BHP Strategy On Course With Diversified Portfolio

MELBOURNE - BHP Chief Executive Officer, Mike Henry, said, “BHP delivered a strong set of results that reflect the strength, resilience and quality of our people and our portfolio. In a year marked by the challenges of the global COVID-19 pandemic, social unrest in Chile and commodity price volatility, we were safer, more reliable and lower cost. The Company’s operations generated robust free cash flow and our balance sheet remained strong, with net debt finishing the year at the low end of our target range. We have announced a final dividend bringing shareholder returns to US$6.1 billion for the full year.

Our workforce operated with purpose, focus, speed and decisiveness, and I am proud of their achievements. We are grateful for the ongoing support of our communities, Traditional Owners, governments and business partners. In line with our commitment to social value, we have in turn sought to support them through this difficult period by creating 1,500 jobs, making early payments to small, regional and indigenous suppliers and contributing more than US$75 million to community, health and social programs.

We expect most major economies will contract heavily in 2020, China being the exception. Recovery will vary considerably by country. Our diversified portfolio and high-quality assets position us to continue to generate returns in the face of near-term uncertainty, even as we secure and create the options in future-facing commodities that will allow us to sustainably grow value in the long-term.

Our development projects and exploration programs are progressing well and in line with our strategy. 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 high quality coking coals, with greatest potential upside for quality premiums as steel makers seek to improve blast furnace utilization and reduce emissions intensity. In oil and gas, we will continue to invest in opportunities that are resilient under a range of price scenarios, and which are aligned to our strengths. We will seek to divest oil and gas assets that are mature or which are likely to realize 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. Our ability to do so will be underpinned by our distinctive culture and organizational capability, our strong balance sheet and disciplined approach to capital allocation. Our priority is the safety, health and wellbeing of our workforce and the communities in which we operate and we have demonstrated this throughout the COVID-19 pandemic. Our operated assets have continued to operate safely, with additional protocols in place to protect our workforce and communities from the spread of COVID-19, in line with guidelines from local and national government bodies and expert health advice in the geographies where we operate.

Support for local communities has been a critical area of focus in BHP’s response. We have provided significant support to communities in Australia. We announced the A$50 million Vital Resources Fund in March 2020. It is being used to support regional communities in our areas of operation and includes funding for essential community and health services in the Pilbara, Bowen Basin, Hunter Valley and South Australia. We have implemented protective measures for the local communities and we have ceased all face-to-face contact with Traditional Owners to protect vulnerable members of their communities. We also hired an additional 1,500 people into temporary roles to support our workforce operating across Australia.

In Chile, we established a US$8 million program to support the public health response to COVID-19 at the national and regional level, with a focus on increasing testing capacity and tracing, the provision of medical equipment, and the support the communities where we operate and vulnerable populations through hygiene supplies and water, and public spaces sanitation. An additional US$3 million fund was established for specific local community programs. In North America, a US$2 million fund was established to support local and regional health and wellness programs in communities in close proximity to our operations. We shortened payment terms globally for our small, local and Indigenous suppliers, to further assist them and local communities to manage through the financial pressures of COVID-19.

In parallel with leading through the challenges faced during the year, we are continuing to take action on helping to address the urgent challenge of climate change. In October 2019, we announced four new renewable power contracts for Escondida and Spence that will replace existing electricity supply contracts. The contracts will deliver lower energy prices and will displace approximately 3 Mt CO2-e per year from BHP’s Chilean operations from the 2022 financial year. We aim to supply Escondida and Spence’s energy requirements fully from 100 per cent renewable energy sources from the mid-2020s. We are also minimizing our use of fresh water. Escondida has eliminated water drawdown from aquifers for operational supply 10 years ahead of its 2030 target. This was made possible by the completion of the Escondida Water Supply Expansion project in December 2019, which further increased total desalinated water capacity. We have also realized better water consumption efficiency through a program of continuous improvement.

Work is progressing on the implementation of the climate change initiatives announced in July 2019. We are setting a 2030 science-based target for Scope 1 and 2 emissions, to set the trajectory towards our 2050 goal of net-zero operational emissions, as well as setting Scope 3 emissions goals. We are implementing the US$400 million Climate Investment Program, to develop low carbon technologies and invest in nature-based solutions to support reduction in emissions from our operations as well as those generated from the use of our resources. Furthermore, we are updating our climate portfolio analysis, and clarifying and strengthening the link between performance against emissions targets and BHP’s executive pay plans. We will announce these in our Climate Change Report.

The BHP Tailings Taskforce, that we established last year, continues to oversee improvement and assurance for our operated tailings storage facilities, including a focus on short term risk reduction, strengthening emergency response, enhancing preventative controls, improving governance processes and leading ongoing participation with the International Council of Mining and Metals and others across the industry on the implementation of the new Global Industry Standard for Tailings Management. The new international standard provides a framework for safer tailings management and an ambition to achieve the goal of zero harm to people and the environment, and we are taking a proactive approach to ensure we meet all of the requirements that have been set out in the standard. We fully support the transparency and independence of the review process, which has brought together multiple stakeholders across a range of disciplines to achieve a global industry standard.

In 2018 we established BHP Operations Services to provide a highly skilled workforce of permanent employees able to work across BHP’s Australian operations. We have since created nearly 3,000 permanent jobs, over and above approximately 1,500 other new roles in Australia, with Operations Services now deployed at 20 locations across Western Australia Iron Ore (WAIO), Queensland Coal and NSWEC. Deployments are achieving better safety, productivity and efficiency outcomes.

In May 2020, Operations Services launched the BHP FutureFit Academy, a new national training program, developed to provide a customized training pathway utilizing nationally recognized curricula, for trade apprenticeships and maintenance traineeships. The first two FutureFit Academy campuses opened in Mackay in Queensland and Perth in Western Australia, with graduates to be deployed to an Operations Services team from the 2021 calendar year.

BHP remains committed to supporting the Renova Foundation and its work to progress the remediation and compensatory programs to restore the environment and re-establish communities affected by the Samarco tragedy. Resettlement of communities remains one of the Renova Foundation’s priority social programs and involves ongoing engagement and consultation with a large number of stakeholders. The implementation of precautionary measures to facilitate physical distancing for COVID-19, including a suspension of works between March and June 2020, as well as increases to the technical scope for resettlement of the communities and licensing delays from authorities have impacted the timeline for completion. Resettlement works resumed in the municipality of Mariana from mid-June 2020 and are continuing with a reduced workforce. Currently, there is no schedule to return to full staff capacity as this depends on the duration of COVID-19 restrictions. At Bento Rodrigues, construction of housing, the public school and healthcare facility is continuing to progress, while infrastructure works are nearing completion. At Paracatu, infrastructure works and the construction of some public buildings and the first houses are underway. At Gesteria, the urban plan design is progressing in consultation with the community.

Our strategy is to have the best assets in the best commodities, run with the best capabilities. Our existing portfolio is built upon an industry leading set of large, low cost, expandable resource bases. We have exposure to large, growing commodities, which enable low cost assets to generate attractive and consistent returns.

However, the world is rapidly changing with decarbonization of energy sources, population growth and the drive for higher living standards in the developing world key drivers in the future. Our diversified portfolio is resilient under different long-term scenarios but we are constantly considering ways to further strengthen it for the near, medium and long term. We must continue to generate excellent and growing returns for shareholders in this changing world. We have successfully undertaken a series of steps to simplify and strengthen our portfolio over the recent past. To ensure that we mitigate the risks that this changing world presents and take advantage of the many opportunities to grow value, it will require us to continue to be active portfolio managers.

Even against the backdrop of the decarbonization of the global economy, metallurgical coal will remain an essential input into the steel-making process for a long time yet. However, as steel makers seek to reduce their carbon intensity of production, we anticipate that markets will evolve to place an even higher relative value on higher quality HCC that increase blast furnace productivity and reduce emissions intensity of steel production.”