in cost estimates to allow for both known and residual risks. The Committee concluded that the assumptions and inputs for closure and rehabilitation cost estimates were reasonable and the related provisions recorded were appropriate.
For more information, refer to note 14 ‘Closure and rehabilitation provisions’ in section 5.
Impact of new accounting standards
The Group adopted IFRS 16/AASB 16 ‘Leases’ with effect from 1 July 2019. The Committee reviewed management’s analysis of the accounting outcomes and disclosure requirements for the Group, including the treatment of leases within the Group’s net debt definitions.
In addition, the Committee:
considered and approved the early adoption, for FY2020, of amendments to accounting standards relating to interest rate benchmark reforms
noted that the Group is in the process of evaluating the implications of the IFRS Interpretations Committee agenda decision ‘Income Taxes – Multiple tax consequences of recovering an asset’ and approved that any changes to the Group’s accounting policy for income tax will be implemented from 1 July 2020 on a retrospective basis
For more information, refer to note 38 ‘New and amended accounting standards and interpretations’ in section 5.
Impact of COVID-19
The Committee considered the impacts of the global COVID-19 pandemic on the Group’s FY2020 financial reporting, including:
the recognition and disclosure of costs incurred by the Group that are directly attributable to COVID-19
the impact on key judgements and estimates, particularly those relating to impairment indicator assessments
The Committee concluded that the management’s judgements and the disclosure of the COVID-19 directly attributable costs were appropriate.
External Auditor
The RAC manages the relationship with the External Auditor on behalf of the Board. It considers the reappointment of the External Auditor each year, as well as remuneration and other terms of engagement and makes a recommendation to the Board.
The lead audit engagement partners for EY in Australia and the United Kingdom (together, ‘EY’) were appointed for commencement from 1 July 2019.
Audit tender and transition
BHP confirms during FY2020 it was in compliance with the provisions of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014.
Consistent with the UK and EU requirements in regard to audit firm tender and rotation, the Committee conducted an audit tender process during FY2017 to appoint a new external auditor.
In August 2017, consistent with the Committee’s recommendation, the Board announced it had selected EY to be the Group’s auditor from the financial year beginning 1 July 2019, subject to shareholder approval, which was received at the AGMs in 2019. During FY2019, the RAC received updates from EY on the audit transition and preparation for commencement of its audit, including EY’s process in meeting all relevant independence criteria, audit plan for commencement from 1 July 2019 and reports on any non-audit services.
KPMG was the auditor during FY2019 and FY2018, and EY was the auditor during FY2020.
Evaluation of External Auditor and external audit process
The RAC evaluates the objectivity and independence of the External Auditor and the quality and effectiveness of the external audit arrangements. As part of this evaluation, the RAC considers specified criteria, including delivering value to shareholders and BHP, and also assesses the adequacy of the external audit process with emphasis on quality, effectiveness and performance. It does so through a range of means, including:
the Committee considers the External Audit Plan, in particular to gain assurance that it is tailored to reflect changes in circumstances from the prior year
throughout the year, the Committee meets with the audit partners, particularly the lead Australian and UK audit engagement partners, without management present
following the completion of the audit, the Committee considers the quality of the External Auditor’s performance drawing on survey results. The survey is based on a two-way feedback model where the BHP and EY teams assess each other against a range of criteria. The criteria against which the BHP team evaluates EY’s performance include ethics and integrity, insight, service quality, communication, reporting and responsiveness
reviewing the terms of engagement of the External Auditor
discussing with the audit engagement partners the skills and experience of the broader audit team
reviewing audit quality inspection reports on EY published by the UK Financial Reporting Council in considering the effectiveness of the audit
In addition, the RAC reviews the integrity, independence and objectivity of the External Auditor and assesses whether there is any element of the relationship that impairs or appears to impair the External Auditor’s judgement or independence. The External Auditor also certifies its independence to the RAC.
Non-audit services
Although the External Auditor does provide some non-audit services, the objectivity and independence of the External Auditor are safeguarded through restrictions on the provision of these services with some services prohibited from being undertaken, including services where the External Auditor:
may be required to audit its own work
participates in activities that would normally be undertaken by management
is remunerated through a ‘success fee’ structure
acts in an advocacy role for BHP
The RAC has adopted a policy entitled ‘Provision of Audit and Other Services by the External Auditor’ covering the RAC’s pre-approval policies and procedures to maintain the independence of the External Auditor. This policy was reviewed and updated in FY2020, including to reflect only those services permitted to be provided by the External Auditor in the revised Ethical Standard published by the UK Financial Reporting Council.
Our policy on Provision of Audit and Other Services by the External Auditor is available at bhp.com/governance.
In addition to audit services, the External Auditor is permitted to provide other (non-audit) services that are not and are not perceived to be in conflict with their role. In accordance with the requirements of the Exchange Act and guidance contained in Public Company Accounting Oversight Board (PCAOB) Release 2004-001, certain specific activities are listed in our policy that have been ‘pre-approved’ by the RAC.
The categories of ‘pre-approved’ services are:
Audit services – work that constitutes the agreed scope of the statutory audit and includes the statutory audits of BHP and its entities (including interim reviews). This category also includes work that is reasonably related to the performance of an audit or review and is a logical extension of the audit or review scope. The RAC monitors the audit services engagements and if necessary, approves any changes in terms and conditions resulting from changes in audit scope, Group structure or other relevant events.
Audit-related and other assurance services – work that is outside the scope of the statutory audit but is consistent with the role of the external statutory auditor, is of an assurance or compliance nature, is work the External Auditor must or is best placed to undertake and is permissible under the relevant applicable standard.
Activities outside the scope of the categories above are not ‘pre-approved’ and must be approved by the RAC prior to engagement, regardless of the dollar value involved. In addition, any engagement for other services with a value over US$100,000, even if listed as a ‘pre-approved’ service, requires the approval of the RAC. All engagements for other services whether ‘pre-approved’ or not and regardless of the dollar value involved are reported quarterly to the RAC.
While not prohibited by BHP’s policy, any proposed non-audit engagement of the External Auditor relating to internal control (such as a review of internal controls) requires specific prior approval from the RAC. With the exception of the external audit of BHP’s Financial Statements, any engagement identified that contains an internal control-related element is not considered to be pre-approved. In addition, while the categories of ‘pre-approved’ services include a list of certain pre-approved services, the use of the External Auditor to perform these services will always be subject to our overriding governance practices as articulated in the policy.
In addition, the RAC did not approve any services during the year ended 30 June 2020 pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of SEC Regulation S-X (provision of services other than audit).
Fees paid to BHP’s External Auditor during FY2020 for audit and other services were US$16.7 million, of which 75 per cent comprised audit fees (including the US Sarbanes-Oxley Act of 2002 as amended (SOX)), 11 per cent for audit-related fees, 2 per cent was for tax fees and 12 per cent for all other fees. Details of the fees paid are set out in note 35 ‘Auditor’s remuneration’ in section 5.
Based on the review by the RAC, the Board is satisfied that the External Auditor is independent.
Business Risk and Audit Committees
Business Risk and Audit Committees (Business RACs), covering each asset group, assist management in providing the information to enable the RAC to fulfil its responsibilities. They are management committees and perform an important monitoring function in the governance of BHP. Meetings take place annually as part of our financial governance framework.
As management committees, the appropriate member of the ELT participates, but the committee is chaired by a member of the RAC. Each committee also includes the Group Financial Controller, the Chief Risk Officer and the Group Assurance Officer.
Significant operational and risk matters raised at Business RAC meetings are reported to the RAC by management.
Risk function
The Risk function’s role is to create and maintain the Group’s Risk Framework, and to support, verify, oversee and provide insight on the effective application of the Risk Framework for all risks, including strategic, operational and emerging risks.
The RAC assists the Board with the oversight of risk management, although the Board retains accountability for BHP’s risk profile. In addition, the Board requires the CEO to implement a system of control for identifying and managing risk. The Directors, through the RAC, review the systems that have been established, regularly review the effectiveness of those systems and monitor that necessary actions have been taken to remedy any significant failings or weaknesses identified from that review. The RAC regularly reports to the Board to enable the Board to review our Risk Framework at least annually to confirm that the Risk Framework continues to be sound and that BHP is operating with regard to the risk appetite set by the Board. A review was undertaken during FY2020, resulting in refinements to BHP’s Risk Framework. For more information, refer to section 1.5.4.
Internal Audit
The Internal Audit function is carried out by Internal Audit and Advisory (IAA). IAA provides assurance on whether risk management, internal control and governance processes are adequate and functioning. The Internal Audit function is independent of the External Auditor. The RAC evaluates and, if thought fit, approves the terms of reference of IAA, the staffing levels and its scope of work to ensure it is appropriate in light of the key risks we face. It also reviews and approves the annual internal audit plan and monitors and reviews the effectiveness of the internal audit activities.
The RAC approves the appointment and dismissal of the Group Assurance Officer and assesses their performance, independence and objectivity. The position was held throughout the period by Rama Devarajan who reported directly to the RAC. During the period, functional oversight of IAA was provided by the Chief External Affairs Officer.
Effectiveness of systems of internal control and risk management (RAC and Board)
In delegating authority to the CEO, the Board has established CEO limits, outlined in the Board Governance Document. Limits on the CEO’s authority require the CEO to ensure there is a system of control in place for identifying and managing risk in BHP. Through the RAC, the Directors regularly review these systems for their effectiveness. These reviews include assessing whether processes continue to meet evolving external governance requirements.
The RAC oversees and reviews the internal controls and risk management systems. Any material breaches of Our Code, including breaches of our anti-bribery and corruption requirements, as well as any material incidents reported under our ‘speaking up with confidence’ requirements are reported quarterly to the RAC by the Chief Compliance Officer. These reports are then communicated to the Board through the report-out process. In undertaking this role, the RAC reviews:
procedures for identifying, assessing and managing material risks and controlling their impact on the Group, and other stakeholders where relevant, and the operational effectiveness of these procedures
processes and systems for managing budgeting, forecasting and financial reporting
the Group’s strategy and standards for insurance
the Group’s standards and procedures for reporting reserves and resources
the Group’s standards and procedures for closure and rehabilitation provision
standards and practices for detecting, reporting and preventing fraud, serious breaches of business conduct and whistle-blowing procedures supporting reporting to the Committee
procedures for ensuring compliance with relevant regulatory and legal requirements
arrangements for the protection of the Group’s information and data systems and other non-physical assets
operational effectiveness of the Business RAC structures
overseeing the adequacy of the internal controls and allocation of responsibilities for monitoring internal financial controls
Section 1.5.4 includes a description of the Group’s principal risks that could result in events or circumstances that might threaten BHP’s business model, future performance, solvency or liquidity and reputation and also provides an explanation of how those risks are managed.
During FY2020, management presented an assessment of the material risks facing BHP and the level of effectiveness of risk management over the material business risks. The reviews were overseen by the RAC, with findings and recommendations reported to the Board. In addition to considering key risks facing BHP, the Board assessed the effectiveness of internal controls over key risks identified through the work of the Board Committees.
The Board is satisfied with the effectiveness of risk management and internal control systems.
Management’s assessment of internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, the effectiveness of BHP’s internal control over financial reporting has been evaluated based on the framework and criteria established in Internal Controls – Integrated Framework (2013), issued by the Committee of the Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that internal control over financial reporting was effective as at 30 June 2020. There were no material weaknesses in BHP’s internal controls over financial reporting identified by management as at 30 June 2020.
BHP has engaged our independent registered public accounting firm, EY, to issue an audit report on our internal control over financial reporting for inclusion in the Financial Statements section of the Annual Report and the Annual Report on Form 20-F as filed with the SEC.
There have been no changes in our internal control over financial reporting during FY2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. This includes COVID-19, which only had a minor impact on internal controls over financial reporting in relation to both the number and nature of controls that were impacted.
During FY2020, the RAC reviewed our compliance with the obligations imposed by SOX, including evaluating and documenting internal controls as required by section 404 of SOX.
Management’s assessment of disclosure controls and procedures
Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as at 30 June 2020. Disclosure controls and procedures are designed to provide reasonable assurance that the material financial and non-financial information required to be disclosed by BHP, including in the reports it files or submits under the Exchange Act, is recorded, processed, summarised and reported on a timely basis and this information is accumulated and communicated to BHP’s management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, management (including the CEO and CFO) has concluded that as at 30 June 2020, our disclosure controls and procedures are effective in providing that reasonable assurance.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
In the design and evaluation of our disclosure controls and procedures, management was required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures.
The terms of reference for the RAC are available at bhp.com/governance.
2.11 Sustainability Committee Report
Role and focus
The Sustainability Committee assists the Board in overseeing the Group’s health, safety, environmental and community (HSEC) performance and governance responsibilities, and the adequacy of the Group’s HSEC framework.
The Group’s HSEC framework consists of:
• | the CEO limits outlined in the Board Governance Document. The Board Governance Document establishes the remit of the Board and delegates authority to the CEO, including in respect of the HSEC Management System, subject to CEO limits |
the Sustainability Committee, which is responsible for assisting the Board in overseeing the adequacy of the Group’s HSEC Framework and HSEC Management System (among other things)
the HSEC Management System, established by management in accordance with the CEO’s delegated authority. The HSEC Management System provides the processes, resources, structures and performance standards for the identification, management and reporting of HSEC risks and the investigation of any HSEC incidents
a robust and independent internal audit process overseen by the RAC, in accordance with its terms of reference
independent advice on HSEC matters, which may be requested by the Board and its Committees where deemed necessary in order to meet their respective obligations
Our approach to sustainability is reflected in Our Charter, which defines our values, purpose and how we measure success, and in our sustainability performance targets, which define our public commitments to HSEC. HSEC considerations are also taken into account in employee and executive remuneration. For more information, refer to Sustainability in section 1.7 and section 3.
The Committee oversees the preparation and presentation of sustainability disclosures by management. This year, BHP has included material sustainability content in this Annual Report. The Sustainability Committee reviewed and recommended to the Board the approval of these disclosures in section 1.6 and 1.7 and the sustainability performance data in section 6.6, along with the Modern Slavery Statement FY2020. These disclosures identify our targets for HSEC matters and our performance against those targets. Our targets rely on fact-based measurement and quality data, and reflect a desire to move BHP to a position of industry leadership.
Our sustainability reporting, including additional case studies and a databook of key ESG and sustainability data is available at bhp.com.
For information on our material exposure to economic, environmental and social sustainability risks and how we manage or intend to manage those risks, refer to section 1.5.4.
Activities of the Sustainability Committee
The Sustainability Committee met five times during FY2020 and continued to assist the Board in its oversight of HSEC issues and performance. The Committee considered the Group’s approach to climate change throughout the year. More information on our approach to climate change, is set out in section 1.7.8. For more information on our approach to tailings storage facilities, refer to section 1.7.10. The Committee also continues to monitor our water stewardship work and for more information on our water stewardship performance, see section 6.6.
Members of the Sustainability Committee also visited several sites during FY2020. During these site visits, Committee members received briefings on HSEC matters and the management of material HSEC risks, and met with key personnel. These visits offer access to a diverse cross-section of the workforce from frontline through to the leadership team, including, where possible, risk and control owners. During FY2020, several site visits were cancelled due to COVID-19 restrictions.
Sustainability Committee members during the year
Name | Independent | Status | Attendance | |||
John Mogford (Chair from 7 November 2019) | Yes | Member for whole period | 5/5 | |||
Malcolm Broomhead (Chair until 6 November 2019) | Yes | Member for whole period | 5/5 | |||
Ian Cockerill | Yes | Member for whole period | 5/5 | |||
Gary Goldberg | Yes | Member from 1 February 2020 | 3/3 |
Committee activities in FY2020
Assurance and adequacy of HSEC framework and HSEC management system
Key HSEC risks, including tailings storage facility failure, climate change-related risks, and fatalities
Audit planning and reporting on HSEC risks and processes
Contractor management
Event management solution demonstration
Review of the HSE function and Group HSE Officer
Compliance and reporting
Compliance with HSEC legal and regulatory requirements
Updates on key legal and regulatory changes
Consideration of threshold for reporting HSEC matters to the Committee
Sustainability reporting, including consideration of processes for preparation and assurance provided by EY
Social value and ESG metrics
Performance
Performance of BHP on HSEC matters
Considering proposed HSEC key performance indicators (KPIs) for Key Management Personnel scorecard and considering performance against these KPIs
Monitoring against the FY2018–FY2022 HSEC performance targets
Update on Samarco remediation and the Fundação Renova
BHP tailings dam review and actions
Saraji mine fatality investigation
Performance and key issues on sustainable development and community relations, including community issues update
Social value update, including investor feedback
Scope 3 emissions goals
Medium-term operational (Scope 1 and 2) greenhouse gas emissions target
Link between climate change performance and executive remuneration
Other governance matters
Induction, training and development of Committee members
Site visits and site visit reports
Modern Slavery Statement FY2020
Sustainable development governance
Our approach to HSEC and sustainable development governance is characterised by:
the Sustainability Committee assisting the Board to oversee material HSEC matters and risks across BHP, including seeking continuous improvement and policy advocacy as applicable
management having primary responsibility for the design and implementation of an effective HSEC management system
management having accountability for HSEC performance
the HSE function and Community sub-function providing advice and guidance directly to the Sustainability Committee and the Board
the Board, Sustainability Committee and management seeking input and insight from external experts, such as the BHP Forum on Corporate Responsibility
clear links between executive remuneration and HSEC performance
For information on the key areas of focus for the Committee, management and the HSE function and Community sub-function, refer to section 1.7.
Social investment
We continued to monitor our progress on our social investment and met our target for investments in community programs. For more information, refer to section 1.7.9.
The terms of reference for the Sustainability Committee are available at bhp.com/governance.
2.12 Remuneration Committee Report
Role and focus
The Remuneration Committee assists the Board in overseeing:
the remuneration policy and its specific application to the CEO and other ELT members and its general application to all employees
the adoption of annual and long-term incentive plans
the determination of levels of reward for the CEO and approval of reward for other members of the ELT
the annual evaluation of the performance of the CEO, by giving guidance to the Chair
leaving entitlements
the preparation of the Remuneration Report for inclusion in the Annual Report
compliance with applicable legal and regulatory requirements associated with remuneration matters
the review, at least annually, of remuneration by gender
The Sustainability Committee and the RAC assist the Remuneration Committee in determining appropriate HSEC and financial metrics, respectively, to be included in senior executive scorecards and in assessing performance against those measures.
The Remuneration Committee met six times during FY2020 and also considered some matters out of session. Susan Kilsby was appointed Chair of the Remuneration Committee with effect from 7 November 2019. She served on the Committee from her appointment to the Board in April 2019, which provided an appropriate transition to become Chair. She also has relevant skills and experience, including her current appointment as the Chair of the remuneration committee of Diageo plc and as a member of the compensation committee of Fortune Brands Home & Security Inc. She therefore satisfies the requirement for the incoming Chair to have served on a remuneration committee for at least 12 months.
Some of the items the Committee discussed are described below. For more information on the Committee’s work, refer to the Remuneration Report in section 3.
The terms of reference of the Remuneration Committee were updated following the release of the new versions of the UK Code and the ASX Fourth Edition. In addition, areas in need of clarification were identified during the recent ASIC Corporate Governance Taskforce’s review (e.g. how information flows to the Board).
Remuneration Committee members during the year
Name | Independent | Status | Attendance | |||
Susan Kilsby (Chair from 7 November 2019) | Yes | Member for whole period | 6/6 | |||
Anita Frew | Yes | Member for whole period | 6/6 | |||
Gary Goldberg | Yes | Member from 1 February 2020 | 3/3 | |||
Carolyn Hewson (Chair and member until 7 November 2019) | Yes | Member until 7 November 2019 | 3/3 | |||
Dion Weisler | Yes | Member from 1 June 2020 | 1/1 | |||
Shriti Vadera | Yes | Member for whole period | 6/6 |
Committee activities in FY2020
Remuneration of the ELT and the Board
Remuneration policy review
Remuneration of CEO and other ELT members and Group Company Secretary
Remuneration arrangements for new ELT members
Retirement arrangements for former CEO
Consideration of COVID-19 impacts
KPIs, performance levels, award outcomes
FY2021 HSEC scorecard – climate enhanced
Long-Term Incentive Plan sector peer group review
Chair fees
Other remuneration matters
Workforce remuneration and engagement
Shareplus enrolment update
Remuneration by gender
Shareholder engagement
Corporate Governance Code provisions
Other
Induction, training and development program
Board committee procedures, including closed sessions
Update of the Committee Terms of Reference
Remuneration
Details of our remuneration policies and practices, and the remuneration paid to the Directors (Executive and Non-executive) and other members of the Key Management Personnel, are set out in the Remuneration Report in section 3.
The terms of reference for the Remuneration Committee are available at bhp.com/governance.
2.13 Risk management governance structure
Identifying and managing risk are central to achieving our purpose. For information on our approach to risk and risk governance, including the role of the BHP Board and its Committees, refer to section 1.5.4.
Below the level of the Board, key management decisions are made by the CEO, the ELT, management committees and members of management who have delegated authority.
Management committees consider BHP’s risks and controls. Strategic risks (both threats and opportunities) arising from changes in our business environment are regularly reviewed by the ELT and discussed by the Board.
Performance evaluation for executives
The performance of executives and other senior employees is reviewed on an annual basis. For the members of the ELT, this review includes their contribution, engagement and interaction at Board level. The annual performance review process considers the performance of executives against criteria designed to capture ‘what�� is achieved and ‘how’ it is achieved. All performance assessments of executives include how effective they have been in undertaking their role; what they have achieved against their specified key performance indicators; how they match up to the behaviours prescribed in our leadership model; and how those behaviours align with Our Charter values.
A performance evaluation as outlined was conducted for all members of the ELT during FY2020. For the CEO, the performance evaluation was led by the Chair of the Board on behalf of all the Non-executive Directors, and was discussed with the Remuneration Committee.
Our Charter and Our Code of Conduct
Our Code is based on Our Charter values. Our Code sets out standards of behaviour for our people when using BHP resources, in their dealings with governments and communities, third parties and each other. Our Code describes the behaviours expected to support a safe, respectful and legally compliant working environment and includes our policies on speaking up, anti-bribery and corruption.
Our Charter and OurCode are accessible to all our people and external stakeholdersat bhp.com.
BHP’s EthicsPoint
We have mechanisms in place for anyone to raise a report if they feel Our Code has been breached.
Employees and contractors can raise their concerns through a number of channels, including through line leaders. Anyone, including external stakeholders and the public, can lodge a concern, in the form of a report, either online in EthicsPoint, or via the 24-hour, multilingual call service. Reporters of misconduct can choose to raise their concern anonymously.
Reports received are assigned by the Ethics Team to an investigator, line leader or team for investigation or resolution as appropriate, in accordance with internal policy and process documents. Both the reporting and investigations processes are transparent and summary information is accessible to all BHP employees via BHP’s intranet.
Reports raised via EthicsPoint provide valuable insight into culture and organisational learning. All significant Code of Conduct matters, and key trends from investigations, are reported to the RAC. These are then reported to the Board as part of its report-out as set out in section 2.5. The most serious breaches of Our Code are also reported to the Integrity Working Group, which is accountable for oversight of the operational effectiveness of the Investigations Framework, including oversight of investigations completed by the Central Investigations team. The Integrity Working Group is chaired by the Chief Compliance Officer and comprises of a number of Senior Leaders across BHP.
We have disclosure controls in place for periodic disclosures, including the Operational Review, our results announcements, debt investor documents (such as the prospectus for the Euro or Australian Medium Term Notes) and Annual Report documents, which must comply with relevant regulatory requirements. Additional details about these verification processes can be found in the Periodic Disclosure – Disclosure Controls document at bhp.com. To safeguard the effective dissemination of information, we have developed mandatory minimum performance requirements for market disclosure, which outline how we identify and distribute information to shareholders and market participants and sets out the role of the Disclosure Committee in managing compliance with market disclosure obligations. Further, where an announcement is determined to be material by the Disclosure Committee, the Board receives a copy promptly after it has been made. Where BHP gives a new and substantive investor or analyst presentation, it releases a copy of the presentation materials on the ASX Market Announcements Platform ahead of the presentation.
As a result of COVID-19, we introduced extra monitoring and disclosure controls. These included: increasing the regularity and breadth of information gathered from management (including Finance, Supply, Marketing, Legal, and Operational teams); more regular updates to the Disclosure Committee; and more regular discussions with UBS (our corporate broker in the UK), as well as our Investor Relations team. This enabled BHP to assess the materiality of developments and stay across market expectations, dynamics and emerging best practice.
A copy of the market disclosure and communications document is available at bhp.com/governance.
Copies of announcements to the stock exchanges on which BHP is listed, investor briefings, Financial Statements, the Annual Report and other relevant information can be found at bhp.com. To receive email alerts of news releases, subscribe at bhp.com.
2.17 Conformance with corporate governance standards
Our compliance with the governance standards in our home jurisdictions of Australia and the United Kingdom, and with the governance requirements that apply to us as a result of our New York Stock Exchange (NYSE) listing and our registration with the Securities Exchange Commission (SEC) in the United States, is summarised in this Corporate Governance Statement, the Remuneration Report, the Directors’ Report and the Financial Statements.
The UK Code (available at: frc.org.uk) and the ASX Principles and Recommendations (available at www.asx.com/au) require the Board to consider the application of the relevant corporate governance principles, while recognising that departures from those principles are appropriate in some circumstances. The Board considers that during FY2020 it applied the Principles and complied with the provisions set out in the 2018 edition of the UK Code, and complied with the ASX Third Edition, with no exceptions.
Our Appendix 4G, which summarises our compliance with the ASX Third Edition is available at bhp.com/governance.
BHP Group Limited and BHP Group Plc are registrants with the SEC in the United States. Each company is classified as a foreign private issuer and each has American Depositary Shares listed on the NYSE.
We have reviewed the governance requirements applicable to foreign private issuers under SOX, including the rules promulgated by the SEC and the rules of the NYSE, and are satisfied that we comply with those requirements.
Under NYSE rules, foreign private issuers such as BHP are required to disclose any significant ways our corporate governance practices differ from those followed by US companies under the NYSE corporate governance standards. After a comparison of our corporate governance practices with the requirements of Section 303A of the NYSE-Listed Company Manual followed by US companies, a significant difference was identified:
Rule 10A-3 of the Exchange Act requires NYSE-listed companies to ensure their audit committees are directly responsible for the appointment, compensation, retention and oversight of the work of the External Auditor unless the company’s governing law or documents or other home country legal requirements require or permit shareholders to ultimately vote on or approve these matters. While the RAC is directly responsible for remuneration and oversight of the External Auditor, the ultimate responsibility for appointment and retention of the External Auditor rests with our shareholders, in accordance with UK law and our constitutional documents. The RAC does, however, make recommendations to the Board on these matters, which are reported to shareholders.
Compliance with the UK Code This table describes how BHP has applied the Principles of the UK Code | ||
Board leadership and our purpose • Long-term sustainable success – we believe we put the long-term sustainable success of BHP at the centre of what we do (section 1.4.2 and 1.4.3). • Purpose, values, strategy and culture – we renewed our purpose in FY2019 to better capture the aspirations of all our stakeholders (sections 1.4.1, 1.4.2, 1.4.3, 1.6 and 1.7). • Performance measurement and control framework (sections 1.4 and 6.6). • Responsibilities to shareholders and stakeholders (sections 1.4.2, 1.4.3, 1.6.1 and 2.6). • Workforce policies and practices (sections 1.4.2, 1.4.3, 1.6.1, 1.6.2 and 2.6). | Composition, succession and evaluation • Appointments – we have a rigorous process in place for Board appointments, and to consider succession having regard to diversity of gender, social and ethnic backgrounds and personal strengths (section 2.9). • Skills matrix – we have an appropriate mix of skills, experience and knowledge on the Board and in 2018 revised our skills matrix (section 2.7). Section 2.9 provides information on tenure and Board renewal. • Director review – the contribution of each Director to the work of the Board and its Committees, the expectations of Directors as specified in BHP’s governance framework and the performance of Directors. The review confirmed that each Director continues to contribute effectively (section 2.8). | |
Division of responsibilities • Chair of the Board – the Chair leads the Board and is responsible for its effectiveness and the effective contribution from all Non-executive Directors (section 2.3). • Board composition – the Board operates effectively with the appropriate balance of executives and Non-executives and believes the roles of the Chair and the CEO should be separated (section 2.3). • Non-executive Directors have sufficient time to meet their responsibilities – when we appoint new Directors we ensure they have sufficient time to undertake their responsibilities and are able to offer challenge, strategic guidance and specialist advice (section 2.2.1). • Time and resources – the Board ensures it has the necessary time, resources, policies and processes in place as part of its evaluation process (section 2.8). | Audit Risk and Internal Control • Internal and external audit independence – we understand the importance of ensuring these lines of defence remain independent (section 2.10). • Fair balanced and understandable – the Board presents a fair balanced and understandable assessment of BHP’s position and prospects (section 2.10). • Management and oversight of risk – our risk and control environment is monitored and overseen by the Risk and Audit Committee. The Board, Risk and Audit Committee, and Sustainability Committee considered emerging and principal risk during the year (sections 1.5.4, 2.5, 2.10 and 2.11). | |
Remuneration • Policies and practices – remuneration is designed to support our strategy and long-term sustainable success (section 3). • Formal and transparent procedure – we have formal and transparent procedures in place, and routinely engage with investors for their feedback (section 2.6.1). • Use of discretion – we have used discretion to adjust the formulaic remuneration outcomes (section 3). |
The information specified in the UK FCA Disclosure and Transparency Rules, DTR 7.2.6, is located elsewhere in this Annual Report. The Directors’ Report in section 4 provides cross-references to where the information is located.
This Corporate Governance Statement was current and approved by the Board on 3 September 2020 and signed on its behalf by:
Ken MacKenzie
Chair
3 September 2020
Remuneration Report
In this section
This Remuneration Report describes the remuneration policies, practices, outcomes and governance for the KMP of BHP.
BHP’s DLC structure means that we are subject to remuneration disclosure requirements in the United Kingdom and Australia. This results in some complexity in our disclosures, as there are some key differences in the requirements and the information that must be disclosed. For example, UK requirements give shareholders the right to a binding vote on the remuneration policy every three years and as a result, the remuneration policy needs to be described in a separate section in the Remuneration Report. Our remuneration policy is set out in section 3.2. In Australia, BHP is required to make certain disclosures for KMP as defined by the Australian Corporations Act 2001, Australian Accounting Standards and IFRS.
The UK requirements focus on the remuneration of Executive and Non-executive Directors. At BHP, this is our Board, including the CEO, who is our sole Executive Director. In contrast, the Australian requirements focus on the remuneration of KMP, defined as those who have authority and responsibility for planning, directing and controlling the activities of the Group directly or indirectly. KMP includes the Board, as well as certain members of our senior executive team.
After due consideration, the Committee has determined the KMP for FY2020 comprised the following roles: all Non-executive Directors, the CEO, the Chief Financial Officer, the President Minerals Australia, the President Minerals Americas, and the President Petroleum.
The following individuals have held their positions and were KMP for the whole of FY2020, unless stated otherwise:
Mike Henry, CEO and Executive Director (from 1 January 2020) and President Minerals Australia (to 31 December 2019)
Andrew Mackenzie, CEO and Executive Director (to 31 December 2019)
Peter Beaven, Chief Financial Officer
Daniel Malchuk, President Minerals Americas
Geraldine Slattery, President Petroleum
Non-executive Directors - see section 3.3.14 for details of the Non-executive Directors, including dates of appointment or cessation (where relevant)
Abbreviation | Item | |
AGM | Annual General Meeting | |
CDP | Cash and Deferred Plan | |
CEO | Chief Executive Officer | |
DEP | Dividend Equivalent Payment | |
DLC | Dual Listed Company | |
ELT | Executive Leadership Team | |
GHG | Greenhouse Gas | |
GSTIP | Group Short-Term Incentive Plan | |
HPIF | High Potential Injury Frequency | |
HSEC | Health, Safety, Environment and Community | |
IFRS | International Financial Reporting Standards | |
KMP | Key Management Personnel | |
KPI | Key Performance Indicator | |
LTIP | Long-Term Incentive Plan | |
MAP | Management Award Plan | |
MSR | Minimum Shareholding Requirement | |
OIF | Occupational Illness Frequency | |
ROCE | Return on Capital Employed | |
STIP | Short-Term Incentive Plan | |
TRIF | Total Recordable Injury Frequency | |
TSR | Total Shareholder Return |
3.1 Annual statement by the Remuneration Committee Chair
Dear Shareholders,
I am pleased to introduce BHP’s Remuneration Report for the financial year to 30 June 2020, which is my first since assuming the Remuneration Committee Chair role, and I am looking forward to engaging with shareholders as the Committee undertakes its work. During FY2020, the Committee has continued its focus on achieving remuneration outcomes that fairly reflect the performance of BHP, and which are aligned to the interests of shareholders and other key stakeholders.
FY2020 has been an unprecedented year, with the COVID-19 pandemic having widespread impacts on lives, society and the global economy. In the face of this, BHP employees have rallied in line with the Group’s purpose and values, working very effectively to keep the business running and performing strongly, and keeping each other safe.
I would like to thank my predecessor as Remuneration Committee Chair, Carolyn Hewson, for her leadership and for establishing a Committee with a strong foundation of policies, principles and practices upon which our decisions are able to be made. This is especially so in the unpredictable times in which we find ourselves. We have also made other changes to the Committee this year. New Directors Gary Goldberg and Dion Weisler have joined Anita Frew and Shriti Vadera on the Committee and I would like to thank all members for their contributions.
Remuneration policy
The Committee sought and received approval from shareholders at last year’s AGMs for a revised remuneration policy, with almost 94 per cent of votes in favour, and we believe the policy will serve stakeholders well. The key changes approved for the CEO were:
A change in the balance of incentive arrangements comprising:
a significantly reduced LTIP grant size of 200 per cent of base salary (on a face value basis), down from 400 per cent
a CDP with a longer term focus than the former STIP. The CDP outcome is delivered one-third as a cash award, with two-thirds delivered in equity, as two-year and five-year deferred share awards each of equivalent value to the cash award. This aligns participants’ incentive remuneration with performance over the short-, medium- and long-term
These two changes in combination did not materially alter the target value or vesting profile of incentive remuneration, but resulted in a 12 per cent reduction in the maximum possible remuneration for a year.
A significant reduction in the pension contribution rate to 10 per cent of base salary, down from 25 per cent (noting that the estimated workforce average is approximately 11.5 per cent of base salary). As a result of this change, fixed remuneration for the CEO role has been reduced by 12 per cent and overall target remuneration reduced by 4 per cent.
The introduction of a two-year post-retirement shareholding requirement.
While these changes took effect from 1 July 2019, existing short- and long-term equity awards made under prior policies remain on foot and will vest, subject to existing service and performance conditions, over coming years.
We were also pleased to again receive strong support for our overall Remuneration Report from shareholders at the 2019 AGMs, with approximately 96 per cent voting ‘for’ the report. This continues our strong shareholder support over the past five years, where on average almost 97 per cent have voted in favour.
The Committee strives to implement the remuneration policy in a considered way:
We test the CEO’s remuneration against CEO roles in other global companies of similar complexity, size, reach and industry. The remuneration also reflects the CEO’s responsibilities, location, skills, performance, qualifications and experience. This detailed benchmarking ensures BHP’s executive remuneration packages are competitive enough to attract and retain talented executives, without being excessive. External benchmarking shows the CEO’s target remuneration package is below the average for similar global companies and importantly, can only be realised as actual remuneration if performance targets are met.
The CEO’s remuneration is deliberately tied to the performance of the business, with the majority of remuneration delivered in BHP shares, not cash. The CEO also has a minimum shareholding requirement of five times pre-tax base salary, which continues for two years post-retirement. This aligns the CEO to the experience of BHP’s shareholders.
The exercise of reasonable downward discretion has been a feature of BHP’s approach over many years where the status quo or a formulaic outcome does not align with the overall shareholder experience, and this remains unchanged.
The Committee is focussed on having and applying a remuneration policy and approach that supports the Group’s strategy and enables us to attract, retain and motivate the executives critical to delivering the best outcomes for all of BHP’s stakeholders. In addition, the Committee is cognisant of the need to navigate the priorities of differing jurisdictions.
COVID-19
In early 2020, BHP began to experience the impacts of the COVID-19 pandemic. All BHP employees have come together as one team to deal with the issues faced and despite the challenges, BHP’s results have been strong. The CEO and other ELT members have provided strong and effective leadership through this period, and the Committee is proud of the way BHP’s employees have found new ways of working, collaborated to solve problems, supported each other and their communities, and aligned around a common goal.
Despite the challenges the COVID-19 pandemic has presented, in FY2020 BHP has not needed to furlough any employees without pay, has not sought any government assistance, and did not raise additional equity. In addition, BHP’s strong, safe operational performance through this year, together with solid profitability, enabled the Board to announce a robust final dividend payable to shareholders in September 2020. This follows a record interim dividend paid to shareholders in March 2020, and continues the delivery of strong and consistent returns to shareholders. The COVID-19 pandemic increased costs and reduced volumes during FY2020, which negatively impacted executive remuneration outcomes.
During the COVID-19 pandemic, BHP has been especially conscious of contributing to the communities in which we operate, by doing all it can to keep employees, their families and their communities safe and healthy. BHP took action to slow the spread of COVID-19 into the workforce by investing in more transportation capacity, restricting travel to the operations and protecting at-risk workers. BHP has also created hundreds of operational jobs across our Minerals Australia business, funded local health and social programs in the communities where BHP operates, and for the Company’s small, local and Indigenous suppliers, BHP reduced the time taken to pay their invoices to help address the financial stress they might otherwise face as a result of the pandemic.
Decisions and activities of the Committee
A key element of the Committee’s work during the year was the remuneration implications of CEO succession. Mike Henry was appointed CEO and Executive Director effective 1 January 2020. Mike’s fixed remuneration on appointment was set at US$1.870 million per annum, which included a base salary of US$1.700 million per annum plus a pension contribution of 10 per cent of base salary. This level of fixed pay was a reduction of 12 per cent from Andrew Mackenzie’s fixed pay of US$2.125 million per annum. Mike participates in the CDP and LTIP in accordance with the approved remuneration policy.
Andrew Mackenzie stepped down as CEO and a Director of the Group on 31 December 2019, and he retired from BHP on 31 March 2020. The terms of Andrew’s departure announced on 23 December 2019 reflected the Group’s remuneration policy and the rules of our incentive arrangements and leaving entitlements as approved by shareholders. Further information in respect of this is provided in sections 3.3.13 and 3.3.24.
Other key decisions and activities of the Committee during FY2020 included:
Completing the 2019 review of the remuneration policy and seeking and gaining the approval of shareholders at the 2019 AGMs
Considering remuneration for other members of the ELT and the Group Company Secretary
Aligning the determination of CDP equity award sizes to a 12-month pricing approach, also used for LTIP awards, to minimise potential volatility over time
Setting and reviewing outcomes against performance measures and conditions of relevant incentive plans
Redesigning, with the support of the Sustainability Committee, the HSEC component of the CDP scorecard to give greater weight and transparency to climate change
Reviewing the fee for the BHP Chair
Reviewing and adopting changes and improvements flowing from regulatory requirements and guidance, which in turn helps us improve our processes and approaches
Engaging with shareholders and other key stakeholders
Undertaking regular reviews of workforce engagement, workforce remuneration and related policies, remuneration by gender and the annual Shareplus enrolment update
CEOs’ remuneration
The scorecard against which the CEO’s annual performance is assessed comprises stretching performance measures, including HSEC, financial and individual performance elements. For FY2020, the Remuneration Committee has assessed Mike Henry’s and Andrew Mackenzie’s performance and determined CDP outcomes of 96 per cent for each of them, against the target of 100 per cent (and the maximum of 150 per cent), with the outcomes prorated to reflect their periods as CEO.
These outcomes took into account BHP’s strong HSEC performance during the year, with no fatalities recorded, and improvements in all key health and safety indicators, while environment and community outcomes were broadly in line with expectations. Financial and operating performance was strong, yet fell slightly short of the stretching targets set at the commencement of the year.
While the COVID-19 pandemic impacted BHP, society and the global economy, the Group maintained continuity of operations while keeping employees healthy and safe. Despite this, there were significant costs and other impacts of COVID-19 to BHP’s financial results for FY2020. The direct costs have been recorded as an exceptional item in the financial statements. Nevertheless, the Committee concluded that, while these COVID-19 related costs were outside the control of management, they, together with the volume impacts of COVID-19, should flow through to the financial measures for CDP scorecard purposes, thereby reducing the remuneration outcome for executives from what they would have otherwise been. The Committee considered this was appropriate in light of the global impacts of the COVID-19 pandemic.
The Committee also considered each of the CEOs’ performance against their individual objectives. For Mike, this included assuming the CEO role, redefining and restructuring the ELT, enhancing the performance improvement focus, strategy review, portfolio value and options analysis, accelerating gender balance aspirations, and the work of the Tailings Dams Taskforce. For Andrew, this included enhancing the value of the portfolio, maximising performance options, and maintaining a robust ELT succession slate. The Committee considered both Mike’s and Andrew’s performance against their individual objectives to be in line with target.
While the CEOs’ scorecard outcomes were determined at 96 per cent of target and the scorecard outcomes for other Executive KMP were on average marginally ahead of target, the short-term incentive pool applicable to the majority of BHP employees below the ELT level was above target. This was considered appropriate and due recognition, given the excellent performance across BHP’s whole workforce in the face of the COVID-19 pandemic, where, despite this, strong safety performance and operational continuity was achieved during FY2020.
The vesting outcome for the 2015 LTIP against the relative TSR performance conditions was 48 per cent, and this is the first vesting under the program since 2014. BHP outperformed the sector peer group significantly, but did not meet the performance threshold for vesting against the MSCI World index. This 48 per cent level of vesting is aligned with the long-term average vesting under the LTIP since its inception 16 years ago. Consistent with prior practice, the Board and Committee has conducted a holistic review of business performance over the prior five years since grant to ensure this level of vesting was appropriate.
Further details in respect of overall remuneration outcomes for the year for the CEOs, together with information on how the outcomes are aligned to performance during FY2020, are provided in section 3.3. As at the date of this report, Mike’s shareholding meets the minimum shareholding requirement of five times pre-tax base salary.
For FY2021, the Committee determined that Mike’s base salary remains unchanged at US$1.700 million per annum, as it was at the time of his appointment. In addition, the other components of his total target remuneration (pension contributions, benefits, CDP and LTIP) also remain unchanged. A summary of Mike’s arrangements for FY2021 is set out below.
FY2021 CEO remuneration
Fixed remuneration | CDP | LTIP | ||||||
• Base salary US$1.700 million per annum. • No change to base salary. • Pension contribution 10 per cent of base salary. | • Target cash award of 80 per cent of base salary (maximum 120 per cent). • Plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years, respectively. • Three performance categories: – HSEC – 25 per cent – Financial – 50 per cent – Individual performance – 25 per cent | • The annual LTIP grant is based on a face value of 200 per cent of base salary. • Our LTIP awards have rigorous relative TSR performance hurdles measured over five yeans. |
We have also addressed last year’s commitment to clarify and strengthen the link between executive remuneration and climate change for FY2021. The weighting on climate change is now 10 per cent of the 25 per cent HSEC weighting in the CDP scorecard, which compares to circa 4 per cent allocated to climate change in the prior STIP, and we have enhanced the disclosure of climate change-related performance targets. Further details are set out in section 3.3.9.
Mike is BHP’s only Executive Director, however, the Committee has also reviewed the base salaries and total target remuneration packages for other Executive KMP and determined that there would be no increases to base salaries as a consequence of that review, and that other aspects of their remuneration arrangements would remain unchanged.
Remuneration outcomes for the Chair and Non-executive Directors
Fees for the Chair and Non-executive Directors are reviewed annually and are benchmarked against peer companies. No changes to the Chair’s fee will be made for FY2021. This follows a review in 2017, where a decision was made to reduce the Chair’s annual fee by approximately 8 per cent from US$0.960 million to US$0.880 million with effect from 1 July 2017, which followed an earlier reduction, effective 1 July 2015, of approximately 13 per cent from US$1.100 million to US$0.960 million.
Base fee levels for Non-executive Directors will also remain unchanged, after they were also reduced effective 1 July 2015 by approximately 6 per cent, from US$0.170 million to US$0.160 million per annum. Prior to the above reductions in fee levels for the Chair and Non-executive Directors, their fees had remained unchanged since 2011.
Summary
With the COVID-19 pandemic this year, FY2020 has presented many challenges, not only for BHP, but also for many other companies, governments, employees, families and communities across the world. On behalf of the Remuneration Committee, I would like to recognise the hard work, dedication and sacrifices of all of our employees. They have aligned around a common cause, and through their steadfast commitment, they have remained safe and healthy, continued to support their communities, and enabled BHP to generate strong results for all stakeholders.
The Committee believes the remuneration outcomes for FY2020 reflect an appropriate alignment between pay and performance during the year and are also fair in terms of the global context in which decisions have been made. We are confident that shareholders will recognise this as a continuation of our long-held approach. We look forward to ongoing dialogue with, and the support of, BHP’s shareholders, and I very much look forward to meeting shareholders face-to-face when once again we are able to do so. As always, we welcome your feedback and comments on any aspect of this Report.
Susan Kilsby
Chair, Remuneration Committee
3 September 2020
3.2 Remuneration policy report
BHP has an overarching remuneration policy that guides the Remuneration Committee’s decisions. Under UK legislation, shareholders have the opportunity to vote on our remuneration policy every three years, with binding effect in regard to the Directors (including the CEO). Under Australian legislation, shareholders also have the opportunity to vote on our remuneration policy in conjunction with the broader Remuneration Report, each year at the AGMs as it applies to all KMP under a non-binding advisory vote. Our remuneration policy, which was approved by shareholders at the 2019 AGMs, has not changed and is repeated below.
Remuneration policy for the Executive Director
This section only refers to the remuneration policy for our CEO, who is our sole Executive Director. If any other executive were to be appointed an Executive Director, this remuneration policy would apply to that new role.
3.2.1 Components of remuneration
The following table shows the components of total remuneration, the link to strategy, the applicable operation and performance frameworks, and the maximum opportunity for each component.
Remuneration component and link to strategy | Operation and performance framework | Maximum (1) | ||
Base salary A competitive base salary is paid in order to attract and retain a high-quality and experienced CEO, and to provide appropriate remuneration for this important role in the Group. | • Base salary, denominated in US dollars, is broadly aligned with salaries for comparable roles in global companies of similar global complexity, size, reach and industry, and reflects the CEO’s responsibilities, location, skills, performance, qualifications and experience. • Base salary is reviewed annually with effect from 1 September. Reviews are informed, but not led, by benchmarking to comparable roles (as above), changes in responsibility and general economic conditions. Substantial weight is also given to the general base salary increases for employees. • Base salary is not subject to separate performance conditions. | 8% increase per annum (annualised) or inflation if higher in Australia. | ||
Pension contributions (2) Provides a market-competitive level of post-employment benefits provided to attract and retain a high-quality and experienced CEO. | • Pension contributions are benchmarked to comparable roles in global companies and have been determined after considering the pension contributions provided to the wider workforce. • A choice of funding vehicles is offered, including a defined contribution plan, an unfunded retirement savings plan, an international retirement plan or a self-managed superannuation fund. Alternatively, a cash payment may be provided in lieu. | A pension contribution rate of 10% of base salary applies. | ||
Benefits Provides personal insurances, relocation benefits and tax assistance where BHP’s structure gives rise to tax obligations across multiple jurisdictions, and a market-competitive level of benefits to attract and retain a high-quality and experienced CEO. | • Benefits may be provided, as determined by the Committee, and currently include costs of private family health insurance, death and disability insurance, car parking and personal tax return preparation in the required countries where BHP has requested the CEO relocate internationally, or where BHP’s DLC structure requires personal tax returns in multiple jurisdictions. • Costs associated with business-related travel for the CEO’s spouse/partner, including for Board meetings, may be covered. Where these costs are deemed to be taxable benefits for the CEO, BHP may reimburse the CEO for these tax costs. • The CEO is eligible to participate in Shareplus, BHP’s all-employee share purchase plan. • A relocation allowance and assistance is provided only where a change of location is made at BHP’s request. The Group’s mobility policies generally provide for ‘one-off’ payments with no material trailing entitlements. | Benefits as determined by the Committee but to a limit not exceeding 10% of base salary and (if applicable) a one-off taxable relocation allowance up to US$700,000. |
Remuneration component and link to strategy | Operation and performance framework | Maximum (1) | ||
CDP The purpose of the CDP is to encourage and focus the CEO’s efforts on the delivery of the Group’s strategic priorities for the relevant financial year to deliver short, medium and long-term success, and to motivate the CEO to strive to achieve stretch performance objectives. The performance measures for each year are chosen on the basis that they are expected to have a significant short, medium and long-term impact on the success of the Group. Delivery of two-thirds of CDP awards in deferred shares encourages a longer-term focus aligned to that of shareholders. | Setting performance measures and targets • The Committee sets a balanced scorecard of short, medium and long-term elements including HSEC, financial and individual performance measures, with targets and relative weightings at the beginning of the financial year in order to appropriately motivate the CEO to achieve outperformance that contributes to the long-term sustainability of the Group and shareholder wealth creation. • Specific financial measures will constitute the largest weighting and are derived from the annual budget as approved by the Board for the relevant financial year. • Appropriate HSEC measures that are consistent with the Group’s long-term five-year public HSEC targets, and their weightings, are determined by the Remuneration Committee with the assistance of the Sustainability Committee. • Individual measures are an important element of effective performance management, and are a combination of quantitative and qualitative targets. They are aligned with medium and long-term strategy aspirations that are intended to drive long-term value for shareholders and other stakeholders. • For HSEC and for individual measures the target is ordinarily expressed in narrative form and will be disclosed near the beginning of the performance period. However, the target for each financial measure will be disclosed retrospectively. In the rare instances where this may not be prudent on grounds of commercial sensitivity, we will seek to explain why and give an indication of when the target may be disclosed. • Should any other performance measures be added at the discretion of the Committee, we will determine the timing of disclosure of the relevant target with due consideration of commercial sensitivity. Assessment of performance • At the conclusion of the financial year, the CEO’s achievement against each measure is assessed by the Remuneration Committee and the Board, with guidance provided by other relevant Board Committees in respect of HSEC and other measures, and a CDP award determined. If performance is below the threshold level for any measure, no CDP award will be provided in respect of that portion of the CDP award opportunity. • The Board believes this method of assessment is transparent, rigorous and balanced, and provides an appropriate, objective and comprehensive assessment of performance. • In the event that the Remuneration Committee does not consider the outcome that would otherwise apply to be a true reflection of the performance of the Group or should it consider that individual performance or other circumstances makes this an inappropriate outcome, it retains the discretion to not provide all or a part of any CDP award. This is an important mitigation against the risk of unintended award outcomes. | Maximum award A cash award of 120% of base salary plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years respectively. Target performance A cash award of 80% of base salary plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years respectively, for target performance on all measures. Threshold performance A cash award of 40% of base salary plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years respectively, for threshold performance on all measures. Minimum award Zero. |
Remuneration component and link to strategy | Operation and performance framework | Maximum (1) | ||
Delivery of award • CDP awards are provided under the CDP as cash and two awards of deferred shares, each of equivalent value to the cash award, vesting in two and five years respectively. • The awards of deferred shares comprise rights to receive ordinary BHP shares in the future at the end of the deferral periods. Before the awards vest (or are exercised), these rights are not ordinary shares and do not carry entitlements to ordinary dividends or other shareholder rights; however, a DEP is provided on vested awards. The Committee also has a discretion to settle CDP awards in cash. Underpin, malus and clawback • To ensure any vesting of five-year deferred shares under the CDP is underpinned by satisfactory performance post-grant, the vesting will be subject to an underpin. This will encompass a holistic review of performance at the end of the five-year vesting period, including a five-year view on HSEC performance, profitability, cash flow, balance sheet health, returns to shareholders, corporate governance and conduct. • Both cash and deferred share CDP awards are subject to malus and clawback as described in section 3.2.2. | ||||
LTIP The purpose of the LTIP is to focus the CEO’s efforts on the achievement of sustainable long-term value creation and success of the Group (including appropriate management of business risks). It also encourages retention through long-term share exposure for the CEO over the five-year performance period (consistent with the long-term nature of resources), and aligns the long-term interests of the CEO and shareholders. The LTIP aligns the CEO’s reward with sustained shareholder wealth creation in excess of that of relevant comparator group(s), through the relative TSR performance condition. | Relative TSR performance condition • The LTIP award is conditional on achieving five-year relative TSR (3) performance conditions as set out below. • The relevant comparator group(s) and the weighting between relevant comparator group(s) will be determined by the Committee in relation to each LTIP grant. Level of performance required for vesting • Vesting of the award is dependent on BHP’s TSR relative to the TSRof relevant comparator group(s) over a five-year performance period. • 25% of the award will vest where BHP’s TSR is equal to the median TSR of the relevant comparator group(s), as measured over the performance period. Where TSR is below the median, awards will not vest. • Vesting occurs on a sliding scale between the median TSR of the relevant comparator group(s) up to a nominated level of TSR outperformance (4) over the relevant comparator group(s), as determined by the Committee, above which 100% of the award will vest. • Where the TSR performance condition is not met, there is no retesting and awards will lapse. The Committee also retains discretion to lapse any portion or all of the award where it considers the vesting outcome is not appropriate given Group or individual performance. This is an important mitigation against the risk of unintended outcomes. | Maximum award Face value of 200% of base salary. (6) |
Remuneration component and link to strategy | Operation and performance framework | Maximum (1) | ||
Relative TSR has been chosen as an appropriate measure as it allows for an objective external assessment over a sustained period on a basis that is familiar to shareholders. | Further performance measures • The Committee may add further performance conditions, in which case the vesting of a portion of any LTIP award may instead be linked to performance against the new condition(s). However, the Committee expects that in the event of introducing an additional performance condition(s), the weighting on relative TSR would remain the majority weighting. Delivery of award • LTIP awards are provided under the LTIP approved by shareholders at the 2013 AGMs. When considering the value of the award to be provided, the Committee primarily considers the face value of the award, and also considers its fair value which includes consideration of the performance conditions.(5) • LTIP awards consist of rights to receive ordinary BHP shares in the future if the performance and service conditions are met. Before vesting (or exercise), these rights are not ordinary shares and do not carry entitlements to ordinary dividends or other shareholder rights; however, a DEP is provided on vested awards. The Committee has a discretion to settle LTIP awards in cash. Underpin, malus and clawback • If the specified performance conditions are satisfied in part or in full, to ensure any vesting of LTIP awards is underpinned by satisfactory performance through the performance period, the vesting will be subject to an underpin. This will encompass a holistic review of performance at the end of the five-year performance period, including a five-year view on HSEC performance, profitability, cash flow, balance sheet health, returns to shareholders, corporate governance and conduct. • LTIP awards are subject to malus and clawback as described in section 3.2.2. |
(1) | UK regulations require the disclosure of the maximum that may be paid in respect of each remuneration component. Where that is expressed as a maximum annual percentage increase that is annualised it should not be interpreted that it is BHP’s current intention to award an increase of that size in total in any one year, or in each year, and instead it is a maximum required to be disclosed under the regulations. |
(2) | Pension contributions maximum column wording has been updated to reflect the leadership transition of Executive Director and CEO on 1 January 2020 and the current application of policy with respect to pension contribution rate for Mike Henry. The FY2019 remuneration report policy table wording reflected the application of Andrew Mackenzie’s contribution rate: ’For the existing CEO, the current pension contribution rate of 25 per cent of base salary will reduce as follows: 25 per cent of base salary to 30 June 2020; 20 per cent of base salary from 1 July 2020; 15 per cent of base salary from 1 July 2021; 10 per cent of base salary from 1 July 2022 onwards. For a new appointment, the pension contribution rate will be 10 per cent of base salary immediately.’ |
(3) | BHP’s TSR is a weighted average of the TSRs of BHP Group Limited and BHP Group Plc. |
(4) | Maximum vesting is determined with reference to a position against each comparator group. |
(5) | Fair value is calculated by the Committee’s independent adviser and is different to fair value used for IFRS disclosures (which do not take into account forfeiture conditions on the awards). It reflects outcomes weighted by probability, taking into account the difficulty of achieving the performance conditions and the correlation between these and share price appreciation, together with other factors, including volatility and forfeiture risks. The current fair value is 41 per cent of the face value of an award, which may change should the Committee vary elements (such as adding a performance measure or altering the level of relative TSR outperformance). |
(6) | In order to ensure there is a fair transitional outcome for participants, the LTIP grant made in late CY2019 was based on 400 per cent face value basis in accordance with the remuneration policy approved by shareholders in 2017, with potential vesting five years later in mid-CY2024. The first five-year deferred shares that result from performance under the CDP for FY2020 will be granted in late CY2020 and will first vest five years later in mid-CY2025. The LTIP grant to be made in late CY2020 will be made on the reduced 200 per cent face value basis, with potential vesting five years later also in mid-CY2025. |
The Remuneration Committee’s discretion in respect of each remuneration component applies up to the maximum shown in the table above. Any remuneration elements awarded or granted under the previous remuneration policy approved by shareholders in 2014 and 2017, but which have not yet vested or been awarded or paid, shall continue to be capable of vesting, awarded or payment made on their existing terms.
3.2.2 Malus and clawback
The CDP, LTIP and STIP rule provisions allow the Committee to reduce or clawback awards in the following circumstances:
the participant acting fraudulently or dishonestly or being in material breach of their obligations to the Group
where BHP becomes aware of a material misstatement or omission in the Financial Statements of a Group company or the Group
any circumstances occur that the Committee determines in good faith to have resulted in an unfair benefit to the participant
These malus and clawback provisions apply whether or not awards are made in the form of cash or equity, whether or not the equity has vested, and whether or not employment is ongoing.
3.2.3 Potential remuneration outcomes
The Remuneration Committee recognises that market forces necessarily influence remuneration practices and it strongly believes the fundamental driver of remuneration outcomes should be business performance. It also believes that overall remuneration should be fair to the individual, such that remuneration levels accurately reflect the CEO’s responsibilities and contributions, and align with the expectations of our shareholders, while considering the positioning and relativities of pay and employment conditions across the wider BHP workforce.
The amount of remuneration actually received each year depends on the achievement of superior business and individual performance generating sustained shareholder value. Before deciding on the final incentive outcomes for the CEO, the Committee first considers the achievement against the pre-determined performance conditions. The Committee then applies its overarching discretion on the basis of what it considers to be a fair and commensurate remuneration level to decide if the outcome should be reduced. When the CEO was appointed in January 2020 the Board advised him that the Committee would exercise its discretion on the basis of what it considered to be a fair and commensurate remuneration level to decide if the outcome should be reduced.
In this way, the Committee believes it can set a remuneration level for the CEO that is sufficient to incentivise him and that is also fair to him and commensurate with shareholder expectations and prevailing market conditions.
The diagram below provides the scenario for the potential total remuneration of the CEO at different levels of performance.
Minimum: consists of fixed remuneration, which comprises base salary (US$1.700 million), pension contributions (10 per cent of base salary) and other benefits (notional 10 per cent of base salary).
Target: consists of fixed remuneration, target CDP (a cash award of 80 per cent of base salary plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years respectively) and target LTIP. The LTIP target value is based on the fair value of the award, which is 41 per cent of the face value of 200 per cent of base salary. The potential impact of future share price movements is not included in the value of deferred CDP awards or LTIP awards.
Maximum: consists of fixed remuneration, maximum CDP (a cash award of 120 per cent of base salary plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years respectively), and maximum LTIP (face value of 200 per cent of base salary). The potential impact of future share price movements is not included in the value of deferred CDP awards or LTIP awards. All other things being equal, if the share price at vesting of LTIP awards was 50 per cent higher than the share price at grant, then the total maximum value would be US$13.260 million.
The maximum opportunity represented above is the most that could potentially be paid of each remuneration component, as required by UK regulations. It does not reflect any intention by the Group to award that amount. The Remuneration Committee reviews relevant benchmarking data and industry practices, and believes the maximum remuneration opportunity is appropriate.
3.2.4 Approach to recruitment and promotion remuneration
The remuneration policy as set out in section 3.2 of this Report will apply to the remuneration arrangements for a newly recruited or promoted CEO, or for another Executive Director should one be appointed. A market-competitive level of base salary will be provided. The pension contributions, benefits and variable pay will be in accordance with the remuneration policy table in section 3.2.1.
For external appointments, the Remuneration Committee may determine that it is appropriate to provide additional cash and/or equity components to replace any remuneration forfeited or not received from a former employer. It is anticipated that any foregone equity awards would be replaced by equity. The value of the replacement remuneration would not be any greater than the fair value of the awards foregone or not received (as determined by the Committee’s independent adviser). The Committee would determine appropriate service conditions and performance conditions within BHP’s framework, taking into account the conditions attached to the foregone awards. The Committee is mindful of limiting such payments and not providing any more compensation than is necessary. For any internal CEO (or another Executive Director) appointment, any entitlements provided under former arrangements will be honoured according to their existing terms.
3.2.5 Service contracts and policy on loss of office
The terms of employment for the CEO are formalised in his employment contract. Key terms of the current contract and relevant payments on loss of office are shown below. If a new CEO or another Executive Director was appointed, similar contractual terms would apply, other than where the Remuneration Committee determines that different terms should apply for reasons specific to the individual or circumstances.
The CEO’s current contract has no fixed term. It can be terminated by BHP on 12 months’ notice. BHP can terminate the contract immediately by paying base salary plus pension contributions for the notice period. The CEO must give 12 months’ notice for voluntary resignation(1). The table below sets out the basis on which payments on loss of office may be made.
Leaving reason (2)(3) | ||||||||
Voluntary resignation | Termination for | Death, serious injury, illness, disability or total and permanent disablement | Cessation of employment as agreed with the Board (4) | |||||
Base salary | • Paid as a lump sum for the notice period or progressively over the notice period. | • No payment will be made. | • Paid for a period of up to six months, after which time employment may cease. | • Paid as a lump sum for the notice period or progressively over the notice period. | ||||
Pension contributions | • Paid as a lump sum for the notice period or progressively over the notice period. | • No contributions will be provided. | • Paid for a period of up to six months, after which time employment may cease. | • Paid as a lump sum for the notice period or progressively over the notice period. | ||||
Benefits | • May continue to be provided during the notice period. • Accumulated annual leave entitlements and any statutory payments will be paid. • May pay repatriation expenses to the home location where a relocation was at the request of BHP. • Any unvested Shareplus matched shares held will lapse. | • No benefits will be provided. • Accumulated annual leave entitlements and any statutory payments will be paid. • May pay repatriation expenses to the home location where a relocation was at the request of BHP. • Any unvested Shareplus matched shares held will lapse. | • May continue to be provided for a period of up to six months, after which time employment may cease. • Accumulated annual leave entitlements and any statutory payments will be paid. • May pay repatriation expenses to the home location where a relocation was at the request of BHP. • Any unvested Shareplus matched shares held will vest in full. | • May continue to be provided for year in which employment ceases. • Accumulated annual leave entitlements and any statutory payments will be paid. • May pay repatriation expenses to the home location where a relocation was at the request of BHP. • Any unvested Shareplus matched shares held will vest in full. |
Leaving reason (2)(3) | ||||||||
Voluntary resignation | Termination for | Death, serious injury, illness, disability or total and permanent disablement | Cessation of employment as agreed with the Board (4) | |||||
CDP/STIP – cash and deferred shares Where the CEO leaves either during or after the end of the financial year, but before an award is provided. | • No cash award will be paid. • Unvested CDP/STIP deferred shares will lapse. • Vested but unexercised CDP/STIP deferred shares will remain exercisable for the remaining exercise period unless the Committee determines they will lapse. • Vested but unexercised CDP/STIP awards remain subject to malus and clawback. | • No cash award will be paid. • Unvested CDP/STIP deferred shares will lapse. • Vested but unexercised CDP/STIP deferred shares will remain exercisable for the remaining exercise period unless the Committee determines they will lapse. • Vested but unexercised CDP/STIP awards remain subject to malus and clawback. | • The Committee has discretion to pay and/or award an amount in respect of the CEO’s performance for that year. • Unvested CDP/STIP deferred shares will vest in full and, where applicable become exercisable. • Vested but unexercised CDP/STIP deferred shares will remain exercisable for the remaining exercise period. • Unvested and vested but unexercised CDP/STIP awards remain subject to malus and clawback. | • The Committee has discretion to pay and/or award an amount in respect of the CEO’s performance for that year. • Unvested two-year CDP/STIP deferred shares and a pro rata portion (based on the proportion of the vesting period served) of unvested five-year CDP deferred shares continue to be held on the existing terms for the deferral period before vesting (subject to Committee discretion to lapse some or all of the award). • Vested but unexercised CDP/STIP deferred shares remain exercisable for the remaining exercise period, or a reduced period, or may lapse, as determined by the Committee. • Unvested and vested but unexercised CDP/STIP awards remain subject to malus and clawback. | ||||
LTIP – unvested and vested but unexercised awards | • Unvested awards will lapse. • Vested but unexercised awards will remain exercisable for the remaining exercise period, or for a reduced period, or may lapse, as determined by the Committee. • Vested but unexercised awards remain subject to malus and clawback. | • Unvested awards will lapse. • Vested but unexercised awards will remain exercisable for the remaining exercise period, or for a reduced period, or may lapse, as determined by the Committee. • Vested but unexercised awards remain subject to malus and clawback. | • Unvested awards will vest in full. • Vested but unexercised awards will remain exercisable for remaining exercise period. • Unvested and vested but unexercised awards remain subject to malus and clawback. | • A pro rata portion of unvested awards (based on the proportion of the performance period served) will continue to be held subject to the LTIP rules and terms of grant. The balance will lapse. • Vested but unexercised awards will remain exercisable for the remaining exercise period, or for a reduced period, or may lapse, as determined by the Committee. • Unvested and vested but unexercised awards remain subject to malus and clawback. |
(1) | Notice period for voluntary resignation updated to reflect the terms of the new Executive Director and CEO employment contract effective on 1 January 2020. |
(2) | If the Committee deems it necessary, BHP may enter into agreements with a CEO, which may include the settlement of liabilities in return for payment(s), including reimbursement of legal fees subject to appropriate conditions; or to enter into new arrangements with the departing CEO (for example, entering into consultancy arrangements). |
(3) | In the event of a change in control event (for example, takeover, compromise or arrangement, winding up of the Group) as defined in the CDP, STIP and LTIP rules: |
base salary, pension contributions and benefits will be paid until the date of the change of control event
in relation to the CDP and STIP: the Committee may determine that a cash payment be made in respect of performance during the current financial year and all unvested two-year deferred shares would vest in full and, in relation to the CDP, all unvested five-year deferred shares would vest prorata (based on the proportion of the vesting period served up to the date of the change of control event)
the Committee may determine that unvested LTIP awards will either (i) be prorated (based on the proportion of the performance period served up to the date of the change of control event) and vest to the extent the Committee determines appropriate (with reference to performance against the performance condition up to the date of the change of control event and expectations regarding future performance) or (ii) be lapsed if the Committee determines the holders will participate in an acceptable alternative employee equity plan as a term of the change of control event
(4) | Defined as occurring when a participant leaves BHP due to forced early retirement, retrenchment or redundancy, termination by mutual agreement or retirement with the agreement of the Group, or such other circumstances that do not constitute resignation or termination for cause. |
Remuneration policy for Non-executive Directors
Our Non-executive Directors are paid in line with the UK Corporate Governance Code (2018 edition) and the Australian Securities Exchange Corporate Governance Council’s Principles and Recommendations (3rd Edition).
3.2.6 Components of remuneration
The following table shows the components of total remuneration, the link to strategy, the applicable operation and performance frameworks, and the maximum opportunity for each component
Remuneration component and link to strategy | Operation and performance framework | Maximum (1) | ||
Fees Competitive base fees are paid in order to attract and retain high-quality individuals, and to provide appropriate remuneration for the role undertaken. Committee fees are provided to recognise the additional responsibilities, time and commitment required. | • The Chair is paid a single fee for all responsibilities. • Non-executive Directors are paid a base fee and relevant committee membership fees. • Committee Chairs and the Senior Independent Director are paid an additional fee to reflect their extra responsibilities. • All fee levels are reviewed annually and any changes are effective from 1 July. • Fees are set at a competitive level based on benchmarks and advice provided by external advisers. Fee levels reflect the size and complexity of the Group, the multi-jurisdictional environment arising from the DLC structure, the multiple stock exchange listings and the geographies in which the Group operates. The economic environment and the financial performance of the Group are taken into account. Consideration is also given to salary reviews across the rest of the Group. • Where the payment of pension contributions is required by law, these contributions are deducted from the Director’s overall fee entitlements. | 8% increase per annum (annualised), or inflation if higher in the location in which duties are primarily performed, on a per fee basis. |
Remuneration component and link to strategy | Operation and performance framework | Maximum (1) | ||
Benefits Competitive benefits are paid in order to attract and retain high-quality individuals and adequately remunerate them for the role undertaken, including the considerable travel burden. | • Travel allowances are paid on a per-trip basis reflecting the considerable travel burden imposed on members of the Board as a consequence of the global nature of the organisation and apply when a Director needs to travel internationally to attend a Board meeting or site visits at our multiple geographic locations. • | 8% increase per annum (annualised), or inflation if higher in the location in which duties are primarily performed, on a per-trip basis. Up to a limit not exceeding 20% of fees. | ||
Variable pay (CDP and LTIP) | • Non-executive Directors are not eligible to participate in any CDP or LTIP award arrangements. | |||
Payments on early termination | • There are no provisions in any of the Non-executive Directors’ appointment arrangements for compensation payable on early termination of their directorship. |
(1) | UK regulations require the disclosure of the maximum that may be paid in respect of each remuneration component. Where that is expressed as a maximum annual percentage increase that is annualised it should not be interpreted that it is BHP’s current intention to award an increase of that size in total in any one year, or in each year, and instead it is a maximum required to be disclosed under the regulations. |
Approach to recruitment remuneration
The ongoing remuneration arrangements for a newly recruited Non-executive Director will reflect the remuneration policy in place for other Non-executive Directors, comprising fees and benefits as set out in the table above. No variable remuneration (CDP and LTIP award arrangements) will be provided to newly recruited Non-executive Directors.
Letters of appointment and policy on loss of office
The standard letter of appointment for Non-executive Directors is available at bhp.com. The Board has adopted a policy consistent with the UK Corporate Governance Code, under which all Non-executive Directors must seek re-election by shareholders annually if they wish to remain on the Board. As such, no Non-executive Directors seeking re-election have an unexpired term in their letter of appointment. A Non-executive Director may resign on reasonable notice. No payments are made to Non-executive Directors on loss of office.
3.2.7 How remuneration policy is set
The Remuneration Committee sets the remuneration policy for the CEO and other Executive KMP. The Committee is briefed on and considers prevailing market conditions, the competitive environment and the positioning and relativities of pay and employment conditions across the wider BHP workforce. The Committee takes into account the annual base salary increases for our employee population when determining any change in the CEO’s base salary. Salary increases in Australia, where the CEO is located, are particularly relevant as they reflect the local economic conditions.
The principles that underpin the remuneration policy for the CEO are the same as those that apply to other employees, although the CEO’s arrangements have a greater emphasis on and a higher proportion of remuneration in the form of performance-related variable pay. Similarly, the performance measures used to determine variable pay outcomes for the CEO and all other employees are linked to the delivery of our strategy and behaviours that are aligned to the values in Our Charter.
Although BHP does not consult directly with employees on CEO and other Executive KMP remuneration, the Group conducts regular employee engagement surveys that give employees an opportunity to provide feedback on a wide range of employee matters. Further, many employees are ordinary shareholders through our all-employee share purchase plan, Shareplus, and therefore have the opportunity to vote on AGM resolutions. In addition, in line with changes to the UK Corporate Governance Code, the Remuneration Committee is considering additional means of engaging with the workforce to explain how executive remuneration aligns with wider Group pay policy.
As part of the Board’s commitment to good governance, the Committee also considers shareholder views, together with those of the wider community, when setting the remuneration policy for the CEO and other Executive KMP. We are committed to engaging and communicating with shareholders regularly and, as our shareholders are spread across the globe, we are proactive with our engagement on remuneration and governance matters with institutional shareholders and investor representative organisations. Feedback from shareholders and investors is shared with and used as input into decision-making by the Board and Remuneration Committee in respect of our remuneration policy and its application. The Committee considers that this approach provides a robust mechanism to ensure Directors are aware of matters raised, have a good understanding of current shareholder views, and can formulate policy and make decisions as appropriate. We encourage shareholders to always make their views known to us by directly contacting our Investor Relations team (contact details available at bhp.com).
3.3 Annual report on remuneration
This section of the Report shows the impact of the remuneration policy in FY2020 and how remuneration outcomes are linked to actual performance.
Remuneration for the Executive Directors (the CEOs)
3.3.1 Single total figure of remuneration
This section shows a single total figure of remuneration as prescribed under UK requirements. It is a measure of actual remuneration received, rather than a figure calculated in accordance with IFRS (which is detailed in note 24 ‘Employee share ownership plan’ section 5). As Mike Henry assumed the role of CEO and became an Executive Director on 1 January 2020, the FY2020 actual remuneration shown relates to the period 1 January 2020 to 30 June 2020. The FY2020 actual remuneration for Andrew Mackenzie relates to the period 1 July 2019 to 31 December 2019, on which date he ceased to be CEO and an Executive Director. The components of remuneration are detailed in the remuneration policy table in section 3.2.1.
US$(’000) | Base salary | Benefits (1) | Pension (2) | Total fixed | CDP/ STIP (3) | LTIP (4) | Total variable | Single total figure | ||||||||||||||||||||||||||||
Mike Henry | FY2020 | 850 | 6 | 85 | 941 | 1,959 | 3,169 | 5,128 | 6,069 | |||||||||||||||||||||||||||
Andrew Mackenzie | FY2020 | 850 | 55 | 213 | 1,118 | 1,306 | (5) | 0 | 1,306 | 2,424 | ||||||||||||||||||||||||||
FY2019 | 1,700 | 100 | 425 | 2,225 | 1,306 | 0 | 1,306 | 3,531 |
(1) | Includes private family health insurance, spouse business-related travel, car parking and personal tax return preparation in required countries. |
(2) | Pension contributions for Andrew Mackenzie in FY2019 and FY2020 (until the date he ceased as CEO and Executive Director) were made in accordance with the remuneration policy approved by shareholders in 2019 (i.e. based on 25 per cent of base salary). Mike Henry’s FY2020 pension contributions were also made in accordance with the remuneration policy approved by shareholders in 2019 (i.e. based on 10 per cent of base salary which applied for a new Executive Director appointment). Pension contributions for both were made into the international retirement plan. |
(3) | FY2020 CDP award is provided one-third in cash and two-thirds in deferred equity (on the terms of the CDP) as shown in the table below. FY2019 STIP award was provided half in cash and half in deferred equity (on the terms of the STIP) as shown in the table below. No discretion was applied to the STIP awards when determining vesting of awards in FY2019 or FY2020. |
(4) | Mike Henry’s LTIP award value is based on the full award he received in 2015 when he was President Coal (prior to becoming, and with no proration applied for time as, CEO and Executive Director). The value is based on 48 per cent of the award vesting, including a DEP amount of US$0.548 million paid in shares. The value delivered through share price appreciation between the date of grant and the vesting date was US$1.410 million. The value of Andrew Mackenzie’s vested LTIP award (which vested after Andrew retired from BHP) is detailed in section 3.3.24. No discretion was applied to the LTIP awards when determining vesting of awards for FY2020. |
(5) | Andrew Mackenzie’s prorated CDP award for FY2020 was provided as cash covering the one-third cash component and the two-year deferred equity component. Nothing has been or will be granted or paid in respect of the remaining one-third, i.e. the five-year deferred equity award. |
For Mike Henry, the single total figure of remuneration is calculated on the basis of his appointment on 1 January 2020. There have been no changes to his base salary, benefit entitlements or pension contribution since that date. For Andrew Mackenzie, the single total figure of remuneration is calculated on the on the basis of his period as CEO and Executive Director up until 31 December 2019. There were no changes to his base salary, benefit entitlements or pension contributions prior to the date of his cessation as CEO and Executive Director. Details of remuneration received in the period 1 January 2020 to 31 March 2020 are set out in section 3.3.24. Changes from prior year outcomes of CDP/STIP and LTIP are set out below.
CDP / STIP | LTIP | |||||
Mike Henry | FY2020 | CDP awarded for FY2020 performance. One-third was provided in cash in September 2020, one-third deferred in an equity award that is due to vest in FY2023, and one-third deferred in an equity award that is due to vest in FY2026. | Based on performance during the five-year period to 30 June 2020, 48 per cent of Mike’s 192,360 awards from the 2015 LTIP (granted to him when he was President Coal before he was appointed CEO and Executive Director) have vested, and the remaining awards have lapsed. The value of the vested awards is inclusive of a DEP, which is paid in shares. | |||
Andrew Mackenzie | FY2020 | Prorated CDP awarded for FY2020 performance. Two-thirds of the award was paid in cash in September 2020 covering the cash and two-year deferred equity portion. Nothing has been or will be granted or paid in respect of the remaining one-third of the award i.e. the five-year deferred equity portion. | Details of Andrew’s vested 2015 LTIP award (which vested after Andrew retired from BHP) are set out in section 3.3.24. | |||
FY2019 | STIP awarded for FY2019 performance. Half was provided in cash in September 2019 and half deferred in an equity award that is due to vest in FY2022. | Based on performance during the five-year period to 30 June 2019, all of Andrew’s 224,859 awards from the 2014 LTIP did not vest and have lapsed. The value of the awards is zero and no DEP has been paid in respect of these awards. |
3.3.2 FY2020 CDP performance outcomes
The Board and Remuneration Committee assessed both CEOs’ CDP outcomes (for the period they were, respectively, in the CEO role) in light of the Group’s performance in FY2020, taking into account each CEO’s performance against the KPIs in their CDP scorecards. Despite strong operational and financial performance in FY2020, when assessing performance against the targets set at the commencement the year the Board and Committee determined that the CDP outcome for Mike Henry for FY2020 is 96 per cent against the target of 100 per cent (which represents an outcome of 64 per cent against maximum) and that the CDP outcome for Andrew Mackenzie for FY2020 is also 96 per cent against the target of 100 per cent (which also represents an outcome of 64 per cent against maximum). The Board and Committee believe these outcomes are appropriately aligned with the shareholder experience and the interests of the Group’s other stakeholders.
The CEOs’ CDP scorecard outcomes for FY2020 are summarised in the following tables, including a narrative description of each performance measure and the CEOs’ level of achievement, as determined by the Remuneration Committee and approved by the Board. The level of performance for each measure is determined based on a range of thresholds (the minimum necessary to qualify for any reward outcome), target (where the performance requirements are met), and maximum (where the performance requirements are significantly exceeded).
HSEC
The HSEC targets for the CEOs are aligned to the Group’s suite of HSEC five-year public targets as set out in section 1.7. As it has done for several years, the Remuneration Committee seeks guidance each year from the Sustainability Committee when assessing HSEC performance against scorecard targets. The Remuneration Committee has taken a holistic view of Group performance in critical areas, including any matters outside the scorecard targets which the Sustainability Committee considers relevant.
The performance commentary below is provided against the scorecard targets, which were set on the basis of operated assets only.
HSEC measures | Scorecard targets | Performance against scorecard targets | Measure outcome | |||
Fatalities | Nil fatalities at operated assets. | The weighting of fatalities is 10 percentage points of the 25 percentage points allocated to the HSEC category, and represents the greatest weighting of all HSEC items. Our imperative as a Group is to continue to build our focus on fatality prevention and safety through leadership, verification and effective risk management. Historically, this fatality measure has had a zero outcome in years where a fatality occurred. There were no fatalities during FY2020 at operated assets, and accordingly the maximum outcome against this measure has been awarded. | Maximum. | |||
Environmental and community incidents | Nil significant environmental and community incidents at operated assets. | There were no significant environmental and community incidents during FY2020 at operated assets. This element carries a lesser weighting than for fatalities, as there have historically not been as many significant incidents. | Target. | |||
HPIF, TRIF and OIF | Improved performance compared with FY2019 results. | HPIF is a critical lead indicator which provides insight into our performance on preventing future fatalities. It decreased year-on-year by 23% during FY2020. TRIF performance in FY2020 of 4.2 is also lower by 11% than the 4.7 recorded in FY2019. In addition, OIF performance in FY2020 of 2.46 is lower by 7% than the 2.64 recorded last year. | Between target and maximum, closer to maximum. | |||
Risk management | Operated assets to have controls for fatal risks verified as part of Field Leadership activities with fatal risk control improvement plans developed and executed and increased levels of in-field coaching. Achieve 90% compliance for critical control verification and execution tasks. | All operated assets substantially increased levels of coaching of Field Leadership, thereby improving the quality of leader engagement, which exceeded target. The reduction in the rates of identified critical control failures was ahead of target. The implementation of critical control observation schedules covering all critical controls and improved discipline in closing actions created when critical controls have failed were in line with targets set. | Above target. | |||
Health, environmental and community and social value initiatives | All operated assets to achieve 100% of planned targets in respect of occupational exposure reduction, mental health, water and GHG, social value plans, quality of life, community perceptions and community complaints. | Targeted asset level improvements were exceeded for mental health activities and social value and community plans and activities (which have all been especially important during the COVID-19 pandemic), and targets were met in respect of GHG reduction. However, we fell short on occupational exposure reduction targets and, despite meeting our water withdrawal reduction target, didn’t complete certain asset level actions regarding our water stewardship. | Target overall (i.e. a blend of the above, on and below target). |
The outcome against the HSEC KPI for FY2020 was 32 per cent against the target of 25 per cent. As a Group-level outcome, this applied to both Mike and Andrew for their time as CEO.
Financial
ROCE is underlying profit after taxation (excluding after-taxation finance costs and exceptional items) divided by average capital employed. ROCE is the key financial KPI against which CDP outcomes for our senior executives are measured and is, in our view, a relevant measure to assess the financial performance of the Group for this purpose. While ROCE excludes exceptional items, the Remuneration Committee reviews each exceptional item to assess if it should be included in the result for the purposes of deriving the ROCE CDP outcome.
When we are assessing management’s performance, we make adjustments to the ROCE result to allow for changes in commodity prices, foreign exchange movements and other material items to ensure the assessment appropriately measures outcomes that are within the control and influence of the Group and its executives. Of these, changes in commodity prices have historically been the most material due to volatility in prices and the impact on Group revenue and ROCE.
Financial | Scorecard targets | Performance against scorecard targets | Measure outcome | |||
ROCE | For FY2020, the target for ROCE was 19.9%, with a threshold of 16.3% and a maximum of 21.1%. The target ROCE is derived from the Group’s approved annual budget. It is the Group’s practice to build a material element of stretch performance into the budget. Achievement of this stretching ROCE target will result in a target CDP outcome. The threshold and maximum are a fair range of ROCE outcomes that represent a lower limit of underperformance below which no CDP award should be made, and an upper limit of outperformance that would represent the maximum CDP award. Because a material element of stretch performance is built into the budget (and hence the ROCE target derived from the budget), together with physical and regulatory asset constraints, the performance range around target is subject to a greater level of downside risk than there is upside opportunity. Accordingly, the range between threshold and target is greater than that between target and maximum. For maximum, the Committee takes care not to create leveraged incentives that encourage executives to push for short-term performance that goes beyond our risk appetite and current operational capacity. The Committee retains, and has a track record of applying, downward discretion to ensure that the CDP outcome is appropriately aligned with the overall performance of the Group for the year, and is fair to management and shareholders. | ROCE of 16.9% was reported by BHP for FY2020. Adjusted for the factors outlined below, ROCE is 18.2%, which is below target. The following adjustments were made to ensure the outcomes appropriately reflect the performance of management for the year: • The impacts of movements in commodities prices and exchange rates increased ROCE by 1.2%. • Adjustments for other material items ordinarily made to ensure the outcomes reflect the performance of management for the year increased ROCE by 0.3%, mainly due to the exclusion of the impacts of unusually severe weather events during FY2020. • Having reviewed the FY2020 exceptional items (as described in note 3 ‘Exceptional items’ in section 5), the Committee determined they should not be considered for the purposes of determining the ROCE CDP outcome, with the exception of the exceptional item in relation to the costs of the COVID-19 pandemic on BHP’s FY2020 results. The Committee concluded that, while this was outside the control of management, the direct costs and volume impacts of COVID-19 should flow through to the ROCE outcomes for CDP scorecard purposes. The Committee considered this was appropriate in light of the global impacts of the COVID-19 pandemic. This adjustment reduced ROCE by 0.2%. Beyond this, the Committee concluded that no further action was required in respect of exceptional items. The key drivers of the ROCE performance being below target at 18.2% were: • In Minerals Australia and despite record volumes at Western Australia Iron Ore, Caval Ridge and Poitrel and record coal mined at Broadmeadow, production was lower than expected at Western Australian Iron Ore, Coal and Olympic Dam due mainly to reliability issues and shutdown timing, together with higher maintenance and contractor costs. • In Minerals Americas lower production than expected at Escondida (despite mill throughout being at record levels) and Pampa Norte due to unplanned maintenance, equipment failures and lower recoveries, partly offset by better than expected cost performance. • In Petroleum lower market demand for petroleum products resulted in lower than expected production volumes at Trinidad and Bass Strait, particularly in the last quarter of FY2020, together with extended maintenance in Australia impacting volumes, partly offset by better than expected cost performance. | Below target. |
The outcome against the ROCE KPI for FY2020 was 39 per cent against the target of 50 per cent. As a Group-level outcome, this outcome applied to Mike and Andrew for their time as CEO.
Individual performance measures for the CEOs
Individual measures for the CEOs are determined at the commencement of the financial year (or at the time of appointment for a new CEO). The application of personal measures remains an important element of effective performance management. These measures seek to provide a balance between the financial and non-financial performance requirements that maintain our position as a leader in our industry. The CEOs’ individual measures for FY2020 included contribution to BHP’s overall performance and the management team, and also the delivery of projects and initiatives within the scope of the CEO role as specified by the Board, as set out in the tables below.
Mike Henry
Individual | Individual scorecard targets | Performance against scorecard targets | Measure | |||
Safety and sustainability | • Future plan for reduction in near misses. • Risk management embedded. • Climate change next steps. | • Near misses reduced significantly in FY2020 from FY2019; analysis completed and future action plans completed to achieve further significant reductions. • Material risks recorded appropriately, and agreed risk appetites being embedded in the business. • Next stage of climate change plans delivered. | Target. | |||
Performance | • Team restructuring. • BHP Operating System implementation. • Gender representation advanced. | • New ELT members appointed, Technology and Transformation restructured, World Class Functions benefits accelerated, Operations Committee established. • BHP Operating System deployment proceeding according to plan, with volume and safety benefits delivered, as well as supporting compliance with COVID-19 protocols. • Positive improvements in gender representation in the second half, after a slow start to FY2020. By 30 June 2020 gender diversity had increased 2.0 percentage points to 26.5%, up from 24.5% at 30 June 2019, for a cumulative increase of 8.9 percentage points from 17.6% at 30 June 2016. | Target. | |||
Portfolio | • Portfolio value improvement. • Strategy review improvement. • Samarco strategy implemented. | • Significant progress achieved on portfolio enhancement activities in spite of the challenges faced during the year with COVID-19, social unrest in Chile and unprecedented market volatility in oil and gas, including progressing agreed capital and operational options and projects at Petroleum, Escondida, Western Australia Iron Ore, Queensland Coal and Olympic Dam. • Developed an improved review process for our portfolio and strategy around existing portfolio and growth options, and successfully conducted a large portion of the process, including significant Board engagement. The process is ongoing and will complete during 2020. • While the agreed Samarco strategy has been executed consistent with the principles to achieve fair and reasonable compensation and remediation, there have been some delays due to COVID-19 and further work and focus is required in FY2021. Insurance recoveries have been progressed, class actions are being actively managed and the first phase of dam decommissioning has been approved. | Target overall (i.e. a blend of above, on and below target). | |||
Tailings dams | • Tailings Dam Taskforce work. • Long-term strategy development. | • Delivered the work of the Tailings Dam Taskforce in accordance with agreed plans, schedules and targets, together with accelerating dam remediation activities across the Group. • Developed a long-term tailings management strategy to deliver step change risk reduction within 10 years. | Target. |
Andrew Mackenzie
Individual | Individual scorecard targets | Performance against scorecard targets | Measure | |||
Performance | • Deliver value through Transformation. • Risk management embedded. | • BHP Operating System implementation, value chain automation and World Class Functions activities on-track. • Material risks being recorded appropriately, and agreed risk appetites being embedded in the business. | Target. | |||
Tailings dams | • Tailings Dam Taskforce work. • Long-term strategy development. | • Progressed the work of the Tailings Dam Taskforce in accordance with agreed plans, schedules and targets. • Progressed a long-term tailings management strategy to deliver step change risk reduction within 10 years. | Target. | |||
Portfolio | • Maximise the value of the current portfolio. • Progress delivery of value and returns from future options. • Exploration success. | • Identified projects and options in Petroleum, Escondida, Western Australia Iron Ore, Queensland Coal and Olympic Dam progressed according to plans. • Future option projects continue to progress well, including identified options in Petroleum, Copper and Potash. • Achieved positive exploration outcomes, with extensions to the lives and reserves of conventional oil and gas fields. | Target. | |||
Culture and capability | • Gender representation advanced. • Maintain a robust succession slate. | • Notwithstanding positive improvements in gender representation in the second half, there was a slow start to FY2020 in the first half. By 31 December 2019 gender diversity had increased to 24.8%, up from 24.5% at 30 June 2019. • A robust slate of potential successors to the CEO role and other ELT roles has been achieved through a deliberate focus on a strong long-term talent pool of candidates, evidenced by internal appointments to several key roles during the year. | Target overall (i.e. a blend of above and below target). | |||
Social value | • Manage risks to protect operating licence. • Samarco strategy implemented. • Create opportunities to enhance social value. | • Continued to manage risks by meeting commitments to our workforce, partners, communities and governments through health and safety, the public commitment to and implementation of the climate change strategy including an action plan around our public commitments, and managing water permits, Native Title agreements and social investments. • Progress made in implementing the agreed Samarco strategy, however there were some delays and further work and focus required. • Continued to work closely with our communities and collaborate with various local, regional and global stakeholders, new employment models are building better outcomes for employees, and have a leading position on social value through placing a high value on the long-term needs of society and the environment. | Target overall (i.e. a blend of above, on and below target). |
Overall, it was considered that the performance of both Mike and Andrew against their individual measures KPI was as expected for their respective periods as CEO. Accordingly, they were each awarded an outcome of 25 per cent, which is equal to target.
3.3.3 LTIP performance outcomes
LTIP vesting based on performance to June 2020
The five-year performance period for the 2015 LTIP ended on 30 June 2020. Mike Henry’s 2015 LTIP award comprised 192,360 awards (granted as President Coal prior to his appointment as CEO) and Andrew Mackenzie’s 2015 LTIP award comprised 322,765 awards (reduced from 339,753 awards originally granted prorated for time served at the time of departure). Vesting is subject to achievement of the relative TSR performance conditions and any discretion applied by the Remuneration Committee (see section 3.3.5).
Testing the performance condition
For the award to vest in full, TSR must exceed the Peer Group TSR (for 67 per cent of the award) and the Index TSR (for 33 per cent of the award) by an average of 5.5 per cent per year for five years, being 30.7 per cent in total compounded over the performance period from 1 July 2015 to 30 June 2020. TSR includes returns to BHP shareholders in the form of share price movements along with dividends paid and reinvested in BHP (including cash and in-specie dividends).
BHP’s TSR performance was positive 29.0 per cent over the five-year period from 1 July 2015 to 30 June 2020. This is above the weighted median Peer Group TSR of positive 9.6 per cent and below the Index TSR of positive 38.5 per cent over the same period. This level of performance results in 48 per cent vesting for the 2015 LTIP award, and accordingly 48 per cent of Mike Henry’s awards and Andrew Mackenzie’s retained awards have vested, and 52 per cent have lapsed. No compensation or DEP was paid in relation to the lapsed awards. The value of Mike’s vested 2015 LTIP award has been reported in section 3.3.1 and the value of Andrew’s vested 2015 LTIP award has been reported in section 3.3.24.
The graph below shows BHP’s performance relative to comparator groups.
BHP vs. Peer Group and Index TSR over the 2015 LTIP cycle
3.3.4 LTIP allocated during FY2020
Following shareholder approval at the 2019 AGMs, LTIP awards (in the form of performance rights) were granted to Mike Henry (in his role as President Minerals Australia) and Andrew Mackenzie (in his role as CEO) on 20 November 2019. The first LTIP grant to be made to Mike as the new CEO under the terms of the remuneration policy approved by shareholders in 2019 will be awarded in late CY2020 and will be made on the reduced 200 per cent of base salary (face value).
The face value and fair value of the awards granted on 20 November 2019 are shown in the table below. The face value of Mike’s award is 350 per cent of his base salary of US$1.100 million at the time of grant. The face value of Andrew’s award is 400 per cent of his base salary of US$1.700 million.
The fair value of the awards is ordinarily calculated by multiplying the face value of the award by the fair value factor of 41 per cent (for the current plan design, as determined by the independent adviser to the Committee).The number of LTIP awards for both Mike and Andrew as detailed below was determined based on the US$ face value of base salary and calculated using the average share price and US$/A$ exchange rate over the 12 months up to and including 30 June 2019.
Number of LTIP | Face value US$(‘000) | Face value % of salary | Fair value US$(‘000) | Fair value % of salary | % of max(1) | |||||||
Mike Henry | 153,631 | 3,850 | 350 | 1,579 | 144 | 100 | ||||||
Andrew Mackenzie | 271,348(2) | 6,800 | 400 | 2,788 | 164 | 100 |
(1) | The allocation is 100 per cent of the maximum award that was able to be provided under the remuneration policy approved by shareholders at the 2019 AGMs. |
(2) | Subsequently reduced to 40,702 awards on a pro rata basis for time served. |
Terms of the LTIP award
In addition to those LTIP terms set in the remuneration policy for the CEO approved by shareholders in 2019, the Remuneration Committee has determined:
Performance period | • 1 July 2019 to 30 June 2024 | |
Performance conditions | • An averaging period of six months will be used in the TSR calculations. • BHP’s TSR relative to the weighted median TSR of sector peer companies selected by the Committee (Peer Group TSR) and the MSCI World index (Index TSR) will determine the vesting of 67% and 33% of the award, respectively. • Each company in the peer group is weighted by market capitalisation. The maximum weighting for any one company is 25% and the minimum is set at 0.4% to reduce sensitivity to any single peer company. • For the whole of either portion of the award to vest, BHP’s TSR must be at or exceed the weighted 80th percentile of the Peer Group TSR or the Index TSR (as applicable). Threshold vesting (25% of each portion of the award) occurs where BHP’s TSR equals the weighted 50th percentile of the Peer Group TSR or the Index TSR (as applicable). Vesting occurs on a sliding scale between the weighted 50th and 80th percentiles. | |
Sector peer group companies(1)(2) | • Resources (85%): Anglo American, Fortescue Metals, Freeport-McMoRan, Glencore, Rio Tinto, Southern Copper, Teck Resources, Vale. • Oil and gas (15%): Anadarko Petroleum(3), Apache, BP, Canadian Natural Res., Chevron, ConocoPhillips, Devon Energy, EOG Resources, ExxonMobil, Occidental Petroleum, Royal Dutch Shell, Woodside Petroleum. |
(1) | From December 2016, BG Group and Peabody Energy were removed from the comparator group. BG Group was acquired by Royal Dutch Shell and Peabody Energy had become a significantly less comparable peer. |
(2) | From November 2018, CONSOL Energy was removed from the comparator group, as due to its internal restructuring it had become a less comparable peer. |
(3) | Anadarko Petroleum was acquired by Occidental Petroleum in August 2019. |
3.3.5 Overarching discretion and vesting underpin
The rules of the CDP, LTIP and STIP and the terms and conditions of the awards give the Committee an overarching discretion to reduce the number of awards that will vest, notwithstanding the fact that the performance condition for partial or full vesting, as tested following the end of the performance period, or the relevant service conditions, have been met.
This holistic, qualitative judgement, which is applied as an underpin test before final vesting is confirmed, is an important risk management tool to ensure vesting is not simply driven by a formula or the passage of time that may give unexpected or unintended remuneration outcomes.
The Committee considers its discretion carefully each year. It considers performance holistically over the five-year period, including a five-year ’look back’ on HSEC performance, profitability, cash flow, balance sheet health, returns to shareholders, corporate governance and conduct.
Having undertaken this review, the Committee considered its discretion in respect of equity awards due to vest in August 2020. In respect of the STIP two-year deferred shares (granted in November 2018 in respect of performance in FY2018), the Committee chose not to exercise its discretion and allowed the STIP awards to vest in full. In respect of the LTIP five-year performance shares (granted in December 2015), the formulaic outcome of the 2015 LTIP was a 48 per cent vesting. Having undertaken the ‘look back’ review, the Committee concluded the vesting outcome was appropriate given Group and individual performance, and chose not to exercise its discretion and allowed 48 per cent of the LTIP awards to vest. There is no upwards discretion available to the Remuneration Committee in respect of the LTIP, as the overarching discretion may only reduce the number of awards that may vest.
3.3.6 CEO remuneration and returns to shareholders
10-year CEO remuneration
The table below shows the single total figure of remuneration for Mike Henry, Andrew Mackenzie and Marius Kloppers over the last 10 years along with the proportion of maximum opportunity earned for each type of incentive.
Business Risk and Audit Committees (Business RACs), covering each asset group, assist management in providing the information to enable the RAC to fulfil its responsibilities. They are management committees and perform an important monitoring function in the governance of BHP. Meetings take place annually as part of our financial governance framework. As management committees, the appropriate member of the ELT participates, but the committee is chaired by a member of the RAC. Each committee also includes the Group Financial Controller, the Chief Risk Officer and the Group Assurance Officer. Significant operational and risk matters raised at Business RAC meetings are reported to the RAC by management. Risk function The
The
Internal Audit The Internal Audit function is carried out by Internal Audit and
The
Effectiveness of systems of internal control and risk management (RAC and Board) In delegating authority to the CEO, the Board The RAC oversees and reviews the internal controls and risk management systems. Any material breaches of Our Code, including
procedures for identifying, assessing and managing material risks and controlling their impact on the Group, and other stakeholders where relevant, and the operational effectiveness of these procedures processes and systems for managing budgeting, forecasting and financial reporting the Group’s strategy and standards for insurance the Group’s standards and procedures for reporting reserves and resources the Group’s standards and procedures for closure and rehabilitation provision standards and practices for detecting, reporting and preventing fraud, serious breaches of business conduct and whistle-blowing procedures supporting reporting to the Committee procedures for ensuring compliance with relevant arrangements for the operational effectiveness of the Business RAC structures overseeing the adequacy of the internal controls and allocation of responsibilities for monitoring internal financial controls Section 1.5.4 includes a description of the Group’s principal risks that could result in events or circumstances that might threaten BHP’s business model, future performance, During FY2020, management presented an assessment of the material risks facing BHP and the level of effectiveness of risk management over the material business risks. The reviews were overseen by the RAC, with findings and recommendations reported to the
The Board is satisfied with the effectiveness of risk management and internal control systems. Management’s assessment of internal control over financial reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our CEO and CFO, the effectiveness of BHP’s internal control over financial reporting has been evaluated based on the framework and criteria established in Internal Controls – Integrated Framework (2013), issued by the Committee of the Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that internal control over financial reporting was effective as at 30 June 2020. There were no material weaknesses in BHP’s internal controls over financial reporting identified by management as at 30 June 2020. BHP has engaged our independent registered public accounting firm, EY, to issue an audit report on our internal control over financial reporting for inclusion in the Financial Statements section of the Annual Report and the There have been no changes in our internal control over financial reporting during FY2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. This includes COVID-19, which only had a minor impact on internal controls over financial reporting in relation to both the number and nature of During FY2020, the RAC reviewed our compliance with the obligations imposed by SOX, including evaluating and documenting internal controls as Management’s assessment of disclosure controls and procedures Management, with the
There are inherent limitations to the effectiveness of
The terms of reference for
Role and focus The The Group’s HSEC framework consists of:
the Sustainability Committee, which is responsible for assisting the Board in overseeing the adequacy of the Group’s HSEC Framework and the HSEC Management System, established by management in accordance with the CEO’s delegated authority. The HSEC Management System provides the processes, resources, structures and performance standards for the identification, management and reporting of HSEC risks and the investigation of any HSEC incidents a robust and independent internal audit process overseen by the RAC, in accordance with its terms of reference independent advice on HSEC matters, which may be requested by the Board and its Committees where deemed necessary in order to meet their respective obligations Our approach to sustainability is reflected in Our Charter, which defines our values, purpose and how we measure success, and in our sustainability performance targets, which define our public commitments to HSEC. HSEC considerations are also taken into account in employee and executive remuneration. For more information, refer to Sustainability in section 1.7 and section 3. The Committee Our sustainability reporting, including additional case studies and a databook of key ESG and sustainability data is available at bhp.com. For information on our material exposure to economic, environmental and social sustainability risks and how we manage or intend to manage those risks, refer to section 1.5.4. Activities of the Sustainability Committee The Sustainability Committee met five times during FY2020 and continued to assist the Board in
Committee activities in FY2020 Assurance and adequacy of HSEC framework and HSEC management system Key HSEC risks, including tailings storage facility failure, climate change-related risks, and fatalities Audit planning and reporting on HSEC risks and processes Contractor management Event management solution demonstration Review of the HSE function and Group HSE Officer Compliance and reporting Compliance with HSEC legal and regulatory requirements Updates on key legal and regulatory changes Consideration of threshold for reporting HSEC matters to the Committee Sustainability reporting, including consideration of processes for preparation and assurance provided by EY Social value and ESG metrics Performance Performance of BHP on HSEC matters Considering proposed HSEC key performance indicators (KPIs) for Key Management Personnel scorecard and considering performance against these KPIs Monitoring against the FY2018–FY2022 HSEC performance targets Update on Samarco remediation and the Fundação Renova BHP tailings dam review and actions Saraji mine fatality investigation Performance and key issues on sustainable development and community relations, including community issues update Social value update, including investor feedback Scope 3 emissions goals Medium-term operational (Scope 1 and 2) greenhouse gas emissions target Link between climate change performance and executive remuneration Other governance matters Induction, training and development of Committee members Site visits and site visit reports Modern Slavery Statement FY2020 Sustainable development governance Our approach to HSEC and sustainable development governance is characterised by: the Sustainability Committee assisting the Board to oversee material HSEC matters and risks across BHP, including seeking continuous improvement and policy advocacy as applicable management having primary responsibility for the design and implementation of an effective HSEC management system management having accountability for HSEC performance the HSE function and Community sub-function providing advice and guidance directly to the Sustainability Committee and the Board the Board, Sustainability Committee and management seeking input and insight from external experts, such as the BHP Forum on Corporate Responsibility clear links between executive remuneration and HSEC performance For information on the key areas of focus for the Committee, management and the HSE function and Community sub-function, refer to section 1.7. Social investment We continued to monitor our progress on our social investment and met our target for investments in community programs. For more information, refer to section 1.7.9. The terms of reference for the Sustainability Committee are available at bhp.com/governance. 2.12 Remuneration Committee Report Role and focus The Remuneration Committee assists the Board in overseeing: the remuneration policy and its specific application to the CEO and other ELT members and its general application to all employees the adoption of annual and long-term incentive plans the determination of levels of reward for the CEO and approval of reward for other members of the ELT the annual evaluation of the performance of the CEO, by giving guidance to the Chair leaving entitlements the preparation of the Remuneration Report for inclusion in the Annual Report compliance with applicable legal and regulatory requirements associated with remuneration matters the review, at least annually, of remuneration by gender The Sustainability Committee and the RAC assist the Remuneration Committee in determining appropriate HSEC and financial metrics, respectively, to be included in senior executive scorecards and in assessing performance against those measures. The Remuneration Committee met six times during FY2020 and also considered some matters out of session. Susan Kilsby was appointed Chair of the Remuneration Committee with effect from 7 November 2019. She served on the Committee from her appointment to the Board in April 2019, which provided an appropriate transition to become Chair. She also has relevant skills and experience, including her current appointment as the Chair of the remuneration committee of Diageo plc and as a member of the compensation committee of Fortune Brands Home & Security Inc. She therefore satisfies the requirement for the incoming Chair to have served on a remuneration committee for at least 12 months. Some of the items the Committee discussed are described below. For more information on the Committee’s work, refer to the Remuneration Report in section 3. The terms of reference of the Remuneration Committee were updated following the release of the new versions of the UK Code and the ASX Fourth Edition. In addition, areas in need of clarification were identified during the recent ASIC Corporate Governance Taskforce’s review (e.g. how information flows to the Board). Remuneration Committee members during the year
Committee activities in FY2020 Remuneration of the ELT and the Board Remuneration policy review Remuneration of CEO and other ELT members and Group Company Secretary Remuneration arrangements for new ELT members Retirement arrangements for former CEO Consideration of COVID-19 impacts KPIs, performance levels, award outcomes FY2021 HSEC scorecard – climate enhanced Long-Term Incentive Plan sector peer group review Chair fees Other remuneration matters Workforce remuneration and engagement Shareplus enrolment update Remuneration by gender Shareholder engagement Corporate Governance Code provisions Other Induction, training and development program Board committee procedures, including closed sessions Update of the Committee Terms of Reference Remuneration Details of our remuneration policies and practices, and the remuneration paid to the Directors (Executive and Non-executive) and other members of the Key Management Personnel, are set out in the Remuneration Report in section 3. The terms of reference for the Remuneration Committee are available at bhp.com/governance. 2.13 Risk management governance structure Identifying and managing risk are central to achieving our purpose. For information on our approach to risk and risk governance, including the role of the BHP Board and its Committees, refer to section 1.5.4. Below the level of the Board, key management decisions are made by the CEO, the ELT, management committees and members of management who have delegated authority. Management committees consider BHP’s risks and controls. Strategic risks (both threats and opportunities) arising from changes in our business environment are regularly reviewed by the ELT and discussed by the Board. Performance evaluation for executives The performance of executives and other senior employees is reviewed on an annual basis. For the members of the ELT, this review includes their contribution, engagement and interaction at Board level. The annual performance review process considers the performance of executives against criteria designed to capture ‘what�� is achieved and ‘how’ it is achieved. All performance assessments of executives include how effective they have been in undertaking their role; what they have achieved against their specified key performance indicators; how they match up to the behaviours prescribed in our leadership model; and how those behaviours align with Our Charter values. A performance evaluation as outlined was conducted for all members of the ELT during FY2020. For the CEO, the performance evaluation was led by the Chair of the Board on behalf of all the Non-executive Directors, and was discussed with the Remuneration Committee. Our Charter and Our Code of Conduct Our Code is based on Our Charter values. Our Code sets out standards of behaviour for our people when using BHP resources, in their dealings with governments and communities, third parties and each other. Our Code describes the behaviours expected to support a safe, respectful and legally compliant working environment and includes our policies on speaking up, anti-bribery and corruption. Our Charter and OurCode are accessible to all our people and external stakeholdersat bhp.com. BHP’s EthicsPoint We have mechanisms in place for anyone to raise a report if they feel Our Code has been breached. Employees and contractors can raise their concerns through a number of channels, including through line leaders. Anyone, including external stakeholders and the public, can lodge a concern, in the form of a report, either online in EthicsPoint, or via the 24-hour, multilingual call service. Reporters of misconduct can choose to raise their concern anonymously. Reports received are assigned by the Ethics Team to an investigator, line leader or team for investigation or resolution as appropriate, in accordance with internal policy and process documents. Both the reporting and investigations processes are transparent and summary information is accessible to all BHP employees via BHP’s intranet. Reports raised via EthicsPoint provide valuable insight into culture and organisational learning. All significant Code of Conduct matters, and key trends from investigations, are reported to the RAC. These are then reported to the Board as part of its report-out as set out in section 2.5. The most serious breaches of Our Code are also reported to the Integrity Working Group, which is accountable for oversight of the operational effectiveness of the Investigations Framework, including oversight of investigations completed by the Central Investigations team. The Integrity Working Group is chaired by the Chief Compliance Officer and comprises of a number of Senior Leaders across BHP. We have disclosure controls in place for periodic disclosures, including the Operational Review, our results announcements, debt investor documents (such as the prospectus for the Euro or Australian Medium Term Notes) and Annual Report documents, which must comply with relevant regulatory requirements. Additional details about these verification processes can be found in the Periodic Disclosure – Disclosure Controls document at bhp.com. To safeguard the effective dissemination of information, we have developed mandatory minimum performance requirements for market disclosure, which outline how we identify and distribute information to shareholders and market participants and sets out the role of the Disclosure Committee in managing compliance with market disclosure obligations. Further, where an announcement is determined to be material by the Disclosure Committee, the Board receives a copy promptly after it has been made. Where BHP gives a new and substantive investor or analyst presentation, it releases a copy of the presentation materials on the ASX Market Announcements Platform ahead of the presentation. As a result of COVID-19, we introduced extra monitoring and disclosure controls. These included: increasing the regularity and breadth of information gathered from management (including Finance, Supply, Marketing, Legal, and Operational teams); more regular updates to the Disclosure Committee; and more regular discussions with UBS (our corporate broker in the UK), as well as our Investor Relations team. This enabled BHP to assess the materiality of developments and stay across market expectations, dynamics and emerging best practice. A copy of the market disclosure and communications document is available at bhp.com/governance. Copies of announcements to the stock exchanges on which BHP is listed, investor briefings, Financial Statements, the Annual Report and other relevant information can be found at bhp.com. To receive email alerts of news releases, subscribe at bhp.com. 2.17 Conformance with corporate governance standards Our compliance with the governance standards in our home jurisdictions of Australia and the United Kingdom, and with the governance requirements that apply to us as a result of our New York Stock Exchange (NYSE) listing and our registration with the Securities Exchange Commission (SEC) in the United States, is summarised in this Corporate Governance Statement, the Remuneration Report, the Directors’ Report and the Financial Statements. The UK Code (available at: frc.org.uk) and the ASX Principles and Recommendations (available at www.asx.com/au) require the Board to consider the application of the relevant corporate governance principles, while recognising that departures from those principles are appropriate in some circumstances. The Board considers that during FY2020 it applied the Principles and complied with the provisions set out in the 2018 edition of the UK Code, and complied with the ASX Third Edition, with no exceptions. Our Appendix 4G, which summarises our compliance with the ASX Third Edition is available at bhp.com/governance. BHP Group Limited and BHP Group Plc are registrants with the SEC in the United States. Each company is classified as a foreign private issuer and each has American Depositary Shares listed on the NYSE. We have reviewed the governance requirements applicable to foreign private issuers under SOX, including the rules promulgated by the SEC and the rules of the NYSE, and are satisfied that we comply with those requirements. Under NYSE rules, foreign private issuers such as BHP are required to disclose any significant ways our corporate governance practices differ from those followed by US companies under the NYSE corporate governance standards. After a comparison of our corporate governance practices with the requirements of Section 303A of the NYSE-Listed Company Manual followed by US companies, a significant difference was identified: Rule 10A-3 of the Exchange Act requires NYSE-listed companies to ensure their audit committees are directly responsible for the appointment, compensation, retention and oversight of the work of the External Auditor unless the company’s governing law or documents or other home country legal requirements require or permit shareholders to ultimately vote on or approve these matters. While the RAC is directly responsible for remuneration and oversight of the External Auditor, the ultimate responsibility for appointment and retention of the External Auditor rests with our shareholders, in accordance with UK law and our constitutional documents. The RAC does, however, make recommendations to the Board on these matters, which are reported to shareholders.
The information specified in the UK FCA Disclosure and Transparency Rules, DTR 7.2.6, is located elsewhere in this Annual Report. The Directors’ Report in section 4 provides cross-references to where the information is located. This Corporate Governance Statement was current and approved by the Board on 3 September 2020 and signed on its behalf by: Ken MacKenzie Chair 3 September 2020 Remuneration Report In this section This Remuneration Report describes the remuneration policies, practices, outcomes and governance for the KMP of BHP. BHP’s DLC structure means that we are subject to remuneration disclosure requirements in the United Kingdom and Australia. This results in some complexity in our disclosures, as there are some key differences in the requirements and the information that must be disclosed. For example, UK requirements give shareholders the right to a binding vote on the remuneration policy every three years and as a result, the remuneration policy needs to be described in a separate section in the Remuneration Report. Our remuneration policy is set out in section 3.2. In Australia, BHP is required to make certain disclosures for KMP as defined by the Australian Corporations Act 2001, Australian Accounting Standards and IFRS. The UK requirements focus on the remuneration of Executive and Non-executive Directors. At BHP, this is our Board, including the CEO, who is our sole Executive Director. In contrast, the Australian requirements focus on the remuneration of KMP, defined as those who have authority and responsibility for planning, directing and controlling the activities of the Group directly or indirectly. KMP includes the Board, as well as certain members of our senior executive team. After due consideration, the Committee has determined the KMP for FY2020 comprised the following roles: all Non-executive Directors, the CEO, the Chief Financial Officer, the President Minerals Australia, the President Minerals Americas, and the President Petroleum. The following individuals have held their positions and were KMP for the whole of FY2020, unless stated otherwise: Mike Henry, CEO and Executive Director (from 1 January 2020) and President Minerals Australia (to 31 December 2019) Andrew Mackenzie, CEO and Executive Director (to 31 December 2019) Peter Beaven, Chief Financial Officer Daniel Malchuk, President Minerals Americas Geraldine Slattery, President Petroleum Non-executive Directors - see section 3.3.14 for details of the Non-executive Directors, including dates of appointment or cessation (where relevant)
3.1 Annual statement by the Remuneration Committee Chair Dear Shareholders, I am pleased to introduce BHP’s Remuneration Report for the financial year to 30 June 2020, which is my first since assuming the Remuneration Committee Chair role, and I am looking forward to engaging with shareholders as the Committee undertakes its work. During FY2020, the Committee has continued its focus on achieving remuneration outcomes that fairly reflect the performance of BHP, and which are aligned to the interests of shareholders and other key stakeholders. FY2020 has been an unprecedented year, with the COVID-19 pandemic having widespread impacts on lives, society and the global economy. In the face of this, BHP employees have rallied in line with the Group’s purpose and values, working very effectively to keep the business running and performing strongly, and keeping each other safe. I would like to thank my predecessor as Remuneration Committee Chair, Carolyn Hewson, for her leadership and for establishing a Committee with a strong foundation of policies, principles and practices upon which our decisions are able to be made. This is especially so in the unpredictable times in which we find ourselves. We have also made other changes to the Committee this year. New Directors Gary Goldberg and Dion Weisler have joined Anita Frew and Shriti Vadera on the Committee and I would like to thank all members for their contributions. Remuneration policy The Committee sought and received approval from shareholders at last year’s AGMs for a revised remuneration policy, with almost 94 per cent of votes in favour, and we believe the policy will serve stakeholders well. The key changes approved for the CEO were: A change in the balance of incentive arrangements comprising: a significantly reduced LTIP grant size of 200 per cent of base salary (on a face value basis), down from 400 per cent a CDP with a longer term focus than the former STIP. The CDP outcome is delivered one-third as a cash award, with two-thirds delivered in equity, as two-year and five-year deferred share awards each of equivalent value to the cash award. This aligns participants’ incentive remuneration with performance over the short-, medium- and long-term These two changes in combination did not materially alter the target value or vesting profile of incentive remuneration, but resulted in a 12 per cent reduction in the maximum possible remuneration for a year. A significant reduction in the pension contribution rate to 10 per cent of base salary, down from 25 per cent (noting that the estimated workforce average is approximately 11.5 per cent of base salary). As a result of this change, fixed remuneration for the CEO role has been reduced by 12 per cent and overall target remuneration reduced by 4 per cent. The introduction of a two-year post-retirement shareholding requirement. While these changes took effect from 1 July 2019, existing short- and long-term equity awards made under prior policies remain on foot and will vest, subject to existing service and performance conditions, over coming years. We were also pleased to again receive strong support for our overall Remuneration Report from shareholders at the 2019 AGMs, with approximately 96 per cent voting ‘for’ the report. This continues our strong shareholder support over the past five years, where on average almost 97 per cent have voted in favour. The Committee strives to implement the remuneration policy in a considered way: We test the CEO’s remuneration against CEO roles in other global companies of similar complexity, size, reach and industry. The remuneration also reflects the CEO’s responsibilities, location, skills, performance, qualifications and experience. This detailed benchmarking ensures BHP’s executive remuneration packages are competitive enough to attract and retain talented executives, without being excessive. External benchmarking shows the CEO’s target remuneration package is below the average for similar global companies and importantly, can only be realised as actual remuneration if performance targets are met. The CEO’s remuneration is deliberately tied to the performance of the business, with the majority of remuneration delivered in BHP shares, not cash. The CEO also has a minimum shareholding requirement of five times pre-tax base salary, which continues for two years post-retirement. This aligns the CEO to the experience of BHP’s shareholders. The exercise of reasonable downward discretion has been a feature of BHP’s approach over many years where the status quo or a formulaic outcome does not align with the overall shareholder experience, and this remains unchanged. The Committee is focussed on having and applying a remuneration policy and approach that supports the Group’s strategy and enables us to attract, retain and motivate the executives critical to delivering the best outcomes for all of BHP’s stakeholders. In addition, the Committee is cognisant of the need to navigate the priorities of differing jurisdictions. COVID-19 In early 2020, BHP began to experience the impacts of the COVID-19 pandemic. All BHP employees have come together as one team to deal with the issues faced and despite the challenges, BHP’s results have been strong. The CEO and other ELT members have provided strong and effective leadership through this period, and the Committee is proud of the way BHP’s employees have found new ways of working, collaborated to solve problems, supported each other and their communities, and aligned around a common goal. Despite the challenges the COVID-19 pandemic has presented, in FY2020 BHP has not needed to furlough any employees without pay, has not sought any government assistance, and did not raise additional equity. In addition, BHP’s strong, safe operational performance through this year, together with solid profitability, enabled the Board to announce a robust final dividend payable to shareholders in September 2020. This follows a record interim dividend paid to shareholders in March 2020, and continues the delivery of strong and consistent returns to shareholders. The COVID-19 pandemic increased costs and reduced volumes during FY2020, which negatively impacted executive remuneration outcomes. During the COVID-19 pandemic, BHP has been especially conscious of contributing to the communities in which we operate, by doing all it can to keep employees, their families and their communities safe and healthy. BHP took action to slow the spread of COVID-19 into the workforce by investing in more transportation capacity, restricting travel to the operations and protecting at-risk workers. BHP has also created hundreds of operational jobs across our Minerals Australia business, funded local health and social programs in the communities where BHP operates, and for the Company’s small, local and Indigenous suppliers, BHP reduced the time taken to pay their invoices to help address the financial stress they might otherwise face as a result of the pandemic. Decisions and activities of the Committee A key element of the Committee’s work during the year was the remuneration implications of CEO succession. Mike Henry was appointed CEO and Executive Director effective 1 January 2020. Mike’s fixed remuneration on appointment was set at US$1.870 million per annum, which included a base salary of US$1.700 million per annum plus a pension contribution of 10 per cent of base salary. This level of fixed pay was a reduction of 12 per cent from Andrew Mackenzie’s fixed pay of US$2.125 million per annum. Mike participates in the CDP and LTIP in accordance with the approved remuneration policy. Andrew Mackenzie stepped down as CEO and a Director of the Group on 31 December 2019, and he retired from BHP on 31 March 2020. The terms of Andrew’s departure announced on 23 December 2019 reflected the Group’s remuneration policy and the rules of our incentive arrangements and leaving entitlements as approved by shareholders. Further information in respect of this is provided in sections 3.3.13 and 3.3.24. Other key decisions and activities of the Committee during FY2020 included: Completing the 2019 review of the remuneration policy and seeking and gaining the approval of shareholders at the 2019 AGMs Considering remuneration for other members of the ELT and the Group Company Secretary Aligning the determination of CDP equity award sizes to a 12-month pricing approach, also used for LTIP awards, to minimise potential volatility over time Setting and reviewing outcomes against performance measures and conditions of relevant incentive plans Redesigning, with the support of the Sustainability Committee, the HSEC component of the CDP scorecard to give greater weight and transparency to climate change Reviewing the fee for the BHP Chair Reviewing and adopting changes and improvements flowing from regulatory requirements and guidance, which in turn helps us improve our processes and approaches Engaging with shareholders and other key stakeholders Undertaking regular reviews of workforce engagement, workforce remuneration and related policies, remuneration by gender and the annual Shareplus enrolment update CEOs’ remuneration The scorecard against which the CEO’s annual performance is assessed comprises stretching performance measures, including HSEC, financial and individual performance elements. For FY2020, the Remuneration Committee has assessed Mike Henry’s and Andrew Mackenzie’s performance and determined CDP outcomes of 96 per cent for each of them, against the target of 100 per cent (and the maximum of 150 per cent), with the outcomes prorated to reflect their periods as CEO. These outcomes took into account BHP’s strong HSEC performance during the year, with no fatalities recorded, and improvements in all key health and safety indicators, while environment and community outcomes were broadly in line with expectations. Financial and operating performance was strong, yet fell slightly short of the stretching targets set at the commencement of the year. While the COVID-19 pandemic impacted BHP, society and the global economy, the Group maintained continuity of operations while keeping employees healthy and safe. Despite this, there were significant costs and other impacts of COVID-19 to BHP’s financial results for FY2020. The direct costs have been recorded as an exceptional item in the financial statements. Nevertheless, the Committee concluded that, while these COVID-19 related costs were outside the control of management, they, together with the volume impacts of COVID-19, should flow through to the financial measures for CDP scorecard purposes, thereby reducing the remuneration outcome for executives from what they would have otherwise been. The Committee considered this was appropriate in light of the global impacts of the COVID-19 pandemic. The Committee also considered each of the CEOs’ performance against their individual objectives. For Mike, this included assuming the CEO role, redefining and restructuring the ELT, enhancing the performance improvement focus, strategy review, portfolio value and options analysis, accelerating gender balance aspirations, and the work of the Tailings Dams Taskforce. For Andrew, this included enhancing the value of the portfolio, maximising performance options, and maintaining a robust ELT succession slate. The Committee considered both Mike’s and Andrew’s performance against their individual objectives to be in line with target. While the CEOs’ scorecard outcomes were determined at 96 per cent of target and the scorecard outcomes for other Executive KMP were on average marginally ahead of target, the short-term incentive pool applicable to the majority of BHP employees below the ELT level was above target. This was considered appropriate and due recognition, given the excellent performance across BHP’s whole workforce in the face of the COVID-19 pandemic, where, despite this, strong safety performance and operational continuity was achieved during FY2020. The vesting outcome for the 2015 LTIP against the relative TSR performance conditions was 48 per cent, and this is the first vesting under the program since 2014. BHP outperformed the sector peer group significantly, but did not meet the performance threshold for vesting against the MSCI World index. This 48 per cent level of vesting is aligned with the long-term average vesting under the LTIP since its inception 16 years ago. Consistent with prior practice, the Board and Committee has conducted a holistic review of business performance over the prior five years since grant to ensure this level of vesting was appropriate. Further details in respect of overall remuneration outcomes for the year for the CEOs, together with information on how the outcomes are aligned to performance during FY2020, are provided in section 3.3. As at the date of this report, Mike’s shareholding meets the minimum shareholding requirement of five times pre-tax base salary. For FY2021, the Committee determined that Mike’s base salary remains unchanged at US$1.700 million per annum, as it was at the time of his appointment. In addition, the other components of his total target remuneration (pension contributions, benefits, CDP and LTIP) also remain unchanged. A summary of Mike’s arrangements for FY2021 is set out below. FY2021 CEO remuneration
We have also addressed last year’s commitment to clarify and strengthen the link between executive remuneration and climate change for FY2021. The weighting on climate change is now 10 per cent of the 25 per cent HSEC weighting in the CDP scorecard, which compares to circa 4 per cent allocated to climate change in the prior STIP, and we have enhanced the disclosure of climate change-related performance targets. Further details are set out in section 3.3.9. Mike is BHP’s only Executive Director, however, the Committee has also reviewed the base salaries and total target remuneration packages for other Executive KMP and determined that there would be no increases to base salaries as a consequence of that review, and that other aspects of their remuneration arrangements would remain unchanged. Remuneration outcomes for the Chair and Non-executive Directors Fees for the Chair and Non-executive Directors are reviewed annually and are benchmarked against peer companies. No changes to the Chair’s fee will be made for FY2021. This follows a review in 2017, where a decision was made to reduce the Chair’s annual fee by approximately 8 per cent from US$0.960 million to US$0.880 million with effect from 1 July 2017, which followed an earlier reduction, effective 1 July 2015, of approximately 13 per cent from US$1.100 million to US$0.960 million. Base fee levels for Non-executive Directors will also remain unchanged, after they were also reduced effective 1 July 2015 by approximately 6 per cent, from US$0.170 million to US$0.160 million per annum. Prior to the above reductions in fee levels for the Chair and Non-executive Directors, their fees had remained unchanged since 2011. Summary With the COVID-19 pandemic this year, FY2020 has presented many challenges, not only for BHP, but also for many other companies, governments, employees, families and communities across the world. On behalf of the Remuneration Committee, I would like to recognise the hard work, dedication and sacrifices of all of our employees. They have aligned around a common cause, and through their steadfast commitment, they have remained safe and healthy, continued to support their communities, and enabled BHP to generate strong results for all stakeholders. The Committee believes the remuneration outcomes for FY2020 reflect an appropriate alignment between pay and performance during the year and are also fair in terms of the global context in which decisions have been made. We are confident that shareholders will recognise this as a continuation of our long-held approach. We look forward to ongoing dialogue with, and the support of, BHP’s shareholders, and I very much look forward to meeting shareholders face-to-face when once again we are able to do so. As always, we welcome your feedback and comments on any aspect of this Report. Susan Kilsby Chair, Remuneration Committee 3 September 2020 3.2 Remuneration policy report BHP has an overarching remuneration policy that guides the Remuneration Committee’s decisions. Under UK legislation, shareholders have the opportunity to vote on our remuneration policy every three years, with binding effect in regard to the Directors (including the CEO). Under Australian legislation, shareholders also have the opportunity to vote on our remuneration policy in conjunction with the broader Remuneration Report, each year at the AGMs as it applies to all KMP under a non-binding advisory vote. Our remuneration policy, which was approved by shareholders at the 2019 AGMs, has not changed and is repeated below. Remuneration policy for the Executive Director This section only refers to the remuneration policy for our CEO, who is our sole Executive Director. If any other executive were to be appointed an Executive Director, this remuneration policy would apply to that new role. 3.2.1 Components of remuneration The following table shows the components of total remuneration, the link to strategy, the applicable operation and performance frameworks, and the maximum opportunity for each component.
The Remuneration Committee’s discretion in respect of each remuneration component applies up to the maximum shown in the table above. Any remuneration elements awarded or granted under the previous remuneration policy approved by shareholders in 2014 and 2017, but which have not yet vested or been awarded or paid, shall continue to be capable of vesting, awarded or payment made on their existing terms. 3.2.2 Malus and clawback The CDP, LTIP and STIP rule provisions allow the Committee
These malus and clawback provisions apply whether or not awards are made in the form of cash or equity, whether or not the equity has vested, and whether or not employment is ongoing. 3.2.3 Potential remuneration outcomes The Remuneration Committee recognises that market forces necessarily influence remuneration practices and it strongly believes the fundamental driver of remuneration outcomes should be business performance. It also believes that overall remuneration should be fair to the individual, such that remuneration levels accurately reflect the CEO’s responsibilities and contributions, and align with the expectations of our shareholders, while considering the positioning and relativities of pay and employment conditions across the wider BHP workforce. The amount of remuneration actually received each year depends on the achievement of superior business and individual performance generating sustained shareholder value. Before deciding on the final incentive outcomes for the CEO, the Committee first considers the achievement against the pre-determined performance conditions. The Committee then applies its overarching discretion on the basis of what it considers to be a fair and commensurate remuneration level to decide if the outcome should be reduced. When the CEO was appointed in January 2020 the Board advised him that the Committee would exercise its discretion on the basis of what it considered to be a fair and commensurate remuneration level to decide if the outcome should be reduced. In this way, the Committee believes it can set a remuneration level for the CEO that is sufficient to incentivise him and that is also fair to him and commensurate with shareholder expectations and prevailing market conditions. The diagram below provides the scenario for the potential total remuneration of the CEO at different levels of performance. Minimum: consists of fixed remuneration, which comprises base salary (US$1.700 million), pension contributions (10 per cent of base salary) and other benefits (notional 10 per cent of base salary). Target: consists of fixed remuneration, target CDP (a cash award of 80 per cent of base salary plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years respectively) and target LTIP. The LTIP target value is based on the fair value of the award, which is 41 per cent of the face value of 200 per cent of base salary. The potential impact of future share price movements is not included in the value of deferred CDP awards or LTIP awards. Maximum: consists of fixed remuneration, maximum CDP (a cash award of 120 per cent of base salary plus two awards of deferred shares each of equivalent value to the cash award, vesting in two and five years respectively), and maximum LTIP (face value of 200 per cent of base salary). The potential impact of future share price movements is not included in the value of deferred CDP awards or LTIP awards. All other things being equal, if the share price at vesting of LTIP awards was 50 per cent higher than the share price at grant, then the total maximum value would be US$13.260 million. The maximum opportunity represented above is the most that could potentially be paid of each remuneration component, as required by UK regulations. It does not reflect any intention by the Group to award that amount. The Remuneration Committee reviews relevant benchmarking data and industry practices, and believes the maximum remuneration opportunity is appropriate. 3.2.4 Approach to recruitment and promotion remuneration The remuneration policy as set out in section 3.2 of this Report will apply to the remuneration arrangements for a newly recruited or promoted CEO, or for another Executive Director should one be appointed. A market-competitive level of base salary will be provided. The pension contributions, benefits and variable pay will be in accordance with the remuneration policy table in section 3.2.1. For external appointments, the Remuneration Committee may determine that it is appropriate to provide additional cash and/or equity components to replace any remuneration forfeited or not received from a former employer. It is anticipated that any foregone equity awards would be replaced by equity. The value of the replacement remuneration would not be any greater than the fair value of the awards foregone or not received (as determined by the Committee’s independent adviser). The Committee would determine appropriate service conditions and performance conditions within BHP’s framework, taking into account the conditions attached to the foregone awards. The Committee is mindful of limiting such payments and not providing any more compensation than is necessary. For any internal CEO (or another Executive Director) appointment, any entitlements provided under former arrangements will be honoured according to their existing terms. 3.2.5 Service contracts and policy on loss of office The terms of employment for the CEO are formalised in his employment contract. Key terms of the current contract and relevant payments on loss of office are shown below. If a new CEO or another Executive Director was appointed, similar contractual terms would apply, other than where the Remuneration Committee determines that different terms should apply for reasons specific to the individual or circumstances. The CEO’s current contract has no fixed term. It can be terminated by BHP on 12 months’ notice. BHP can terminate the contract immediately by paying base salary plus pension contributions for the notice period. The CEO must give 12 months’ notice for voluntary resignation(1). The table below sets out the basis on which payments on loss of office may be made.
base salary, pension contributions and benefits will be paid until the date of the change of control event
Our Non-executive Directors are paid in line with the UK Corporate Governance Code (2018 edition) and the Australian Securities Exchange Corporate Governance Council’s Principles and Recommendations (3rd Edition). 3.2.6 Components of remuneration The following table shows the components of total remuneration, the link to strategy, the applicable operation and performance frameworks, and the maximum opportunity for each component
Approach to recruitment remuneration The ongoing remuneration arrangements for a newly recruited Non-executive Director will reflect the remuneration policy in place for other Non-executive Directors, comprising fees and benefits as set out in the table above. No variable remuneration (CDP and LTIP award arrangements) will be provided to newly recruited Non-executive Directors. Letters of appointment and policy on loss of office The standard letter of appointment for Non-executive Directors is available at bhp.com. The Board has adopted a policy consistent with the UK Corporate Governance Code, under which all Non-executive Directors must seek re-election by shareholders annually if they wish to remain on the Board. As such, no Non-executive Directors seeking re-election have an unexpired term in their letter of appointment. A Non-executive Director may resign on reasonable notice. No payments are made to Non-executive Directors on loss of office. 3.2.7 How remuneration policy is set The Remuneration Committee sets the remuneration policy for the CEO and other Executive KMP. The Committee is briefed on and considers prevailing market conditions, the competitive environment and the positioning and relativities of pay and employment conditions across the wider BHP workforce. The Committee takes into account the annual base salary increases for our employee population when determining any change in the CEO’s base salary. Salary increases in Australia, where the CEO is located, are particularly relevant as they reflect the local economic conditions. The principles that underpin the remuneration policy for the CEO are the same as those that apply to other employees, although the CEO’s arrangements have a greater emphasis on and a higher proportion of remuneration in the form of performance-related variable pay. Similarly, the performance measures used to determine variable pay outcomes for the CEO and all other employees are linked to the delivery of our strategy and behaviours that are aligned to the values in Our Charter. Although BHP does not consult directly with employees on CEO and other Executive KMP remuneration, the Group conducts regular employee engagement surveys that give employees an opportunity to provide feedback on a wide range of employee matters. Further, many employees are ordinary shareholders through our all-employee share purchase plan, Shareplus, and therefore have the opportunity to vote on AGM resolutions. In addition, in line with changes to the UK Corporate Governance Code, the Remuneration Committee is considering additional means of engaging with the workforce to explain how executive remuneration aligns with wider Group pay policy.
3.3 Annual report on remuneration This section of the Report shows the impact of the remuneration policy in FY2020 and how remuneration outcomes are linked to actual performance. Remuneration for the Executive Directors (the CEOs) 3.3.1 Single total figure of remuneration This section shows a single total figure of remuneration as prescribed under UK requirements. It is a measure of actual remuneration received, rather than a figure calculated in accordance with IFRS (which is detailed in note 24 ‘Employee share ownership plan’ section 5). As Mike Henry assumed the role of CEO and became an Executive Director on 1 January 2020, the FY2020 actual remuneration shown relates to the period 1 January 2020 to 30 June 2020. The FY2020 actual remuneration for Andrew Mackenzie relates to the period 1 July 2019 to 31 December 2019, on which date he ceased to be CEO and an Executive Director. The components of remuneration are detailed in the remuneration policy table in section 3.2.1.
For Mike Henry, the single total figure of
The Board and
HSEC The HSEC targets for the CEOs are aligned to the Group’s suite of HSEC five-year public targets as set out in section 1.7. As it has done for several years, the Remuneration Committee seeks guidance each year from the Sustainability Committee when assessing HSEC performance against scorecard targets. The Remuneration Committee has taken a holistic view of Group performance in critical areas, including any matters outside the scorecard targets which the Sustainability Committee considers relevant.
The outcome against the HSEC KPI for FY2020 was 32 per cent against the target of 25 per cent. As a Group-level outcome, this applied to both Mike and Andrew for their time as CEO. Financial ROCE is underlying profit after taxation (excluding after-taxation finance costs and exceptional items) divided by average capital employed. ROCE is the key financial KPI against which CDP outcomes for our senior executives are measured and is, in our view, a relevant measure to assess the financial performance of the Group for this purpose. While ROCE excludes exceptional items, the Remuneration Committee reviews each exceptional item to assess if it should be included in the result for the purposes of deriving the ROCE CDP outcome. When we are assessing management’s performance, we make adjustments to the ROCE result to allow for changes in commodity prices, foreign exchange movements and other material items to ensure the assessment appropriately measures outcomes that are within the control and influence of the Group and its executives. Of these, changes in commodity prices have historically been the most material due to volatility in prices and the impact on Group revenue and ROCE.
The outcome against the ROCE KPI for FY2020 was 39 per cent against the target of 50 per cent. As a Group-level outcome, this outcome applied to Mike and Andrew for their time as CEO. Individual performance measures for the CEOs Individual measures for the CEOs are determined at the commencement of the financial year (or at the time of appointment for a new CEO). The application of personal measures remains an important element of effective performance management. These measures seek to provide a balance between the financial and non-financial performance requirements that maintain our position as a leader in our industry. The CEOs’ individual measures for FY2020 included contribution to BHP’s overall performance and the management team, and also the delivery of projects and initiatives within the scope of the CEO role as specified by the Board, as set out in the tables below.
Overall, it was considered that the performance of both Mike and Andrew against their individual measures KPI was as expected for their respective periods as CEO. Accordingly, they were each awarded an outcome of 25 per cent, which is equal to target. 3.3.3 LTIP performance outcomes LTIP vesting based on performance to June 2020 The five-year performance period for the 2015 LTIP ended on 30 June 2020. Mike Henry’s 2015 LTIP award comprised 192,360 awards (granted as President Coal prior to his appointment as CEO) and Andrew Mackenzie’s 2015 LTIP award comprised 322,765 awards (reduced from 339,753 awards originally granted prorated for time served at the time of departure). Vesting is subject to achievement of the relative TSR performance conditions and any discretion applied by the Remuneration Committee (see section 3.3.5). Testing the performance condition For the award to vest in full, TSR must exceed the Peer Group TSR (for 67 per cent of the award) and the Index TSR (for 33 per cent of the award) by an average of 5.5 per cent per year for five years, being 30.7 per cent in total compounded over the performance period from 1 July 2015 to 30 June 2020. TSR includes returns to BHP shareholders in the form of share price movements along with dividends paid and reinvested in BHP (including cash and in-specie dividends).
The graph below shows BHP’s performance relative to comparator groups.
3.3.4 LTIP allocated during FY2020 Following shareholder approval at the 2019 AGMs, LTIP awards (in the form of performance rights) were granted to Mike Henry (in his role as President Minerals Australia) and Andrew Mackenzie (in his role as CEO) on 20 November 2019. The first LTIP grant to be made to Mike as the new CEO under the terms of the remuneration policy approved by shareholders in 2019 will be awarded in late CY2020 and will be made on the reduced 200 per cent of base salary (face value). The face value and fair value of the awards granted on 20 November 2019 are shown in the table below. The face value of Mike’s award is 350 per cent of his base salary of US$1.100 million at the time of grant. The face value of Andrew’s award is 400 per cent of his base salary of US$1.700 million. The fair value of the awards is ordinarily calculated by multiplying the face value of the award by the fair value factor of 41 per cent (for the current plan design, as determined by the independent adviser to the Committee).The number of LTIP awards for both Mike and Andrew as detailed below was determined based on the US$ face value of base salary and calculated using the average share price and US$/A$ exchange rate over the 12 months up to and including 30 June 2019.
In addition to those LTIP terms set in the remuneration policy for the CEO approved by shareholders in 2019, the Remuneration Committee has determined:
3.3.5 Overarching discretion and vesting underpin The rules of the CDP, LTIP and STIP and the terms and conditions of the awards give the Committee an overarching discretion to reduce the number of awards that will vest, notwithstanding the fact that the performance condition for partial or full vesting, as tested following the end of the performance period, or the relevant service conditions, have been met. This holistic, qualitative judgement, which is applied as an underpin test before final vesting is confirmed, is an important risk management tool to ensure vesting is not simply driven by a formula or the passage of time that may give unexpected or unintended remuneration outcomes. The Committee considers its discretion carefully each year. It considers performance holistically over the five-year period, including a five-year ’look back’ on HSEC performance, profitability, cash flow, balance sheet health, returns to shareholders, corporate governance Having undertaken this review, the Committee considered its discretion in respect of equity awards due to vest in August 2020. In respect of the STIP two-year deferred shares (granted in November 2018 in respect of performance in FY2018), the Committee chose not to exercise its discretion and allowed the STIP awards to vest in full. In respect of the LTIP five-year performance shares (granted in December 2015), the formulaic outcome of the 2015 LTIP was a 48 per cent vesting. Having undertaken the ‘look back’ review, the Committee concluded the vesting outcome was appropriate given Group and individual performance, and chose not to exercise its discretion and allowed 48 per cent of the LTIP awards to vest. There is no upwards discretion available to the Remuneration Committee in respect of the LTIP, as the overarching discretion may only reduce the number of awards that may vest. 3.3.6 CEO remuneration and returns to shareholders 10-year CEO remuneration The table below shows the single total figure of remuneration for Mike Henry, Andrew Mackenzie and Marius Kloppers over the last 10 years along with the proportion of maximum opportunity earned for each type of incentive.
|