Company Quick10K Filing
BHP Billiton
20-F 2019-06-30 Filed 2019-09-17
20-F 2017-06-30 Filed 2017-09-28
20-F 2016-06-30 Filed 2016-09-21

BBL 20F Annual Report

Note 21 ‘Financial Risk Management' in Section 5 Outlines Bhp's Financial Risk Management Strategy, Including Market, Commodity and Currency Risk.
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BHP Billiton Earnings 2019-06-30

Balance SheetIncome StatementCash Flow

20-F 1 d738442d20f.htm FORM 20-F Form 20-F

 

 

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.

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
exchange on

which registered

 

Title of each class

 

Trading Symbol(s)

 

Name of each
exchange on

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.  ☐

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.
  

LOGO

Andrew Mackenzie

Chief Executive Officer

  

May 2019

 

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 defined in note 13 ‘Related undertaking of the Group’ in section 5.2 of this Report. Those terms do not include non-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 2018 to 30 June 2019. 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 from non-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


1    Strategic Report      1  
1.1    Chairman’s Review      2  
1.2    Chief Executive Officer’s Report      3  
1.3    BHP at a glance: FY2019 performance summary      4  
1.4    About BHP      6  
1.5    Our performance      16  
1.6    Our operating environment      22  
1.7    Samarco      52  
1.8    Tailings dams      55  
1.9    People      59  
1.10    Sustainability      64  
1.11    Our businesses      80  
1.12    Summary of financial performance      98  
1.13    Performance by commodity      115  
1.14    Other information      127  
2    Governance at BHP      128  
2.1    Governance at BHP      129  
2.2    Board of Directors and Executive Leadership Team      132  
2.3    Shareholder engagement      141  
2.4    Role and responsibilities of the Board      143  
2.5    Board membership      145  
2.6    Chairman      145  
2.7    Renewal and re-election      145  
2.8    Director skills, experience and attributes      146  
2.9    Director induction, training and development      149  
2.10    Independence      150  
2.11    Board evaluation      151  
2.12    Board meetings and attendance      152  
2.13    Board committees      153  
2.14    Risk management governance structure      166  
2.15    Management      166  
2.16    Our conduct      167  
2.17    Market disclosure      168  
2.18    Remuneration      169  

 

iii


2.19    Directors’ share ownership      169  
2.20    Conformance with corporate governance standards      169  
2.21   

Additional UK disclosure

     170  
3    Remuneration Report      171  
3.1   

Annual statement by the Remuneration Committee Chairman

     173  
3.2   

Remuneration policy report

     181  
3.3   

Annual report on remuneration

     189  
4    Directors’ Report      212  
4.1    Review of operations, principal activities and state of affairs      214  
4.2    Share capital and buy-back programs      215  
4.3    Results, financial instruments and going concern      216  
4.4    Directors      216  
4.5    Remuneration and share interests      217  
4.6    Secretaries      217  
4.7    Indemnities and insurance      218  
4.8    Employee policies      218  
4.9    Corporate governance      219  
4.10    Dividends      219  
4.11    Auditors      219  
4.12    Non-audit services      219  
4.13    Political donations      219  
4.14    Exploration, research and development      220  
4.15    ASIC Instrument 2016/191      220  
4.16    Proceedings on behalf of BHP Group Limited      220  
4.17    Performance in relation to environmental regulation      220  
4.18    Share capital, restrictions on transfer of shares and other additional information      220  
5    Financial Statements      222  
6    Additional information      223  
6.1    Information on mining operations      224  
6.2    Production      246  
6.3    Reserves      250  
6.4    Major projects      268  
6.5    Climate change data      269  
6.6    Legal proceedings      273  

 

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, including 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; 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’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’, ‘expect’, ‘may’, ‘should’, ‘will’, ‘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 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 undue reliance on forward looking statements.

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 are exploring or developing projects, facilities or mines, including increases in taxes, changes in environmental and other regulations and political uncertainty; labour unrest; and other factors identified in the risk factors set out in section 1.6.4.

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 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 which 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 27 ‘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 basis to include the contribution from Onshore US assets to 28 February 2019.

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.

 

vi


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    1.12

    B

   Capitalization and indebtedness    Not applicable

    C

   Reasons for the offer and use of proceeds    Not applicable

    D

   Risk factors    1.6.4

4.

   Information on the Company   

    A

   History and development of the company    1.3, 1.11, 1.12, 6.4, 6.6, 7.1 to 7.4, 7.5.13

    B

   Business overview    1.3 to 1.6, 1.11 to 1.13, 7.3, 7.4, 7.10

    C

   Organizational structure    7.3, Note 28 to the Financial Statements

    D

   Property, plant and equipment    1.11.1 to 1.11.3, 1.13, 6.1 to 6.4, Note 11 to the Financial Statements

4A.

   Unresolved Staff Comments    None

5.

   Operating and Financial Review and Prospects   

    A

   Operating results    1.5, 1.6, 1.12 to 1.13, 7.10

    B

   Liquidity and capital resources    1.12.3, 5.1.4, Notes 19 and 32 to the Financial Statements

    C

   Research and development, patents and licenses, etc.    1.4.1, 1.6.3, 1.11, 1.12, 4.14, 6.3

    D

   Trend information    1.6.1, 1.11.1 to 1.11.3, 1.13

    E

   Off-balance sheet arrangements    1.14, Notes 32 and 33 to the Financial Statements

    F

   Tabular disclosure of contractual obligations    1.14, Notes 32 and 33 to the Financial Statements

6.

   Directors, Senior Management and Employees   

    A

   Directors and senior management    2.2

    B

   Compensation    3

    C

   Board practices    2.2, 2.13

    D

   Employees    1.9

    E

   Share ownership    2.19, 3.3.20, 3.3.21, Note 23 to the Financial Statements

7.

   Major Shareholders and Related Party Transactions   

    A

   Major shareholders    7.6

    B

   Related party transactions    Notes 23 and 31 to the Financial Statements

    C

   Interests of experts and counsel    Not applicable

8.

   Financial Information   

    A

   Consolidated statements and other financial information    1.7, 5.1, 5.6, 6.6, 7.7, 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

 

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 page F-1 in this Annual Report

19.

   Exhibits    8

 

viii


1    Strategic Report

About this Strategic Report

This 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 and financial performance.

This disclosure is also intended to assist shareholders and other stakeholders to understand and interpret the Consolidated Financial Statements prepared in accordance with 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 on the inside back cover of this Annual Report.

 

1


1.1    Chairman’s Review

Dear Shareholder,

I am pleased to provide our Annual Report for FY2019.

During the year, our relentless focus on strengthening our portfolio, capital discipline, culture and productivity delivered a solid set of financial results. Higher prices and record production from a number of operations contributed to strong operating cash flows and enabled BHP to announce a record final dividend of 78 US cents per share.

We completed 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 an off-market buy-back in December 2018, and a special dividend in January 2019. These returns, when added to dividends announced in respect of FY2019, delivered record annual cash returns to shareholders.

We continued to invest in our future through the 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 areas will create value for shareholders and make a positive contribution to society.

To strengthen our operating performance, this year we established a dedicated Transformation Office 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.

Thank you for your continued support of BHP.

Ken MacKenzie

Chairman

 

2


1.2    Chief Executive Officer’s Report

Dear Shareholder,

BHP’s commitment to simplification, capital discipline and culture laid the groundwork for a solid performance in FY2019. From these strong foundations, we are confident in the long-term outlook, with significant opportunities ahead to further transform our business and deliver value and returns for our shareholders.

While our performance is a key indicator of success, how we operate is equally critical.

This year, we changed Our Charter to revise our company purpose. Our purpose is: to bring people and resources together to build a better world. We also added social value as one of our five company priorities. These changes recognise that we work with a range of stakeholders to make a positive contribution to the world. We know we must build trust and forge mutually beneficial partnerships for the long term, because the value we create together is central to shareholder value.

As always at BHP, the health, safety 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, family 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 confident we have a rich set of options to grow value in the future.

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 to our shareholders, suppliers, customers and the communities in which we operate. We are a better company because of your trust and support.

Andrew Mackenzie

Chief Executive Officer

 

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1.3    BHP at a glance: FY2019 performance summary

Not required for US reporting. Refer to sections 1.12 and 1.13.

 

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1.3    BHP at a glance: What we do

 

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(1) 

All figures include data for Continuing and Discontinued operations.

 

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1.4    About BHP

1.4.1    Our strategy

At BHP, our strategy is to have the best capabilities, best commodities and best assets to create long-term value and high returns.

 

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Driven by a commitment to transformation, capital discipline and social value

Our strategy maximises value and returns

We have a simple and diverse portfolio of tier one assets. They are long life, low cost and expandable. To extract the most value and the highest returns from our assets we apply our values and culture, operate them safely and productively, and deploy technology.

This has worked for shareholders. Since 2016 we have:

 

 

strengthened our balance sheet through a US$17 billion reduction in net debt;

 

 

reinvested US$27 billion in development options;

 

 

importantly, returned more than US$29 billion to shareholders.

To maintain this track record, 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 informs the way in which we provide resources, achieve commercial success and make our workplace safe. We have a responsibility to produce strong commercial, sustainable and social outcomes for our shareholders, communities and society. This inspired us to refresh our purpose to acknowledge people as the driving force behind our achievements and reflect our broader contribution. For more detail on BHP’s purpose, refer to section 1.10.1.

Transformation

Our Transformation program will continue to simplify the way we work, increase our workforce capability, establish innovative partnerships and create more stable and predictable operations, with the aim of unlocking more value. The Transformation program includes:

 

 

the 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 be 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;

 

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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.

 

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1.4.2    Our Operating Model

We have a simple and diverse portfolio of tier one assets around the world, with low-cost options for future growth and value creation.

Our assets are high quality and largely located in low-risk locations, with strong development potential.

Our Operating Model

Assets

 

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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 includes:

Assets: Assets are a set of one or more geographically proximate operations (including open-cut mines, 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 are 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 our assets into geographic regions to provide effective governance and replicate best practice, technology and improvement initiatives in other parts of the business. Our oil and gas assets are grouped together as one global Petroleum asset group, which allows us to share best practice and promote new technologies across our portfolio.

Commercial: Our Commercial function optimises value creation and minimises costs across our end-to-end supply chain. 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- and long-term market insights, strategy and planning activities, and close partnership with our assets.

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. Functions have specific accountabilities and expertise in areas such as finance, legal, governance, technology, human resources, corporate affairs, health, safety and community.

Leadership: Our Executive Leadership Team (ELT) is responsible for the day-to-day management of the Group and leading the delivery of our strategic objectives.

 

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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.

1.4.3    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. 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 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;

 

 

keep our balance sheet strong to give us stability and flexibility through the business cycle;

 

 

reward our shareholders by paying out at least 50 per cent of our Underlying attributable profit in 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;

 

 

return more cash to shareholders through additional dividends or share 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 share buy-back.

Our Capital Allocation Framework

 

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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-market buy-back of BHP Group Limited shares that was completed in December 2018 (Off-Market Buy-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 the Off-Market Buy-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.

The Off-Market Buy-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 the Off-Market Buy-Back. In addition, the Off-Market Buy-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.

 

(2) 

Volume weighted average price of BHP Group Limited ordinary shares on the Australian Securities Exchange over the five trading days up to and including Friday 14 December 2018.

 

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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.

 

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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 and de-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 with 360-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.

 

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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.

 

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1.4.6    Locations

BHP locations (includes non-operated operations)

 

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(1) 

Non-operated joint venture.

 

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1.5    Our performance

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. 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 1.5 has been presented to include Onshore US, except for Underlying EBITDA. Footnotes to tables and infographics indicate whether data presented in section 1.5 is inclusive or exclusive of Onshore US. For more information on the accounting treatment, refer to section 5.

1.5.1    Financial KPIs

 

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(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 1.12.4.

In FY2019, higher prices together with underlying improvements in productivity generated strong cash flow, enabling us to reduce net debt and increase our dividends.

Profit and earnings

Attributable profit of US$8.3 billion in FY2019 includes an exceptional loss of US$0.8 billion (after tax), compared to an attributable profit of US$3.7 billion, including an exceptional loss of US$5.2 billion (after tax) in the prior period. The FY2019 exceptional loss is related to the Samarco dam failure, partially offset by the reversal of provisions for global taxation matters, which were resolved during the period.

Our Underlying attributable profit was US$9.1 billion (FY2018: US$8.9 billion).

We reported Underlying EBITDA (continuing operations) of US$23.2 billion (FY2018: US$23.2 billion), with higher prices, favourable exchange rate movements and underlying improvements in productivity (in total US$3.2 billion) offset by the impacts of operational outages, grade and field decline, higher strip ratios, inflation, the impact of weather and other net movements (in total US$3.2 billion).

 

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Cash flow and balance sheet

Our Net operating cash flows (continuing operations) of US$17.4 billion in FY2019 (FY2018: US$17.6 billion) reflects EBITDA results and higher Australian and Chilean income tax payments in FY2019.

Our balance sheet remains strong with net debt at US$9.2 billion at FY2019 year-end (FY2018: US$10.9 billion), a reduction of US$17 billion over three years. The reduction of US$1.7 billion in FY2019 reflects strong free cash generation, which includes proceeds received from the sale of Onshore US, partially offset by returns to shareholders of US$16.6 billion, dividends paid to non-controlling interests of US$1.2 billion and an unfavourable non-cash fair value adjustment of US$0.4 billion related to interest rate and exchange rate movements.

Our gearing ratio (3) in FY2019 was 15.1 per cent (FY2018: 15.3 per cent).

 

(3) 

For more information on alternative performance measures, refer to section 1.12.4.

 

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Reconciling our financial results to our key performance indicators

 

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Capital management

Free cash flow (continuing operations), which is net operating cash flows less net investing cash flows, was US$10.0 billion (FY2018: US$12.5 billion) reflecting a 12 per cent increase in capital and exploration expenditure to US$7.6 billion in FY2019 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, Mad Dog Phase 2 and the Spence Growth Option in FY2019. Capital and exploration expenditure guidance is unchanged at below US$8 billion per annum for FY2020, 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 53 US cents per share. Recognising the importance of cash returns to shareholders, the Board determined to pay an additional amount of 25 US cents per share, taking the final dividend to a record 78 US cents per share. In total, US$17.1 billion of returns to shareholders have been determined for FY2019 including dividends of US$11.9 billion (FY2019: US$2.35 per share; FY2018: US$1.18 per share), which includes a special dividend of US$5.2 billion (US$1.02 per share) and a share buy-back of US$5.2 billion. These returns are covered by total free cash flows generated of US$20.5 billion including US$10.4 billion of net proceeds from the sale of Onshore US.

 

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1.5.2    Non-financial KPIs

 

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Total shareholder return (TSR) shows the total return to the shareholder during the financial year. It combines both movements in share prices and dividends paid (which are assumed to be reinvested).

 

During FY2019, TSR increased as a result of both the BHP share price and dividends paid, resulting in a 21.5 percentage change from FY2018. From 1 July 2014 to 30 June 2019, BHP underperformed the sector peer group by 9.3 per cent and underperformed the Index TSR by 35.3 per cent.

 

For more information on our approach to capital discipline, refer to section 1.4.3.

   

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 credit rating of BHP remained at the A level throughout FY2019. It affirmed this rating on 23 July 2019. Moody’s upgraded its credit rating of BHP from A3 to A2 on 31 October 2018 with a stable outlook thereafter in FY2019.

 

For more information on our liquidity and capital resources, refer to section 1.12.3

   

Total recordable injury frequency (TRIF) performance increased by 7 per cent to 4.7 per million hours worked, compared to 4.4 in FY2018. This was due to an increase in injuries in both Minerals Australia and Minerals Americas.

 

There was one fatality at our operated assets in FY2019.

 

(1)

Total recordable injury frequency (TRIF) is an indicator in highlighting broad personal injury trends and is calculated based on the number of recordable injuries per million hours worked. TRIF includes work-related events occurring outside our operated assets from FY2015. In FY2015, we expanded our definition of work-related activities to include events that occur outside our operated assets where we have established the work to be performed and can set and verify the health and safety standards, such as an employee driving in a BHP vehicle between two sites for work. TRIF does not include events at non-operated joint ventures. FY2015 to FY2018 TRIF data includes Continuing operations and Discontinued operations for the financial years being reported. FY2019 data includes Discontinued operations (Onshore US assets) to 28 February 2019 and Continuing operations.

 

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This year we continue to report on high potential injuries, which are injury events where there was the potential for a fatality. We are currently able to report data for the last four financial years. High potential injury trends remain a primary focus to assess progress against our most important safety objective: to eliminate fatalities. High potential injuries declined by 7 per cent from FY2018 due to reductions at Western Australia Iron Ore, Olympic Dam and Potash.

 

For information on our approach to health and safety, and our performance, refer to section 1.10.2 and 1.10.3.

   

Our five-year greenhouse gas (GHG) emissions reduction target, which took effect from 1 July 2017, is to maintain our total operational emissions in FY2022 at or below FY2017 levels (7) while we continue to grow our business. Our target builds on our success in achieving our previous five-year target.

 

Our combined 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(8). This decrease is primarily due to a change in the electricity emissions factor for Minerals Americas that resulted from the interconnection of Chile’s northern grid system, which is mainly fossil fuel-based, and southern grid system, which has a higher proportion of renewable energy.

 

We have also set the longer-term goal of achieving net-zero operational GHG emissions in the latter half of this century, consistent with the Paris Agreement. In order to set the trajectory towards achieving that goal, in FY2020 we intend to develop a medium-term target for operational emissions. We also intend to set public goals related to Scope 3 emissions.

 

For more information on our Scope 1 and 2 GHG emissions, as well as Scope 3 emissions in our value chain, refer to section 1.10.8.

   

Our target is to invest not less than 1 per cent of our pre-tax profit to contribute to improved quality of life in communities where we operate and support achievement of the United Nations Sustainable Development Goals.

 

Our voluntary social investment in FY2019 totalled US$93.5 million, consisting of US$55.7 million in direct community development projects and donations, US$8.9 million equity share to non-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 social investment activities at our assets totalled US$6.27 million and US$2 million supported the operations of the BHP Foundation.

 

For information on our voluntary social investment, refer to section 1.10.5.

 

(1)

High potential injuries (HPI) are recordable injuries and first aid cases where there was the potential for a fatality. FY2016 to FY2018 HPI data includes Continuing and Discontinued operations (Onshore US assets) for the financial years being reported. FY2019 HPI data includes Discontinued operations (Onshore US assets) to 28 February 2019 and Continuing operations.

 

(2)

FY2018 data has been adjusted due to the reclassification of an event after the reporting period.

 

(3)

Scope 1 and 2 emissions have been calculated on an operational control basis in accordance with the GHG Protocol Corporate Accounting and Reporting Standard. Comparisons of data over the period FY2015 to FY2016 should be made with consideration of the divestment of South32 during FY2015 (FY2015 data excludes emissions from South32 operations between the date of the divestment and 30 June 2015). Data over the period FY2017 to FY2019 is displayed with Onshore US emissions shown separately for comparability (12 months of emissions in FY2017 and FY2018, and four months of emissions in FY2019 prior to divestment of this asset).

 

(4)

Scope 1 refers to direct GHG emissions from operated assets.

 

(5)

Scope 2 refers to indirect GHG emissions from the generation of purchased electricity and steam that is consumed by operated assets (calculated using the market-based method).

 

(6)

FY2017 is the base year for our current five-year GHG emissions reduction target, which took effect from FY2018. The FY2017 baseline has been adjusted for the divestment of our Onshore US assets to ensure ongoing comparability of performance. The baseline will continue to 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.

 

(7)

FY2017 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.

 

(8)

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.

 

(9)

Our voluntary social investment is calculated as 1 per cent of the average of the previous three years’ pre-tax profit. Expenditure includes BHP’s equity share for operated and non-operated joint ventures, and comprises cash, administrative costs and costs to facilitate the operation of the BHP Foundation. FY2015 to FY2018 social investment figures include Continuing operations and Discontinued operations for the financial years being reported. FY2019 social investment figure includes Discontinued operations (Onshore US assets) to 31 October 2018 and Continuing operations.

 

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1.5.3    Our contribution in FY2019

In FY2019, our total direct economic contribution was US$46.2 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 36 per cent. Including royalties, this increases to 44.7 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, we paid US$18 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 development of the West Barracouta gas field in Bass Strait, Victoria, Australia, US$696 million (BHP share) 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 (3DEL) and perform further studies in the Trion field in Mexico.

 

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Figures are rounded to the nearest decimal point. All figures include Continuing and Discontinued operations.

 

(1)

Calculated on an accrual basis.

 

(2) 

Total social investment includes community contributions and associated administrative costs (including US$2.0 million to facilitate the operation of the BHP Foundation) and BHP’s equity share in community contributions for operated and non-operated joint ventures. Our social investment target is not less than 1 per cent of pre-tax profits invested in community programs, including cash and administrative costs, calculated on the average of the previous three years’ pre-tax profit.

 

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1.6    Our operating environment

1.6.1    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, 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

Our long-term view for our markets remains positive. Population growth and rising living standards are expected to continue to generate demand for energy, metals and fertilisers for decades to come. New demand centres will emerge where the twin levers of industrialisation and urbanisation are still immature today. Technology continues to advance, creating both opportunities and threats. International responses to climate change will evolve.

Against that backdrop, we are confident we have the right assets in the right commodities, with demand diversified by end-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). Exploration is inherently risky (see section 1.6.4), 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 of US-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.

 

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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 for non-ferrous metals has potential upside, but oil demand could face headwinds.

Decarbonisation of power

The move towards a low-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 to long-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 any countries that supply goods for import to that country.

China

China is the largest consumer of our commodities, accounting for roughly half of our sales. As the largest manufacturer and exporter in the world and the second-largest importer, China’s performance is also a significant factor in the health 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 of US-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 prevent longer-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.

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 FY2019 against our main local currencies.

We are also exposed to exchange rate translation risk in relation to our foreign currency denominated monetary 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.

 

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1.6.2    Commodity performance overview

Commodity prices

The following table shows the prices for our most significant commodities for the years ended 30 June 2019, 2018 and 2017. 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.

 

Year ended 30 June

   2019
Closing
     2018
Closing
     2017
Closing
     2019
Average
     2018
Average
     2017
Average
     2019
vs 2018
Average (9)
 

Natural gas Asian Spot LNG (1) (US$/MMBtu)

     4.8        10.3        5.5        8.1        8.5        6.4        -5%  

Crude oil (Brent) (2) (US$/bbl)

     66.1        77.9        47.4        69.0        63.6        49.6        9%  

Ethane (3) (US$/bbl)

     7.1        14.7        10.3        13.4        11.0        9.5        21%  

Propane (4) (US$/bbl)

     18.9        39.3        25.1        31.5        36.2        24.9        -13%  

Butane (5) (US$/bbl)

     20.6        45.9        30.8        37.4        41.0        33.3        -9%  

Copper (LME cash) (US$/lb)

     2.7        3.0        2.7        2.8        3.1        2.4        -9%  

Iron ore (6) (US$/dmt)

     118.0        64.5        63.0        80.1        69.0        69.5        16%  

Metallurgical coal (7) (US$/t)

     193.5        199.0        148.5        204.7        203.0        190.4        1%  

Energy coal (8) (US$/t)

     68.8        117.3        82.5        99.4        100.2        80.5        -1%  

Nickel (LME cash) (US$/lb)

     5.7        6.8        4.2        5.6        5.6        4.6        -1%  

 

(1) 

Platts Liquefied Natural Gas Delivery Ex-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 Belvieu non-Tet Ethane – typically applies to ethane sales in the US Gulf Coast market.

 

(4)

OPIS Mont Belvieu non-Tet Propane – typically applies to propane sales in the US Gulf Coast market.

 

(5) 

OPIS Mont Belvieu non-Tet Normal Butane – typically applies to butane sales in the US Gulf Coast market.

 

(6) 

Platts 62% Fe Cost and Freight (CFR) China – used for fines.

 

(7) 

Platts Low-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 exist

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 FY2019 on our key financial measures is set out in the following table.

 

     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  

 

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1.6.3     Exploration

Our exploration program is focused on 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.

During FY2019, our conventional petroleum 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 is at an earlier stage where we continue to seek, secure and test concessions in regions such as Ecuador, Canada, southwestern United States, South Australia, Chile and Peru.

 

LOGO

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 a six-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 and Hi-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 drilled Victoria-1 and Concepcion-1 to further assess the commercial potential of the Magellan field play. Victoria-1 encountered gas while Concepcion-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’s up-dip from all previous well intersections. Evaluation and analysis is ongoing.

 

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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.

Copper

Copper exploration is focused on identifying and gaining access to new search spaces to test the best targets capable of delivering tier one deposits while we maintain 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 one of our exploration projects on the Stuart Shelf, 65 kilometres to the southeast of BHP’s operations at Olympic Dam. Our Copper Exploration team was responsible for 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 second phase of the drilling program in the June 2019 half and the results are currently being analysed.

In parallel, 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, we acquired an 11.2 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 binding earn-in and joint venture agreement with Luminex, both in Ecuador. We acquired a 5 per cent interest in Midland Exploration Inc., a Canadian junior company with interests in copper projects in northern Québec in Canada. In Mexico, Copper Exploration entered into a financial agreement with Riverside Resources that will enable BHP to access new search spaces. The financial agreement is focusing on early stage exploration opportunities.

Exploration expenditure

Our resource assessment expenditure increased by 13 per cent in FY2019 to US$126 million, while our greenfield expenditure increased to US$62 million. Expenditure on resource assessment and greenfield exploration over the last three financial years is set out in the following table.

 

Year ended 30 June

   2019
US$M
     2018
US$M
     2017
US$M
 

Greenfield exploration

     62        53        43  

Resource assessment

     126        112        120  
  

 

 

    

 

 

    

 

 

 

Total minerals exploration and assessment

     188        165        163  
  

 

 

    

 

 

    

 

 

 

Conventional petroleum exploration and appraisal

Petroleum exploration expenditure for FY2019 was US$685 million, of which US$388 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
 

Conventional petroleum exploration and appraisal

     685        709        803  

Our petroleum exploration program had positive results in FY2019. We are pursuing high-quality plays in our four priority basins and a US$0.7 billion exploration program is planned for FY2020 as we progress testing of our future growth opportunities.

For more information on conventional petroleum exploration, refer to section 1.13.1.

 

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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
 

Exploration expense

        

Petroleum (1)(2)

     409        592        573  

Copper

     62        53        44  

Iron Ore

     41        44        70  

Coal

     15        21        9  

Group and unallocated items (2)(3)

     10        7        16  
  

 

 

    

 

 

    

 

 

 

Total Group

     537        717        712  
  

 

 

    

 

 

    

 

 

 

 

(1) 

Includes US$21 million (FY2018: US$76 million; FY2017: US$102 million) exploration expense previously capitalised, written off as impaired.

 

(2) 

Excludes Onshore US exploration expenditure of US$ nil (FY2018: US$ nil; FY2017: US$2 million).

 

(3) 

Group and unallocated items includes functions, other unallocated operations, including Potash, Nickel West and consolidation adjustments.

 

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1.6.4    Risk management

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 have 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’) 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.

 

LOGO

 

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Risk strategy

Group Risk Architecture

In order to understand and manage the risks that BHP is exposed to, we have developed a Group Risk Architecture, which is a tool to identify, analyse, monitor and report risk. The Group Risk Architecture is currently made up of 10 Group Risk categories, which cover a number of Group Risks. Risks in BHP’s 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 as vehicle incidents, falls from height and dropped objects.

The Group Risk Architecture (as at 30 June 2019) is illustrated below. The left column shows the Group Risk category and the columns to the right show the allocation of the Group Risks to each category. This Group Risk Architecture will change over time to reflect our strategy, changing activities and consideration of the external context. Our principal risks are shown in a darker shade of blue in the diagram below, and are described further in the Risk factors section below.

 

LOGO

 

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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 category that describes the nature and extent of risk we are prepared to take in pursuing our objectives. The Risk Appetite Statement defines the parameters that management is obliged to operate within and we use key risk indicators to indicate any changes to our risk exposure.

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 making by providing management with information about risk exposure at a group level. KRIs are defined for Group Risks to provide the data for proactive monitoring of BHP’s risk performance. Where 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, our 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.

 

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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.

 

LOGO

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, 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 audit the effectiveness of the standards and their application, as the third line.

BHP Board and committees

The Board reviews and considers BHP’s risk profile, covering operational and strategic risks, using the 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. The contents of this report are further described in the diagram below ‘Risk intelligence’.

The Risk and Audit Committee (RAC) assists 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. For more information, refer to section 2.13.

The Sustainability Committee has oversight of health, safety, environment 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.

 

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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 of the Board. Performance against risk appetite is monitored and reported to the RAC and the Board, as described below. This includes reporting of performance that is outside upper or lower tolerance limits to indicate whether management is taking sufficient or excessive risk.

In FY2019, we introduced an additional second-line led review of the Group’s most significant risks, such as dam failure, to provide a further level of rigour in 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, and Sustainability Committees. Findings and recommendations will be used to inform strategic decisions on whether to accept, reduce or further eliminate risks to align with the Group’s risk appetite, and to develop remediation plans, such as to improve risk analysis or control definition.

Additional information on risk management and internal controls is provided to the Board and the RAC by the Business Risk and Audit Committees (covering each asset group), other Board committees, management committees and our Internal Audit and Advisory team. For more information, refer to section 2.13. Our approach to risk reporting is outlined in the ‘Risk intelligence’ section.

Risk process

Our Risk Framework requires identification and management of risks to be embedded in business activities through the following processes:

 

 

Risk identification – new and emerging risks are identified and owned where they occur within BHP;

 

 

Risk assessments – risks are assessed with the most appropriate technique and results are translated for BHP to understand and appetite to be considered;

 

 

Risk treatment – risks are prevented, reduced or mitigated with controls;

 

 

Monitoring and review – risks and controls are reviewed periodically and on an adhoc basis to evaluate performance.

Our Risk Framework includes requirements and guidance on the tools and process to manage all risk types (current, strategy and emerging).

Current risk

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 and non-material risks.

The materiality of our current risks is determined by calculating an estimate of the maximum foreseeable loss (MFL). The MFL is the estimated impact sustained by BHP in the ‘worst case’ scenario for that risk. The ‘worst case’ scenario considers all potential impacts without regard to probability and assumes all risk controls, including insurance and hedging contracts, are ineffective. For example, when calculating the number of fatalities to assess MFL in an underground explosion, we might assume the maximum number of people who are allowed to enter the underground mine.

Our focus for current risks is to prevent their occurrence or minimise their impact should they occur. Current material risks are required to be evaluated once a year at a minimum to determine whether the risk exposure is within our risk appetite.

Strategy risk

Strategy 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 is often insufficient information for these risks to be fully understood and they cannot be prevented by BHP. Effective management of emerging risks is critical to strengthening our resilience to foreseeable changes and our ability to capture competitive advantages. We assess and manage emerging risks based on the expected consequence, timing and speed of the risk event, as well as the capacity for BHP to respond.

 

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Emerging risks are 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 reducing the impact should an event occur, and on advocacy efforts to reduce the likelihood of the risk manifesting. Our approach is to apply contingency controls, such as response plans, to emerging risks that are outside our appetite. These controls increase the resilience of BHP to shocks from the external environment. Emerging risks are evaluated annually to determine whether the risk remains emerging and if the 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.

 

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Risk intelligence

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 their robust assessment of principal 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 are outlined below.

 

LOGO

 

35


Robust risk assessment and viability statement

During the year, the Board carried out a robust assessment of BHP’s principal risks, including those risks that would threaten the business model, future performance, solvency or liquidity.

The Directors assessed the prospects of BHP over the next three years, taking into account our current position and principal risks.

The Directors believe a three-year viability assessment period is appropriate for the following reasons. BHP has a two-year budget, a five-year plan and a longer-term life of asset outlook. We have publicly stated our view that, while commodity prices remain volatile, our short-term outlook is optimistic. Price and exchange rate volatility results in variability in plans and budgets. A three-year period strikes an appropriate balance between long 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 the reserves-to-production life of our oil and gas assets.

The Directors’ assessment also took account of additional stress-testing of the balance sheet against two hypothetical significant risk events: a well blow-out in the Gulf of Mexico and a low-price environment. A further level of robustness is added given no debt issuance is required in the three-year period, and BHP would still have access to US$6.0 billion of credit through its revolving credit facility. The Directors were also mindful of the assessment of our portfolio against scenarios as part of BHP’s corporate planning process to help identify key uncertainties facing the global natural resources sector.

In making this viability statement, the Directors have considered the capital allocation framework and have also made certain assumptions regarding management of the portfolio, the alignment of production, capital expenditure and operating expenditure with five year plan forecasts and the alignment of prices with the cyclical low price case used in the control stress case for monthly balance sheet testing.

Taking account of these matters, and BHP’s current position and principal risks, the Directors have a reasonable expectation that BHP will be able to continue in operation and meet its liabilities as they fall due.

 

36


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 most significant Group Risks. Each of the risk factors listed below 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.

 

 
Asset integrity
 

Risks associated with operational integrity 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 operate from incidents. We have onshore and offshore assets in a variety of geographic locations. All our assets exist in and around broader communities and environments. A serious incident (such as dam failure or underground explosion) or the failure to appropriately maintain or develop our assets, could have an impact on our people, surrounding communities and environments, as well as our cash flow, operations or the longevity of our assets.

 

 
Threats
 
Failure to maintain operational integrity and performance of our assets may result in operational incidents or reduce asset value.
 
An operational incident, such as dam failure or underground explosion, could result in:
 

•   multiple injuries and fatalities;

 

•   extensive community disruption (including impacts to personal safety, livelihood and quality of life);

 

•   short-term and long-term health risks to our people or the community;

 

•   environmental damage (for example, affecting air quality, biodiversity or water resources);

 

•   loss of licences, permits or necessary approvals to operate assets;

 

•   loss of community infrastructure and services (such as power, water or transport);

 

•   failure or redundancy of mining, processing or support infrastructure or equipment (such as a structural collapse or failure of a conveyor, petroleum platform or rail line);

 

•   disruption to essential supplies or delivery of our products (for example, where channel blockage is caused by a vessel incident);

 

•   significant repair costs;

 

•   interruption in production or other critical activities and loss of revenue from affected operations;

 

•   litigation, including class actions, or fines and investigations by authorities.

 
A failure to maintain operational integrity and performance of our assets may impact asset value due to production shortfalls, loss of development options or a delay in asset development. For example, poor maintenance of facilities that manage fugitive emissions could result in excess dust or noise and restrict the ability to obtain approvals to increase output or throughput. It may also negatively impact cash flows and profitability, result in financial write downs (for example, due to a need to abandon remaining reserves where it is uneconomic to reconstruct or recover the asset following a major incident) or increased costs or other commercial impacts. 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.
 

Our risk financing approach is to self-insure or not purchase external insurance for certain risks, including property damage and business interruption, sabotage and terrorism, marine cargo, construction, primary public liability and employee benefits. Business continuity plans may not provide protection for all costs that arise from such events, and where external insurance is purchased, third party claims may exceed the limit of liability of policies. Any uninsured or underinsured losses could impact our financial position or the financial results of our assets.

 

 

37


 
Occupational and process safety
 

Risks associated with the safety of BHP employees and contractors in performing their work.

 

 
Why is this important to BHP?
 
All our sites may be subject to operational accidents, including fires, explosions, road, vehicle, port, shipping, railroad, aircraft or airport incidents, rock fall incidents, loss of power supply, environmental pollution, mechanical equipment failures, mine-related accidents, personal conveyance equipment failures, loss of primary containment of hazardous materials, or loss of well control (involving an uncontrolled flow of well fluids or formation fluids from the wellbore to the surface).
 
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 can involve helicopters, aircraft or high occupancy vehicles. We have port facilities and four underground mines, including one underground coal mine. The nature of the activities performed at such facilities and mines can involve safety hazards.
 

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 earthquake and tsunami zones.

 

 
Threats
 
Occupational and process safety incidents may lead to serious injuries, loss of life or livelihood or quality of life to BHP employees, contractors and members of the community. In addition, occupational and process safety incidents may result in:
 

•   interruption in production or other activities critical to our business;

 

•   disruption to essential supplies (such as explosives or maintenance parts);

 

•   failure of mining or processing equipment or support infrastructure (for example, relating to power, water, transport or technology);

 

•   environmental damage;

 

•   increased costs or other commercial impacts;

 

•   litigation (including class actions), fines or investigations by authorities;

 

•   reputational damage.

 

Our risk financing (insurance) approach is to self-insure or not purchase external insurance for certain risks. For more information, refer to Asset integrity section.

 

 

38


 
Capital allocation and returns sustainability
 

Risks associated with the allocation of capital through annual planning and other processes, and ongoing returns from BHP’s assets and investments.

 

 
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. Our decisions and actions relating to the allocation of capital across asset or reserve discovery, acquisition, maintenance, development or divestment, impacts our financial performance and financial condition, and therefore the sustainability of our returns. This is particularly the case with commodities that we view as attractive (for example, copper, oil and nickel sulphides).

 

 
Threats
 
Changes in our portfolio, missed opportunities to invest or a failure to effectively allocate capital or achieve expected returns from assets or investments may lead to:
 

•   loss of value, for example due to incorrect reserve estimates, incorrect or changing assumptions (including those related to commodity prices) or early depletion of reserves;

 

•   failure to achieve expected commercial objectives, including cost savings, sales revenues or operational performance;

 

•   unexpected costs or liabilities, including due to the imposition of adverse regulatory conditions, from acquired assets or entities (such as rehabilitation costs) or legal dispute costs;

 

•   adverse market reaction;

 

•   adverse impacts on BHP’s ability to deliver returns to shareholders;

 

•   financial write-downs (for example, as a result of changes in market or industry, prices, inability to recover reserves or additional costs);

 

•   exchange rate related additional costs;

 

•   inability to retain key staff important to the success of our business.

 

 

39


 
Geopolitics and macroeconomics
 

Risks associated with geopolitical and macroeconomic changes that impact our ability to access resources and markets needed to realise our strategy.

 

 
Why is this important to BHP?
 

BHP operates in multiple locations around the globe and may consider operating in new locations to access the resources we require. Our customers and suppliers are also located in markets around the world. Geopolitical and macroeconomic developments have the potential to restrict our ability to access resources in certain countries or effectively trade in markets. Any restrictions will impact our ability to realise our strategy as competition for resources grows, existing reserves are depleted and supply sources become more expensive to develop.

 

 
Threats
 
Changes in relations between countries, trade protectionism and political uncertainty can impact our ability to access resources and markets, such as:
 

•   a continued slowing in China’s economic growth and demand could result in lower demand or prices for our products and materially, and adversely impact our results, including cash flows. Sales into China generated US$24.3 billion (FY2018: US$22.7 billion) or 54.8 per cent (FY2018: 52.5 per cent) of our revenue in FY2019, on a Continuing operations basis. Section 5 note 2 ‘Revenue’ details our calculation of revenue, including the impact of new accounting standards. FY2019 sales into China by commodity included 57 per cent Iron Ore, 26 per cent Copper, 14 per cent Coal and 2 per cent Nickel (reported in Group and Unallocated);

 

•   a marked rise in geopolitical uncertainty and protectionism has the potential to inhibit international trade, weigh on business confidence and constrain investment. In particular, restrictive trade policies in the United States and China have ramifications for business, governments and citizens. They may adversely affect BHP’s ability to trade, and impact demand for BHP’s products in those and other economies;

 

•   BHP’s ability to obtain and retain licences to explore or develop resources or to access markets for sales or supply may be inhibited if there are tensions between a host country where we operate or sell our products in other countries that BHP is seen to be allied with. Such tensions may result in rescission of licences, nationalisation of assets, detention of BHP employees for regulatory investigations or limitations on markets or customer access;

 

•   our access may be restricted through disruptions to shipping lanes, ports or other facilities as a result of conflicts or embargoes that are not directly related to BHP or our customers;

 

•   our business may be negatively impacted by the exit of the United Kingdom from the EU, potentially triggering a deterioration of business activity in Britain and other countries. There remains uncertainty surrounding financial and trade implications of Brexit, which may be more severe than expected.

 

For a discussion of the current geopolitical and macroeconomic forces relevant to BHP’s performance, refer to section 1.6.1.

 

 

40


 
Cybersecurity
 

Cyber-related risk events, including attacks on our enterprise or incidents relating to human error.

 

 
Why is this important to BHP?
 

Many of our business and operational processes are heavily dependent on technology. We have a significant and increasing reliance on autonomous systems for haulage and drilling. In addition, we have substantial integration between our information technology and our operating technology.

 

 
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 cause system error or malfunction, which result in operational incidents);

 

•   environmental damage (for example, cyber incidents could cause train derailments for autonomous transport);

 

•   inability to respond appropriately to unrelated incidents;

 

•   regulatory fines and compensation to people impacted;

 

•   reputational damage.

 

 

41


 
Third party performance
 

Risks associated with the delivery of products and services by third parties engaged by BHP, including contractors and non-operated joint ventures.

 

 
Why is this important to BHP?
 
BHP holds interests in assets and joint ventures that it does not directly operate, primarily within Minerals Americas (Samarco, Antamina, Resolution, Cerrejón and Nimba) and Petroleum (Algeria, Australia and Gulf of Mexico). Joint venture partners or other companies managing non-operated joint ventures take action contrary to our standards or fail to adopt standards equivalent to BHP’s standards. In such situations, BHP may be unable to influence non-operated joint venture activities.
 

In addition, BHP’s workforce is made up of a combination of permanent employees and contractors across all our operations. As a result, appropriate contractor selection and effective management of contractors from a safety, 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 and financial institutions in the context of global financial markets that remain volatile.

 

 
Threats
 
Third party (including contractor) activities, including a failure to adopt standards, controls and procedures that are equivalent to BHP’s, could lead to increased risk of:
 

•   operational incidents or health and safety accidents, including fatalities;

 

•   failure to meet remediation and compensation requirements (such as delays to community resettlements related to the Samarco dam failure, see section 1.7 for information on our response, support and commitments);

 

•   inadequate quality of construction (for example, if contractors do not follow appropriate standards);

 

•   reduced production (for example, from poor planning that does not align to appropriate standards);

 

•   disengagement of the remaining workforce;

 

•   litigation or regulatory action (for example, if a third party was in breach of a law or regulation);

 

•   cost overruns, schedule delays or interruptions (such as in major development projects).

 
A failure by suppliers, contractors or joint venture partners to perform existing contracts or obligations may lead to the following impacts:
 

•   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 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);

 

•   loss of revenue.

 
Our existing counterparty credit controls may not prevent a material loss to us due to our credit exposure to certain customer segments or financial counterparties.
 

Our risk financing (insurance) approach is to self-insure or not purchase external insurance for certain risks. For information, refer to the Asset integrity section.

 

 

42


 
Community wellbeing and human rights
 

Risks that have the potential to impact communities and the environment and damage support for our business with communities, government or the general public.

 

 
Why is this important to BHP?
 

Our approach to all phases of the life cycle of an operation from exploration to closure can impact the environment, communities or other stakeholders, which can affect support for our existing or future operations. The nature of our activities may cause adverse impacts to air quality, biodiversity, water resources and related ecosystem services or health risks. Our activities may also have an impact on human rights, community livelihoods and wellbeing. Our assets are subject to law and regulations on a range of issues, including safety, health, environmental, anti-corruption, human rights, ethics, and employment conditions. Environmental and community impacts or non-compliance or alleged non-compliance with such laws and regulations could adversely impact the environment or communities, and damage community or governmental support for our business. Finally, our activities may be affected by shareholder activism or civil society activism.

 

 
Threats
 
BHP may engage in activities (or fail to engage in activities) that impact the environment, communities, human rights and social wellbeing. This can affect BHP’s relationships with, or be viewed negatively by, the community and other stakeholders. A loss of stakeholder support could result in the following impacts to our business:
 

•   loss of licences or permits for the operation of assets, or delays in approvals for new projects;

 

•   opposition to new BHP projects or BHP’s entry to new jurisdictions by communities, including through legal or social action;

 

•   increased costs for mitigation, offsets or financial compensatory actions or obligations;

 

•   potential schedule delay, increased costs or reduced production;

 

•   increased taxes and royalties;

 

•   industrial relations disputes, negotiations, litigation or regulatory action, resulting in a loss of productivity;

 

•   loss of business opportunity.

 

In addition, changes to legal requirements or community expectations, for example, related to the rehabilitation or closure of assets, may increase required financial provisioning and costs.

 

 

43


 
Climate change, greenhouse gas emissions and energy
 

Risks associated with changes in climate patterns, as well as risks arising from policy, regulatory, legal, technological or market responses to climate change.

 

 
Why is this important to BHP?
 
We are exposed to a broad range of climate-related risks arising from both the physical and non-physical impacts of climate change. Climate-related risks may affect our operations, the markets in which we sell our products, the communities in which we operate and our upstream and downstream value chains.
 
Risks related to the 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 also arise from a wide variety of policy, regulatory, legal, technological and market responses to the challenges posed by climate change and the transition to a lower carbon economy. Fossil fuel use is a significant source of greenhouse gas (GHG) emissions, which contribute to climate change. The production and use of fossil fuels receive scrutiny from a range of stakeholders, including governments, investors, NGOs and communities. At BHP, we produce fossil fuels (energy coal, oil and gas) used primarily in the transport and electricity generation sectors, as well as fossil fuels and other commodities that are used as inputs to emissions-intensive industrial processes (including metallurgical coal and iron ore used in steelmaking). We also use fossil fuels in our mining and processing operations either directly or through the purchase of fossil fuel-based electricity. We can therefore be impacted by policies and regulations to reduce GHG emissions from the resources, electricity generation, transport and industrial sectors. Technological and market-related risks include the substitution of existing technologies with lower emissions options, such as renewables, particularly in the electricity generation and transport sectors, which have the potential to reduce demand for fossil fuels.

 

 
Threats
 
The impacts of climate change could affect the execution of our strategy, the expansion of our portfolio and the ability of our operated and non-operated assets to operate efficiently. The following threats relating to climate change may affect us:
 

•   the physical impacts of climate change (for example, changes in precipitation patterns, water shortages, rising sea levels, increased storm intensities and higher temperatures) may materially and adversely affect our assets, the productivity of our assets and the costs associated with our assets, as well as our supply chains, transport and distribution networks, customers’ facilities and the markets in which we sell our products;

 

•   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 decreases due to policy, regulatory (including carbon pricing mechanisms), legal, technological, market or societal responses to climate change in our operating jurisdictions or markets;

 

•   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 our assets and the costs associated with our assets;

 

•   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 may reduce demand for our products or increase the costs associated with our assets. Examples of recent regulatory changes include the launch of an emissions trading scheme in China in 2017 and the introduction of a carbon tax in Chile in 2017;

 

•   applications for licences, permits and authorisations required to develop our assets and projects may face greater scrutiny and be contested by third parties. This could delay, limit or prevent future development of our assets or affect the productivity of our assets and the costs associated with our assets;

 

•   the Group’s reputation and financial performance may be impacted by concerns regarding the contribution of fossil fuels to climate change. Impacts could include a reduction in investor confidence and constraints on our ability to access capital from financial markets;

 

•   the Group may be subject to or impacted by climate-related litigation (including class actions) and the associated costs.

 

Assessments of the potential impact of future climate change policy, regulatory, legal, technological, market and societal outcomes are uncertain given the wide scope of influencing factors and the many 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.

 

 

44


 
Legal, regulatory, ethics and compliance
 

Risks associated with BHP’s legal, regulatory, ethics and compliance obligations.

 

 
Why is this important to BHP?
 
Our operated assets and non-operated joint ventures are based on material long-term investments that are dependent on long-term legal, regulatory, political, judicial and fiscal stability. In addition, the nature of the industries in which we operate means many of our activities are highly regulated, including through: (i) law and regulations relating to bribery and anti-corruption, trade and financial sanctions, market manipulation, taxation, royalties, competition, data protection and privacy; and (ii) local regulations and standards, such as controls on production, imports, exports, prices on greenhouse gas emissions, native title, and health, safety and environment.
 

Section 1.7 details our response and support in relation to the Samarco incident as well as the progress on our commitments.

 

 
Threats
 
BHP’s activities or those of our associates could result in actual or alleged corruption, bribery, collusion, anti-competitive behaviour, market manipulation, tax avoidance or other breaches of legal, regulatory, ethics or compliance obligations. These activities, or changes in laws or regulations due to the developing nature of government regulations and international standards, could lead to the following threats to BHP’s business, reputation and operations:
 

•   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 or criminal prosecution of employees or third parties;

 

•   loss of operating licences, permits or approvals;

 

•   operational impacts, such as unforeseen closures, site rehabilitation expenses, delays or disruption;

 

•   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 change;

 

•   adverse impacts to the quality and condition of infrastructure that BHP uses in the operation of its assets, such as rail or ports (which can be affected by political and legislative change);

 

•   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 or limitations on access by BHP;

 

•   renegotiation or nullification of existing contracts, leases, permits or other agreements;

 

•   litigation or disputes (such as in connection with ownership and use of land) and the associated cost of such litigation or disputes;

 

•   loss or uncertainty of land tenure, for example, in countries where native title must be established and recognised, such as in Australia;

 

•   effects on the economics of new mining projects and the expansion of existing assets and operations.

 

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


 
Commodity prices
 

Risks associated with the prices of commodities, including sustained price shifts relative to the price of extraction.

 

 
Why is this important to BHP?
 

The prices we obtain for our minerals, oil and gas are determined by, or linked to, prices in world markets, which have historically been, and may continue to be, subject to significant volatility.

 

 
Threats
 
Fluctuations in commodity prices can occur in response to a range of factors. These include price shifts triggered by global economic and geopolitical factors, industry demand, increased supply due to the development of new productive resources or increased production from existing resources, technological change, product substitution and national tariffs. The effects of the trade negotiations between the United States and China and the United Kingdom’s exit from the EU may also have an impact on price volatility and therefore affect us.
 
We are particularly exposed to price movements in minerals, oil and gas. For example, a US$1 per tonne decline in the average iron ore price and US$1 per barrel decline in the average oil price would have an estimated impact on FY2019 profit after taxation of US$154 million and US$29 million, respectively. For more information on commodity price impacts, refer to section 1.6.2. Commodity price impacts can also be exacerbated by exchange rate fluctuation, which may impact our financial results.
 

Long-term price volatility or sustained low prices may adversely affect our future profitability. This could result in cost pressure, as we do not generally have the ability to offset costs through price increases. In addition, this impact may result in lower than desired credit ratings for BHP, restricting our access to debt funding or increasing our financing costs.

 

 

Balance sheet and liquidity
 

Risks associated with BHP’s ability to maintain a robust and effective balance sheet, distribute dividends and remain financially liquid.

 

 
Why is this important to BHP?
 

Fluctuations in commodity prices 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, ability to pay a dividend and/or share price may be impacted.

 

 

46


Management of risks

This section details the measures we have in place to manage our most significant Group Risks, as well as an assessment of the Group’s current exposure to these risks.

Asset integrity

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, maintenance, crisis and emergency management, and event and investigation management;

 

 

planning, designing and constructing mines, dams and equipment to avoid incidents;

 

 

maintaining and improving infrastructure and equipment to protect our people and assets (for example controls to prevent the accumulation of flammable gas and coal dust);

 

 

inspections and reviews (including a dam risk review to assess the management of significant tailings storage facilities, both active and inactive as described in section 1.8);

 

 

routine reviews and revisions to management plans and manuals (for example, to test and update for alignment with operating specifications and industry dam codes);

 

 

training and qualifications for staff and contractors;

 

 

maintaining mine evacuation routes and supporting equipment (such as breathing apparatus), crisis and emergency response plans and business continuity plans.

FY2019 insights

The Group’s exposure to asset integrity risks is expected to remain relatively stable. The Priority Group Risk Review process (described in the ‘Risk governance’ section) aims to provide additional rigour around the management of top operational risks, such as dam failure and underground fire and explosion.

Occupational and process safety

We employ a number of measures designed to detect, eliminate, prevent and mitigate operational and process safety incidents, including:

 

 

BHP’s standards on aviation, health, safety, the environment and community, crisis and emergency 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, wells and equipment to prevent incidents (including slope design and underground support systems);

 

 

inspection, maintenance and improvements of infrastructure 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, pressure vessels designed to contain fluids or gas at pressure and emergency response equipment);

 

 

training and qualifications for staff and contractors (including drill rig contractors and aircraft operators);

 

 

influencing joint venture partners to align with BHP standards;

 

 

monitoring adverse weather conditions, ground stability and pressure/temperature of materials;

 

 

continuity plans and crisis and emergency response plans;

 

 

self-insurance for losses arising from property damage, business interruption and construction.

FY2019 insights

Although the divestment of our Onshore US assets in FY2019 decreased the onshore risk exposure in Petroleum, the Group’s exposure to operational and process safety risk is expected to remain relatively stable.

 

47


Capital allocation and returns sustainability

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:

 

 

a long-term strategy that informs the decisions and actions in capital allocation;

 

 

an ongoing strategy process that assesses the competitive advantage of our business and enables identification of risks and opportunities for our portfolio using fit-for-purpose scenarios;

 

 

monitoring indicators to interpret external events and trends;

 

 

commodity strategies and commodity price protocols that are reviewed and presented to the Executive Leadership Team and Board;

 

 

life of asset plans, which inform forecasts for proposed investments and operations;

 

 

management reviews and governance activities to support operational and project forecasts and planning;

 

 

our Capital Allocation Framework, which provides the structure and governance for prioritising capital allocation across the Group and adding growth options to our portfolio. Refer to section 1.4.3 for more information;

 

 

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;

 

 

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;

 

 

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 and servers;

 

 

incident response plans, process and root cause analysis.

FY2019 insights

Although there were no identified cyber breaches 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, safety and capital projects that apply to contractors and include requirements relating to contractor management;

 

 

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;

 

 

anti-corruption training, competition training, and Our Code of Conduct 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 management 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 assist us to identify, mitigate or manage key potential social, environmental and human rights risks, as described in section 1.10.

FY2019 insights

The Group’s exposure to risks associated with the community and human rights is assessed as increasing due to increasing societal and political requirements and expectations.

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.

 

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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;

 

 

Our Code of Conduct;

 

 

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);

 

 

anti-corruption training, competition training, Our Code of Conduct training;

 

 

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;

 

 

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.

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 prices

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 BHP from the effects of price changes.

Note 21 ‘Financial risk management’ in section 5 outlines BHP’s financial risk management strategy, including market, commodity and currency risk.

FY2019 insights

With the exception of geopolitical and macroeconomic developments (mentioned in the Geopolitics and macroeconomics section), which 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 in the market will continue to translate into profit variability.

 

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Balance sheet and liquidity

The Financial Risk Management Committee (FRMC) oversees the financial risks faced by BHP 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 21 ‘Financial risk management’ in section 5 outlines our financial risk management strategy.

We seek to maintain a strong balance sheet supported by our portfolio risk management strategy. To achieve this, we:

 

 

operate a diversified portfolio, which reduces overall cash flow volatility;

 

 

maintain access to key debt markets globally;

 

 

monitor target gearing levels and credit rating metrics;

 

 

assess cash flow at risk to monitor sensitivities to market prices and their impact on key financial 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.

FY2019 insights

Protectionism and political uncertainty heightened during FY2019, which we expect will constrain global economic growth. However, no material changes have been identified in the risk environment, internally or externally, that are expected to significantly increase the Group’s risk exposure or significantly impact the Group’s ability to maintain a strong balance sheet, distribute dividends and remain financially liquid.

 

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1.7    Samarco

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 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 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 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, 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 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.

 

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Resettlement

One of Fundação Renova’s priority 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 the re-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).

 

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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 recover 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 the re-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.

 

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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.

1.8    Tailings dams

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 safety of our people and communities. Immediately following the tragic failure of the Fundão dam at Samarco in 2015, the BHP Board and senior management initiated 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 and non-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.

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:

 

(4) 

Significance was determined as part of the review process taking account of the dam classification under the Canadian Dam Association and/or the Australian National Committee on Large Dams for both active and inactive facilities.

 

(5) 

A tailings storage facility could comprise multiple dams or cells that have: a contiguous, structurally similar interconnected wall, operated under the same tailings disposal regime, are interdependent for stability, of similar height and risk profile.

 

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1.

Maintenance of dam integrity;

 

2.

Governance of dam facilities;

 

3.

Monitoring, surveillance and review;

 

4.

Emergency preparedness and response.

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:

 

1.

Design – the basis of dam design is guided by design criteria specified through the Australian National Committee on Large Dams (ANCOLD), the Canadian Dam Association (CDA) and local regulation, taking account of dam classification;

 

2.

Construction – quality assurance and quality control across all construction phases (from initial construction to dam lifts/expansions during operation to closure and post closure);

 

3.

Operations and maintenance – operating and maintaining the dam in accordance with its design requirements;

 

4.

Change management – identifying, assessing and mitigating the impacts of any changes on dam design and integrity;

 

5.

Monitoring, surveillance and review – ensuring the dam is functioning as intended.

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:

 

1.

Monitoring systems – operating in real time or periodically;

 

2.

Routine surveillance – undertaken by operators;

 

3.

Dam inspections – more detailed inspections undertaken periodically by the Responsible Dam Engineer;

 

4.

Dam safety inspections – annual inspections undertaken by the external Engineer of Record reviewing aspects across both dam integrity and governance;

 

5.

Dam safety reviews – conducted by an external third party as set out below;

 

6.

Tailings review or Stewardship Boards (6) – a panel of qualified independent individuals established, whose capability is commensurate with dam significance, under specific terms of reference to review aspects such as the current status of the dam; any proposed design changes; and outcomes of any inspections or dam safety reviews. The review board is approved by and accountable to the asset General Manager.

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.

 

(6) 

BHP assesses the dam classification, risk and operational circumstances in determining whether to empanel a tailings review or Stewardship Board. Not all facilities will have tailings reviews or Stewardship Boards. Tailings reviews or Stewardship Boards are either in place or in the process of being established for our operated assets with very high and extreme classified tailings facilities.

 

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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 and non-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 are nine tailings facilities at our non-operated joint ventures. All non-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.

 

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LOGO

 

(1) 

The number of tailings storage facilities is based on the definition agreed to by the International Council on Mining and Metals (ICMM) Tailings Advisory Group.

 

(2) 

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.

 

(3) 

For the purposes 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 environmental 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.

 

(4) 

These classifications align to the CDA classification system and reflect the modelled, hypothetical most significant failure mode and consequences possible without controls, and not the current physical stability of the dam.

 

(5)

Other includes dams of a design that combines upstream, downstream and centreline, and the two non-dam tailing facilities of Hamburgo TSF in Chile and Island Copper TSF in Canada.

 

(6) 

Inactive includes facilities not in operational use, under reclamation, reclaimed, closed and/or in post-closure care and maintenance.

 

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1.9     People

1.9.1     Our people

We employ over 72,000 employees and contractors globally. We are committed to investing 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. We continue to develop a culture based on trust and collaboration and give our people more say, new capabilities and tools, and new avenues for technology and innovation to support BHP’s transformation.

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

We believe that 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 sets out the foundation for long-term and in-depth learning and development, by developing practices and capabilities that empower our people to pursue operating excellence.

Operations Services, which provides maintenance and production services across Minerals Australia supports people to build their skills through coaching and by performing in-field verifications. This helps deliver consistent equipment operation and maintenance that balances safety, maximum productivity and equipment reliability. Participants report a high sense of achievement as they leverage best practice from across BHP to help perfect their daily activities and accelerate productivity.

 

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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, inclusion and diversity promotes safety, productivity and wellbeing within BHP and underpins our ability to attract new employees.

We employ, develop and promote people based on merit and our systems, processes and practices are designed to empower fair treatment. We do not tolerate any form of unlawful discrimination, bullying or harassment.

Our employees are trained to recognise and mitigate potential bias towards any employee. To help address 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 core Our Charter values and we believe it is fundamental to building stronger teams, and being a truly inclusive and diverse workplace. For some people in our business, this is not their experience of working at BHP. We are determined to address this, so during FY2019 we began a Group-wide campaign about respectful behaviour. The aim is to create greater awareness and build understanding of what disrespectful behaviour is and how it affects our people. We shared real-life examples of how some people experience disrespectful behaviour at BHP, 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?’ We equipped leaders and employees with materials to help them have conversations about disrespectful behaviours, and take steps to address it. We also launched a new eLearning module on inclusion and continue to develop additional resources for our people as we continue this critical initiative. Further development 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 increased 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).

Our strategy to achieve a more diverse and inclusive workplace continues to focus on the following four areas:

 

 

embedding flexibility in the way we work;

 

 

encouraging and working with our supply chain partners to support our commitment to inclusion and diversity;

 

 

uncovering and taking steps to mitigate potential bias in our behaviours, systems, policies and processes;

 

 

ensuring our brand is attractive to a diverse range of people.

Indigenous employment

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 we aim to achieve 5.75 per cent by the end of FY2020. Twenty per cent of all apprentices were Aboriginal 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 9 per cent of our workforce at the Jansen Potash Project. Chile has implemented a number of initiatives that will result in formal performance reporting in FY2020.

 

(7) 

Based on a ‘point in time’ snapshot of employees as at 30 June 2019, as used in internal management reporting for the purposes of monitoring progress against our goals. This does not include contractors. This methodology differs from the data reported in section 1.9.2, which is calculated based on the average of the number of employees at the last day of each calendar month for a 10-month period from July through to April and in accordance with our reporting requirement under the UK Companies Act 2006.

 

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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’s 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.

Since its formation in 2017, Jasper has grown to over 900 members. We rolled out LGBT+ inclusion awareness and education sessions across all Minerals Australia operations in FY2019, with plans to extend to our other operations and offices in FY2020. We also continue to celebrate days of significance, including IDAHOBIT (International Day Against Homophobia, Biphobia, Interphobia and Transphobia) and Wear It Purple Day (awareness day for young LGBT+ people).

Flexible working

Flexible work supports the diversity and wellness of our workforce. Some 41 per cent of our people worked flexibly in FY2019 and we continue to educate our workforce about flexible working at BHP. We also continue to challenge 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.

Working with suppliers

We continue to work with our suppliers on ensuring their products and services are suitable for a diverse workforce, as well as encouraging diversity in their own work teams. For example, we are working with Caterpillar to investigate improving the ergonomic design of their vehicles. At Olympic Dam 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 ensure that appropriate food was available for all living at camp, as well as helping create a sense of one team among the workforce. In FY2019, where practicable, we also introduced inclusion and diversity incentives into our supply contracts.

Employee relations

The culture of care and trustful relationships is a fundamental principle of our employee relations strategy. The three key focus areas for employee relations at BHP has continued to be:

 

 

ensure BHP complies with legal obligations and regional labour regulations;

 

 

negotiate, where there are requirements to collectively bargain;

 

 

close out agreements with our workforce in South America and Australia, with no lost time due to industrial action.

On 17 August 2018, Minera Escondida Limitada (Escondida) successfully completed negotiations with Union N°1 and signed a new collective agreement, effective for 36 months from 1 August 2018.

 

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 to 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 in Our 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 of Our Code of Conduct.

The Our Requirements standards outline the 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.

Our all-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.

 

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Case study: Inclusion and diversity in Minerals Americas

Diversity in new projects

A goal of the Spence Growth Option (SGO) Project was to develop a diverse workforce for the concentrator plant. The aim was 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, as well as with construction companies engaged by the SGO. This helped improve knowledge ranging in areas from equipment assembly to commissioning.

All recruitment goals were exceeded, including creating a workforce with a number of employees with disabilities; 61 per cent females; 22 per cent of employees hired from local communities; and 60 per cent from the Antofagasta region.

Gender balanced programs at Escondida

Escondida faced the challenge of embedding inclusion and diversity within an operation that traditionally had a high percentage of males and low employee turnover. Similar to the SGO project, Escondida adopted a balanced hiring strategy, which consistently achieved gender balance month-on-month through FY2019. The recruitment strategy for apprentices and graduates also achieved greater than 50 per cent female representation, 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.

The Mine Apprenticeship Program also selected 45 female maintainers from a class of 81, enhancing local employment, increasing the gender diversity 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.

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.’

 

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1.9.2    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 a 10-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 the 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.

 

LOGO

The table below shows the gender composition of our employees, senior leaders and the Board 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  

 

(1) 

Based on the average of the number of employees at the last day of each calendar month for a 10-month period to April, 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 as used in internal management reporting for the purposes of monitoring progress against our goals, which are reported in section 1.9.1.

 

(2) 

Based on actual numbers as at 30 June 2019, not rolling averages. FY2017 and FY2018 data includes Continuing operations and Discontinued operations (Onshore US assets) for the financial years being reported. FY2019 data does not include Discontinued operations (Onshore US assets).

 

(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 FY2019, there were 282 senior leaders at BHP. There were 15 Directors of subsidiary companies who are not senior leaders, comprising 11 men and 4 women. Therefore, for UK law purposes, the total number of senior managers was 227 men and 70 women (24 per cent women) in FY2019.

 

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1.10    Sustainability

Sustainability is one of the core values set out in 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 approach 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 in Our 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 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 new purpose reflects a spirit, approach and ambition that already exists at BHP and will guide us in everything we do. Creating long-term shareholder value remains a strategic imperative. Without that focus, BHP would not exist, because our shareholders entrust us with their funds and expect competitive returns.

To fulfil our purpose, we have evolved our thinking about our partnerships with the communities where we operate and our contribution to society 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.

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.

BHP’s Board oversees our sustainability approach, with the Board’s Sustainability Committee overseeing health, safety, environment and community (HSEC) matters and assisting the Board with governance and monitoring. 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.

Transparency and accountability

BHP’s business model is premised on trust and public acceptance because our mines 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. Our tax and royalty payments help governments fund healthcare, education, infrastructure and other essential services. Conversely, corruption and poor governance of natural resources divert funding from those basic provisions and diminish our contribution.

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 in Our 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.

 

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Our Code of Conduct sets the standard for our commitment to working with integrity and respect. Our Code of Conduct guides us in our daily work and demonstrates how to practically apply the commitments and values set out in Our Charter. Acting in accordance with Our 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 understand Our 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 in Our Charter and Our 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. 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 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, and comprises teams that are co-located in our main global locations and a specialised Compliance Legal team. The Chief Compliance Officer reports twice a year to the Risk and Audit Committee and separately to the Committee Chairman, also twice a year.

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.

In addition to anti-corruption training as part of annual training on Our Code of Conduct, additional risk-based anti-corruption training was completed by 9,374 employees in FY2019 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 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 from re-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.

 

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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  

 

(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.

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  

 

(2) 

Data adjusted since it was previously reported, due to reporting errors. Includes recordable injuries and first aid cases where there was the potential for a fatality. 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 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 of 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.

 

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We have seen an increase in the number of other illnesses reported, which include short-term, low-impact 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:

 

 

a reduction in our coal mine dust OEL from 2 mg/m3 to 1.5 mg/m3 to be achieved as soon as reasonably practicable and no later than 1 July 2020 (as compared with the regulatory OEL of 2.5 mg/m3), noting that all operations have developed exposure reduction plans;

 

(8) 

For exposures exceeding our FY2017 occupational exposure limits discounting the use of personal protective equipment, where required.

 

(9) 

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.

 

(10) 

FY2019 data excludes Discontinued operations (Onshore US assets).

 

(11) 

CMDLD is the name given to the lung diseases related to exposure to coal mine dust and includes CWP, silicosis, mixed dust pneumoconiosis and chronic obstructive pulmonary disease.

 

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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 the peer-led Resilience Program, in which more than 3,392 people had participated, as at the end of FY2019. We launched the inaugural BHP Mental Health Week to raise awareness of BHP’s mental health resources 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.

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 environment

There is growing pressure on and competition for environmental resources, such as land, biodiversity, water and air. Climate change amplifies 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 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 the Our Requirements for Environment and Climate Change and Our Requirements for Risk Management standards. 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 Our Requirements for Environment and Climate Change standard to reflect recent changes in BHP’s Risk Framework and other Our Requirements standards, new Technical Standards for water and our evolving climate change and water stewardship programs.

Responsibly managing land and supporting biodiversity

Our assets have plans and processes in place that reflect local biodiversity risks and regulatory requirements. We have a five-year target to improve marine and terrestrial biodiversity outcomes by developing a framework to evaluate and verify the benefits of our actions, in collaboration with others. This will allow us to better monitor, avoid, reduce and offset biodiversity impacts of our activities in a coordinated way.

We started work on 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 Proteus, a voluntary partnership between the UN Environment World Conservation Monitoring Centre and 12 extractive industry companies. We intend to use the framework to track achievement of our longer-term biodiversity goal: ‘in line with United Nations Sustainable Development Goals 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’.

Rehabilitation and closure

We are committed to implementing a planned approach to closure and rehabilitation through the life cycle of our operations. We do this by following our closure management process, detailed in the Our 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 focus is to aim to achieve an optimal closure outcome in consultation with local communities and other stakeholders. In addition to environmental rehabilitation, closure outcomes may include further local economic opportunities, recreational and/or other community uses.

In November 2018, 1,176 hectares of rehabilitated subsidence with a post-mining land use of mixed cropping and grazing at Gregory Crinum Mine (now sold 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 strategies for assets in Australia delivered just under 20,000 hectares of rehabilitated land.

 

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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, 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, we have committed more than US$75 million to biodiversity conservation through our alliance with Conservation International and other partners. We look for projects that can provide multiple benefits, improve water quality or quantity, nature-based solutions to climate change, local livelihoods or cultural benefits, as well as improve biodiversity conservation.

Towards 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, business and civil society, and we are committed to working with such stakeholders to ensure that fresh and marine water resources are conserved, become resilient and continue to support healthy communities and ecosystems, maintain cultural and spiritual values and sustain economic growth.

Water is integral to what we do and is vital to the sustainability of our business. We cannot operate without it. We interact with water in 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, BHP’s expression of commitment to and advocacy focus for water stewardship. Implementation of the Position Statement will commence in FY2020.

Our five-year Group-wide target and longer-term goal focused on water were revised in 2017. The Group-wide target is to reduce FY2022 freshwater withdrawal (12) by 15 per cent from FY2017 levels. It is focused on the use of freshwater as it is generally the most important water resource for the communities in which we operate and the environment.

Our longer-term goal is to collaborate to enable integrated 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 management of water and sanitation for all’.

Freshwater withdrawal increased 9 per cent in FY2019 compared to FY2018. However, overall we remain on track to attain the 15 per cent reduction target by FY2022, with FY2019 withdrawals 1 per cent below the FY2017 adjusted baseline (13).

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.

 

(12) 

Where ‘withdrawal’ is defined as water withdrawn and intended for use (in accordance with ‘A Practical Guide to Consistent Water Reporting’, ICMM (2017)). ‘Freshwater’ is defined as waters other than sea water, waste water from third parties and hypersaline ground water. 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.

 

(13) 

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 in FY2019. Discontinued operations (Onshore US assets) have been excluded from the FY2017 baseline data.

 

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For details on our approach to water stewardship and water performance in FY2019, see our Sustainability Report 2019.

1.10.5    Engaging with communities

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 value in our decision-making and work with communities where we have a presence. Social value is the sum of our contribution to society underpinned by respectful and mutually beneficial partnerships, and working collectively to prioritise social, environmental and economic outcomes.

In FY2019, we completed an in-depth review of how we understand and support social value. The review focused on how we can improve our capacity to connect to communities, understand their ambitions and work to empower these communities.

Engaging with communities

Our Code of Conduct and the Our Requirements for Communications, Community and External Engagement standard govern our actions 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, human rights impact assessments, stakeholder mapping and community perception surveys. This information informs our approach to community engagement, community development and social investment activities that aim to be culturally sensitive and socially inclusive.

Supporting local economic growth

BHP proudly supports 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 cent of our external expenditure was with local suppliers. An additional 82 per cent 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 our pre-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 to non-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.

 

(14) 

Our voluntary social investment is calculated as 1 per cent of the average of the previous three years’ pre-tax profit.

 

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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 integrated end-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 and contributing to the positive realisation of rights is not only critical to the sustainable operation of our business, 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 commitments for our people, as well as our contractors, suppliers and others who perform work for BHP. The commitments in Our Code of Conduct are implemented through mandatory minimum human rights performance requirements in the Our 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 the Our Requirements standards.

We are taking a multi-year, systemic approach to integrating human rights due diligence 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

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.

 

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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.

 

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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 reducing GHG emissions at our operations are key components of our climate change strategy. We set targets in order to hold ourselves accountable for these goals, and regularly review them as our strategy and circumstances change.

Our five-year GHG emissions reduction target, which took effect from 1 July 2017, is to maintain our total operational emissions in FY2022 at or below FY2017 levels (15) 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-term goal of achieving net-zero operational GHG emissions in the latter half of this century, consistent with the Paris Agreement. In order to set the trajectory towards achieving that goal, in FY2020 we intend to develop a medium-term target for operational emissions.

Operational emissions performance

Our combined 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 due to a change in the electricity emissions factor for Minerals Americas that resulted from the interconnection of Chile’s northern grid system, which is mainly fossil fuel-based, and southern grid system, which 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 (see section 6.5 Climate change data).

  

 

(15) 

FY2017 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.

 

(16) 

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.

 

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Operational greenhouse gas emissions (million tonnes CO2-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  

 

(1) 

Scope 1 and 2 emissions have been calculated on an operational control basis in accordance with the GHG Protocol Corporate Accounting and Reporting Standard.

 

(2) 

FY2017 and FY2018 data includes Continuing operations and Discontinued operations (Onshore US assets). FY2019 data includes Continuing operations and Discontinued operations (Onshore US assets) to 31 October 2018.

 

(3) 

Scope 1 refers to direct GHG emissions from operated assets.

 

(4) 

Scope 2 refers to indirect GHG emissions from the generation of purchased electricity and steam that is consumed by operated assets (calculated using the market-based method).

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).

Investing in low emissions technologies

Defining a pathway to net-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 of net-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 and de-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 reducing our operational emissions is vital, emissions from our value chain (Scope 3 emissions) are significantly higher than those from our own operations. We work with our customers, suppliers and other value chain participants to seek to influence emissions reductions across the life cycle 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 to set public goals related to Scope 3 emissions.

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 FY2019 emissions associated with the processing of our non-fossil fuel commodities (iron ore to steel; copper concentrate and cathode to copper wire) were 305 million tonnes of CO2-e. Emissions associated with the use of our fossil fuel commodities (metallurgical and energy coal, oil and gas) were 233 million tonnes of CO2-e.

 

(17) 

Copper equivalent production has been calculated based on FY2019 average realised product prices for FY2019 production, and FY2018 average realised product prices for FY2018 production.

 

(18) 

Includes Scope 1 emissions from our natural gas-fired power generation as well as Scope 2 emissions from purchased electricity.

 

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Scope 3 greenhouse gas emissions (million tonnes CO2-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