UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
November 21, 2018
| BHP BILLITON LIMITED (ABN 49 004 028 077) (Exact name of Registrant as specified in its charter)
VICTORIA, AUSTRALIA (Jurisdiction of incorporation or organisation)
171 COLLINS STREET, MELBOURNE, VICTORIA 3000 AUSTRALIA (Address of principal executive offices) |
BHP BILLITON PLC (REG. NO. 3196209) (Exact name of Registrant as specified in its charter)
ENGLAND AND WALES (Jurisdiction of incorporation or organisation)
NOVA SOUTH, 160 VICTORIA STREET LONDON, SW1E 5LB UNITED KINGDOM (Address of principal executive offices) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or
Form 40-F: ☒ Form 20-F ☐ Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: ☐ Yes ☒ No
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a
NEWS RELEASE
| Release Time | IMMEDIATE | |
| Date | 21 November 2018 | |
| Release Number | 26/18 |
Capital allocation briefing
BHP will be holding an investor and analyst briefing today in Melbourne on BHP’s Capital Allocation Framework.
The purpose of the briefing is to provide greater detail in relation to BHP’s capital allocation processes, and greater transparency on BHP’s approach to capital allocation and investment decisions.
The presentation is available on BHP’s website at: https://www.bhp.com/-/media/documents/media/reports-and-presentations/2018/181121_CapitalAllocationBriefing.pdf
The webcast of the briefing will be available at: https://edge.media-server.com/m6/p/nxkxg8iw
Further information on BHP can be found at: bhp.com
| Media Relations
Email: media.relations@bhpbilliton.com
Australia and Asia
Gabrielle Notley Tel: +61 3 9609 3830 Mobile: +61 411 071 715
United Kingdom and South Africa
Neil Burrows Tel: +44 20 7802 7484 Mobile: +44 7786 661 683
North America
Judy Dane Tel: +1 713 961 8283 Mobile: +1 713 299 5342 |
Investor Relations
Email: investor.relations@bhpbilliton.com
Australia and Asia
Tara Dines Tel: +61 3 9609 2222 Mobile: + 61 499 249 005
United Kingdom and South Africa
Elisa Morniroli Tel: +44 20 7802 7611 Mobile: +44 7825 926 646
Americas
James Wear Tel: +1 713 993 3737 Mobile: +1 347 882 3011 |
| BHP Group Limited ABN 49 004 028 077 LEI WZE1WSENV6JSZFK0JC28 Registered in Australia Registered Office: Level 18, 171 Collins Street Melbourne Victoria 3000 Australia Tel +61 1300 55 4757 Fax +61 3 9609 3015 |
BHP Group Plc Registration number 3196209 LEI 549300C116EOWV835768 Registered in England and Wales Registered Office: Nova South, 160 Victoria Street London SW1E 5LB United Kingdom Tel +44 20 7802 4000 Fax +44 20 7802 4111 | |
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BHP Capital allocation briefing Peter Beaven 21 November 2018 Port Hedland
Disclaimer Forward-looking statements This presentation contains forward-looking statements, including statements regarding: trends in commodity prices and currency exchange rates; demand for commodities; plans, strategies and objectives of management; closure or divestment of certain operations or facilities (including associated costs); anticipated production or construction commencement dates; capital costs and scheduling; operating costs and shortages of materials and skilled employees; anticipated productive lives of projects, mines and facilities; provisions and contingent liabilities; tax and regulatory developments. Forward-looking statements can be identified by the use of terminology including, but not limited to, ‘intend’, ‘aim’, ‘project’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’, ‘expect’, ‘may’, ‘should’, ‘will’, ‘continue’, ‘annualised’ or similar words. These statements discuss future expectations concerning the results of operations or financial condition, or provide other forward-looking statements. 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 presentation. Readers are cautioned not to put undue reliance on forward-looking statements. For example, future revenues from our operations, projects or mines described in this presentation will be based, in part, upon the market price of the minerals, metals or petroleum 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 operations. Other factors that may affect the actual construction or production commencement dates, costs or production output and anticipated lives of operations, 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 some of the countries where we are exploring or developing these 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 discussed in BHP’s filings with the US Securities and Exchange Commission (the ‘SEC’) (including in Annual Reports on Form 20-F) which are available on the SEC’s website at www.sec.gov. Except as required by applicable regulations or by law, the Group does not undertake any obligation 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. Non-IFRS and other financial information BHP results are reported under International Financial Reporting Standards (IFRS). This presentation may also include certain non-IFRS (also referred to as alternate performance measures) and other measures including Underlying attributable profit, Underlying EBITDA (all references to EBITDA refer to Underlying EBITDA), Underlying EBIT, Adjusted effective tax rate, Controllable cash costs, Free cash flow, Gearing ratio, Net debt, Net operating assets, Operating assets free cash flow, Principal factors that affect Underlying EBITDA, Underlying basic earnings/(loss) per share, Underlying EBITDA margin and Underlying return on capital employed (ROCE) (all references to return on capital employed refer to Underlying return on capital employed), Underlying return on invested capital (ROIC). These measures are used internally by management to assess the performance of our business and segments, make decisions on the allocation of our resources and assess operational management. Non-IFRS and other measures have not been subject to audit or review and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity. Presentation of data Unless specified otherwise: operations includes operated assets and non-operated assets; total operations refers to the combination of continuing and discontinued operations; continuing operations refers to data presented excluding the impacts of South32 from the 2014 financial year onwards, and Onshore US from the 2017 financial year onwards; references to Underlying EBITDA margin exclude third party trading activities; data from subsidiaries are shown on a 100 per cent basis and data from equity accounted investments and other operations is presented, with the exception of net operating assets, reflecting BHP’s share; medium term refers to our five year plan. Queensland Coal comprises the BHP Billiton Mitsubishi Alliance (BMA) asset, jointly operated with Mitsubishi, and the BHP Billiton Mitsui Coal (BMC) asset, operated by BHP. Numbers presented may not add up precisely to the totals provided due to rounding. No offer of securities Nothing in this presentation should be construed as either an offer or a solicitation of an offer to buy or sell BHP securities in any jurisdiction, or be treated or relied upon as a recommendation or advice by BHP. Reliance on third party information The views expressed in this presentation contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. This presentation should not be relied upon as a recommendation or forecast by BHP. BHP and its subsidiaries In this presentation, the terms ‘BHP’, ‘Group’, ‘BHP Group’, ‘we’, ‘us’, ‘our’ and ‘ourselves’ are used to refer to BHP Group Limited, BHP Group Plc and, except where the context otherwise requires, their respective subsidiaries set out in note 13 ‘Related undertaking of the Group’ in section 5.2 of BHP’s 2018 Annual Report. Notwithstanding that this presentation 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 otherwise stated. Capital allocation briefing 21 November 2018 2
Key messages Capital allocation is a key enabler of our purpose to grow long-term shareholder value and returns Lessons learned Capital allocation Managing cyclicality Balancing risk / reward Value and returns The mining industry is capital intensive but investments have at times been poor We have improved our capital allocation approach to support better decisions Our Capital Allocation Framework provides a transparent hierarchy, accountability and discipline Centralised capital prioritisation drives purer competition for capital and reduces bias Flexibility from a stronger balance sheet and payout ratio dividend policy Use of price ranges and portfolio scenarios to ensure resilience Accepting and managing risk is inherent to value creation Focus on a range of risk and return measures to evaluate opportunities Improvements are significant, sustainable and are driving improved value and returns All investments tested against additional cash returns to shareholders Capital allocation briefing 21 November 2018 3
The importance of capital allocation Over the long term, capital allocation is a key driver and differentiator of company performance Value vs Returns – CY97-CY181,2,3 (TSR CAGR, %) 30 BHP 15 0 0 10 20 (15) Note: Bubble size represents Enterprise Vale (US$bn) (30) ROACE, % Value vs Returns – CY151,2,3 (TSR, %) 30 15 0 0 10 20 (15) BHP (30) ROACE, % Miners, oil and gas majors Other companies Source: Bloomberg. 1. Miners, oil and gas majors include: Anglo American; BP; Chevron; ExxonMobil; Glencore; Rio Tinto; Shell; Vale. 2. Other companies include: Apple; AT&T; BASF; General Electric; HP; IBM; Samsung; Siemens; Volkswagen. 3. ROACE: Return on average capital employed; TSR: Total shareholder returns. Capital allocation briefing 21 November 2018 4 Miners, oil and gas majors Other companies
Where did the industry go wrong? Pro-cyclical investing has destroyed value and eroded returns Top 40 industry1 and BHP cumulative metrics (CY08 – CY17) (US$ billion) 1,000 800 600 400 200 0 Investment Shareholder Impairments returns BHP Top 40 industry Capital and exploration expenditure and commodity basket index2 (US$ billion) (Index, FY01=100) 25 700 20 560 15 420 10 280 5 140 0 0 Jun 01 Jun 05 Jun 09 Jun 13 Jun 17 BHP capital and exploration expenditure (LHS) Commodity basket index (RHS) BHP ROCE and total assets (%) (US$ billion) 30 150 20 100 10 50 0 0 FY01 FY16 FY18 ROCE (LHS) Total assets (RHS) 1. Source: PwC Mine 2018 report and BHP analysis. Top 40 analysis represents global mining industry as represented by the top 40 mining companies by market capitalisation. 2. Commodity basket index: comprises oil, copper, iron ore and metallurgical coal. Capital allocation briefing 21 November 2018 5
Our strategic framework Strategy is integral to capital allocation Capital prioritised for safe operations and value-add technologies Robust assessment of option suite to maximise returns for commensurate risk Leading culture and capabilities World-class assets Value and Highly attractive commodities Analysis of portfolio outcomes using price protocol ranges, sector attractiveness framework, scenario analysis Capital allocation briefing 21 November 2018 6
Improving capital allocation Enhanced capital allocation processes to better manage cyclicality and improve capital productivity Strategy Capital Allocation Framework Evaluation Organisation structure Strategy provides long-term context to today’s capital allocation decisions • Informs capital allocation to enable evolution from today’s optimal portfolio to the optimal portfolio in the future • Long-term scenarios to test portfolio resilience and identify new opportunities as demand patterns evolve • Option-based approach with rigorous capital competition supports competitive advantage in range of future states Transparent capital hierarchy promotes accountability and discipline • Reduced debt by ~US$15 billion over last two years and established target net debt range of US$10 to US$15 billion • Minimum 50% payout ratio policy ties dividends to company performance • Improved capital discipline with all investments tested against additional returns to shareholders Greater appreciation of risk as well as reward in all investment decisions • Quantitative and qualitative risk assessments with a broad range of return metrics • Range-based forecasts, stress testing and sensitivity analysis to manage volatility • Capital prioritisation fully considers ‘optimise without capital’ alternative and opportunity cost Centralised capital prioritisation encourages greater competition for capital • Separation of sponsor and analysis to remove unconscious bias • Earlier Board reviews incorporated into project tollgating process • Post investment lessons critically examined and embedded Capital allocation briefing 21 November 2018 7
Our framework promotes discipline in all capital decisions Transparent capital allocation hierarchy Maximise cash flow through lower costs, productivity, technology and culture Dividend policy linked to the performance of our business Operating Capital productivity productivity Net operating cash flow Maintenance capital Strong balance sheet Minimum 50% payout ratio dividend Excess cash flow Net debt range of US$10 to US$15 billion Less than US$8 billion in capital and exploration expenditure per annum to FY20 Debt Additional Organic Acquisitions/ Buy-backs reduction dividends development divestments Maximise value and returns ~US$23 billion cash returns to shareholders announced since 1 January 2016 ROCE to ~20% by FY22 (at FY17 prices) Capital allocation briefing 21 November 2018 8
Holistic and objective end-to-end capital allocation process More integrated approach to capital allocation across assets, finance and commercial functions Capital structure and shareholder returns Investment Strategy evaluation Market Capital and prioritisation scenario analysis Capital Allocation Framework Maximise value and returns Capital allocation briefing 21 November 2018 9
Increased rigour in our evaluation approach Scenario and range analysis underpins robust assessment of investment decisions Shareholder considerations • Share price • Additional dividend amounts • Share buy-backs • Licence to invest Project considerations • Risk considerations • Industry cost-curve position • Embedded optionality • Exit / deferral options Portfolio considerations • Strategic fit • Portfolio risk • Scenario / stress testing • Opportunity cost Valuation multiple Base Cash value returns Shareholder NPV1 ROCE1 Maximise Risk returns metrics Commodity Optionality balance Capital Net Efficiency operating Ratio cash flow IRR1 and Payback Free Margin cash flow 1. NPV: Net Present Value; ROCE: Return on average capital employed; IRR: Internal Rate of Return. Capital allocation briefing 21 November 2018 10
Broad suite of attractive opportunities Comprehensive approach to evaluate and rank opportunities based on returns, risk and optionality Optionality In execution Orphan Basin exploration (Petroleum) Ecuador exploration (Copper) Trion appraisal (Petroleum) Olympic Dam open pit expansion (Copper) WAIO outer harbour (Iron ore) Onshore US (Petroleum) Higher return Lower return South Flank (Iron ore) Atlantis Phase 3 (Petroleum) Mad Dog Phase 2 (Petroleum) Spence Growth Option (Copper) Scarborough (Petroleum) Jansen Stage 1 (Potash) Higher risk Lower risk Capital allocation briefing 21 November 2018 11
Changes are embedded, sustainable and delivering Rebuilding trust takes time and we will be judged on delivery, but changes are embedded and working well Returns to shareholders and capital and exploration expenditure1 (US$ billion) 16 8 0 (8) (16) (24) South32 demerger3 FY13 FY14 FY15 FY16 FY17 FY18 FY19e2 Capital and exploration expenditure Progressive dividend Onshore US proceeds Additional dividend amount 50% payout ratio dividend Net 1. Dividends represent dividends determined for the period. Capital and exploration presented on a total operations basis up to FY14. 2. FY19e dividend assumes minimum 50% payout ratio dividend amount only based on 2018 consensus prices. 3. South32 demerger value based on market capitalisation using 5-day volume weighted average prices between 18 to 22 May 2015 inclusive. Capital allocation briefing 21 November 2018 12
Changes are embedded, sustainable and delivering Outcomes since the implementation of the Capital Allocation Framework at the beginning of 2016 Additional Organic Acquisitions/ Debt Buy-backs dividends development divestments Over US$15 billion of US$9 billion of US$5.2 billion US$15 billion invested Close to optimal debt reduction additional dividends Limited off-market portfolio announced buy-back announced 3 major projects At low end of the sanctioned at Onshore US sold for US$10 to US$15 billion US$3.8 billion paid ~US$2.2 billion of average IRR of ~20%1 US$10.8 billion net debt range franking credits US$5.2 billion special expected to be released 5 latent capacity Successful bid for Trion dividend announced projects sanctioned at oil discovery in Mexico average IRR of ~60%1 Strategic position in 8 exploration wells SolGold copper encountered exploration project hydrocarbons 1. Average returns: Major project returns at consensus price forecasts at the time of Board approval; latent capacity project returns as presented in May 2018 at the Bank of America Merrill Lynch Global Metals, Mining & Steel Conference. Capital allocation briefing 21 November 2018 13
Our plans are delivering Rebuilding trust takes time and we will be judged on delivery, but changes are embedded and working well Returns Base value2 (ROCE1, nominal %) (Index, FY16=100) 20 150 15 125 10 100 5 75 0 50 FY16 FY17 FY18 FY19e FY16 plan FY17 plan FY18 plan FY17 average realised prices Actual/forecast FY17 average realised prices Consensus prices 1. Represents annualised attributable profit after tax excluding exceptional items and net finance costs (after tax) divided by average capital employed. Capital employed is net assets before net debt. Presentation of future Underlying Return on Capital Employed (ROCE) does not constitute guidance and represents outcomes based on differing price and other scenarios. 2. As presented at the Bank of America Merrill Lynch 2018 Global Metals, Mining and Steel Conference on 15 May 2018. Reflects the planning forecasts at the time before the addition of upside opportunities. Capital allocation briefing 21 November 2018 14
We have the assets, capability, discipline and options Our plans show ROCE to 20% by FY22 (at FY17 prices) and improvement in base value Additional Organic Acquisitions/ Debt Buy-backs dividends development divestments Net debt range of US$10 Committed to cash Compete with <US$8 billion capex per Need to compete with to US$15 billion returns to shareholders investments and annum to FY20 internal options additional dividends To remain at lower end Considered at each half- Latent capacity projects Potential for more in current price yearly period Risk and return metrics deliver average returns copper and oil growth environment fully considered >100%1 50% of shale proceeds Focused on early stage Supports to be returned in 50% of shale proceeds Future options deliver high risk / high return counter-cyclical January 2019 to be returned in average returns ~17%1 opportunities investments via special dividend December 2018 via off-market buy-back Continued focus on Efficient return on replenishing resource equity focus through exploration 1. Average returns: Latent capacity project and future options returns as presented in May 2018 at the Bank of America Merrill Lynch Global Metals, Mining & Steel Conference. Capital allocation briefing 21 November 2018 15
Key messages Capital allocation is a key enabler of our purpose to grow long-term shareholder value and returns Lessons The mining industry is capital intensive but investments have at times been poor learned We have improved our capital allocation approach to support better decisions Capital Our Capital Allocation Framework provides a transparent hierarchy, accountability and discipline allocation Centralised capital prioritisation drives purer competition for capital and reduces bias Managing Flexibility from a stronger balance sheet and payout ratio dividend policy cyclicality Use of price ranges and portfolio scenarios to ensure resilience Balancing Accepting and managing risk is inherent to value creation risk / reward Focus on a range of risk and return measures to evaluate opportunities Value and Improvements are significant, sustainable and are driving improved value and returns returns All investments tested against additional cash returns to shareholders Capital allocation briefing 21 November 2018 16
BHP
Capital allocation briefing: deep dive Capital structure and shareholder returns Investment Strategy evaluation Market Capital and prioritisation scenario analysis Capital Allocation Framework Maximise value and returns Capital allocation briefing 21 November 2018 18
Capital allocation process LICENCE TO INVEST Continuous improvement GOVERNANCE Strategy Corporate strategy Macro-economics Commodity Price Protocols Planning Opportunity Life of Capital 5-year 2-year Board assessment Asset plans prioritisation plan budget Minor and sustaining, Execution Tollgates Approvals initiatives, growth, M&A Capital allocation briefing 21 November 2018 19
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Market and scenario analysis: Key messages Market and scenario analysis narrows the range of future uncertainty, supporting better investment decisions today Differentiated Minerals and energy portfolio diversity enables a holistic view of the global landscape view Integrated commercial and finance functions provide end-to-end market intelligence Independent Forecast commodity price ranges compiled independently of project sponsors & objective Price forecasts applied consistently across the Company Through Structures, accountabilities and methodologies seek to mitigate bias and pro-cyclicality the cycle More stable long-run views based on strong fundamental analysis enable counter-cyclical thinking Robust Scenario, range, counterfactual and shock event analysis exposes most significant uncertainties methods Stress test core beliefs and key assumptions that underpin our ‘business as usual’ projections Rigourous Holistic fundamental analysis synthesizing macro, sectoral, technological, market and ‘geo’ drivers foundations Deep understanding of the operating environment, including detailed external benchmarking Capital allocation briefing 21 November 2018 20
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Our portfolio and structure provide unique perspective A holistic view of the global landscape, enabled by our portfolio diversity and end-to-end commercial insights Diversity of our commodity portfolio Integrated commercial and finance functions Copper Technical Sales marketing Iron ore Oil & gas Supply side Procurement Market intelligence Market analysis analysis Coal Potash Strategy Logistics Capital allocation briefing 21 November 2018 21
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation More stable long-term views and internal consistency drive a level playing field in the competition for capital Our internal research showed We are now more stable, … more objective, … we were pro-cyclical and biased towards recency Less volatility in long-term Independent team forecasts, especially instability drives internal consistency stemming from recency bias across all projections We have addressed both the technical and human factors behind pro-cyclicality and recency bias more technically proficient, … and more measured. Engineering out inadvertent Mid case de-emphasised pro-cyclicality in methodology in favour of plausible ranges and considering views of and probability weighted risk supply and demand experts Capital allocation briefing 21 November 2018 22
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia This is the tip of the iceberg – what’s beneath the surface? Our forecasts are built on rigourous foundations; and are routinely challenged by robust methods Short term Medium term Long term Growth in New demand Policy Growth New copper & Steeper cost population, centres and uncertainty moderating oil supply curves wealth themes Decarbonisation Sentiment Prudently Sustainable Emerging Asia and Technology mixed cautious productivity electrification Forecasts Scenarios Capital allocation briefing 21 November 2018 23
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Deep understanding of the operating context Synthesizing macro, sectoral, technological and ‘geo’ factors with commodity specific dynamics Living standards Metal intensity Energy intensity Technological diffusion Policy drivers & demography Acknowledging ‘Geo’ factors Supply dynamics Cost dynamics Price dynamics uncertainty Geology Geography High-Low range Geopolitics Geoeconomics Capital allocation briefing 21 November 2018 24
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Tracking demand dynamics on all time horizons Short-term shocks Medium-term shifts Long-term risks & opportunities Sino-US trade tensions China’s new reform era Electrification of transport Dynamic modelling of potential shocks, allied to Quality differentials likely to be durable; EV share of light vehicle sales is set to grow, bottom-up expertise, equips us to anticipate and China’s mill fleet becomes bigger, coastal & greener; potentially increasing demand for copper and nickel, prepare for potential stress Belt & Road a key enabler of Eurasian development while lowering demand for oil Belt & Road Initiative Supply-side reforms EV share of LDV sales range Scenario 1 forecast Symbolic retaliation China ` GDP Scenario 2 Escalated tensions China Quality differentials 0% EV share of LDV fleet range Steel demand Copper demand baseline per capita1 per capita1 Scenario 3 on Trade war Environmental resolve Impact 0% 2017 2027 Global BRI Global BRI 2010 2050 How resilient is our Balance Sheet to shocks? How do we replace declining Yandi volumes? How is our portfolio set up to leverage EV trend? Source: All data shown based on internal BHP analysis. Abbreviations: GDP – gross domestic product; BRI – Belt and Road Initiative; EV – electric vehicle; LDV – light duty vehicle. 1. BRI figures shown for demand per capita exclude China; steel figures represent average for 2016; copper figures represent average for 2017. Capital allocation briefing 21 November 2018 25
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategy: Key messages Our strategy creates long-term value for shareholders Scenario Long-term scenarios to test portfolio resilience and identify new opportunities under materially different worlds analysis Strategic Maximise shareholder value and returns by driving competitive advantage through industry-leading capabilities focus applied to a portfolio of world-class assets in the most attractive commodities Optimised Strategy helps direct capital allocation enabling evolution from today’s optimal portfolio to the optimal portfolio portfolio in the future Competitive Identification of key value drivers in each of our commodity businesses: productivity, simplification, maturation of advantage our option suite; underpinned by a strong balance sheet Future Option-based approach to investments, with rigourous competition for capital, supports competitive advantage in a options range of future outcomes Capital allocation briefing 21 November 2018 26
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation We have invested in strategic capabilities in the last three years Strategic thinking Strategic framework Scenario analysis to uncover Holistic framework drives competitive opportunities and risks: from now through advantage: culture and capabilities, the very long term commodities and assets Divergent thinking, bookends to test extreme what if outcomes Strategic fit Structure and capabilities Assets must be on strategy and compete for Centralised strategy team capital based on risk-adjusted returns within Finance Filling the gaps through acquisitions and Strategic alignment in all decision-making divestments, exploration and early stage options across the Group focuses effort towards a common goal Capital allocation briefing 21 November 2018 27
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategic framework Leverage our values, capabilities and resources to meet the evolving needs of markets Culture and capabilities that Commodities with high economic enables the execution of our rent potential that match our business strategy to create long- capabilities term value and returns Leading Highly culture and attractive capabilities commodities Value and returns World- Assets that are resilient through class the cycle, have embedded assets growth options, and match our capabilities Capital allocation briefing 21 November 2018 28
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategic drivers We aspire to have industry-leading capabilities applied to a portfolio of world-class assets in the most attractive commodities Strategic capabilities Which commodities? Which assets? Market intelligence Market size Cost curve position Resource access Supply and demand gap Expansion options (i.e. growth potential) Capital allocation Resource life Potential to capture rent Value conversion Capital intensity Risk of disruption Social value Alignment with our capabilities Country risk Capital allocation briefing 21 November 2018 29
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategic process Continually assessing our competitive advantages and future fitness of portfolio Present Future portfolio portfolio Examples of Drivers of strategic themes competitive advantage Electrification of transport Culture and capabilities China centric world Value-conversion, Competitive de-risking Adding new Hypothesis Commodities advantage Rise of artificial and resources testing assessment intelligence exercising Competitive options portfolio of options and Advances in materials science assets Assets Food insecurity Capital allocation briefing 21 November 2018 30
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital structure and shareholder returns: Key messages Strong balance sheet and payout ratio dividend underpin financial flexibility Capital Allocation Framework embeds Treasury in balance sheet, distribution and investment decisions Integrated Treasury an increasingly proactive influence in capital allocation Through US$10-15 billion net debt range provides optimal balance of flexibility, optionality and efficiency the cycle Provides downside protection and supports our ability to invest counter cyclically Scenario Forward-looking probabilistic and deterministic analysis to stress test the balance sheet and dividend payments analysis Consistently test affordability of planned portfolio and investments Robust Strong liquidity provides buffer from volatility liquidity Debt portfolio remains diversified and long dated Shareholder Minimum 50% payout ratio dividend policy better suited to cyclical cash flows and supports counter-cyclical investment returns Additional distributions assessed through application of Capital Allocation Framework Capital allocation briefing 21 November 2018 31
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Through the Capital Allocation Framework, Treasury is embedded in investment and capital returns decisions Integrated Commerciality Treasury expertise embedded in Best practice from bank and strategic decisions corporate treasuries Integrated approach to Financial Risk Management Commercial mindset in transaction structuring Transparent Risk Clear Treasury frameworks for Increased focus on internal capital, market and balance sheet and liquidity credit risks US$10-15 billion net debt target range Range-based forecasts and stress testing to manage volatility Minimum 50% payout ratio dividend policy Capital allocation briefing 21 November 2018 32
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strong balance sheet A strong balance sheet provides stability, flexibility and optionality through the cycle Balance sheet tested under a range of price scenarios Illustrative net debt range through the cycle • Buffer for price moves protects the company and ensures Mid prices Stress prices Mid prices Stress tested ability to act counter-cyclically metrics • Consistently testing affordability of cash returns and investment Diversified and long-dated maturity profile Debt • Lower gross debt and long weighted average life of debt management Target US$10-15 billion • Staggered maturity profile for added flexibility net debt range Shielding the business from volatility Strong • Undrawn committed US$6 billion Revolving Credit Facility liquidity • Enhanced liquidity framework better caters to volatility Transparent target range provides stability and flexibility FY2018 Time=0 Net debt • Net debt to move counter-cyclically Price index target range • Range can be temporarily breached for the right Net debt opportunity with pathway back to range Net debt with counter cyclical investment embedded¹ FFO ratio² with counter cyclical investment embedded 1. Assumes US$5 billion acquisition of early-stage opportunity. 2. FFO ratio: Funds From Operations/Net Debt. Capital allocation briefing 21 November 2018 33
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Minimum 50% payout ratio dividend and additional returns Rewarding our shareholders whilst maintaining flexibility Payout ratio dividend policy responds to market conditions Payout ratio better suited to cyclical cash flows (Dividends determined, US$ billion) (Commodity index, FY08=100) • Committed to cash returns – important component of TSR1 Minimum 10.0 200 • More responsive to changes in conditions dividends • Reduces volatility in net debt • Supports counter-cyclical investing 7.5 150 Considered through Capital Allocation Framework • Additional US$9 billion over minimum dividend 5.0 100 Additional announced since February 20162 amounts • Balance sheet position considered when determining amount of excess cash available 2.5 50 • Additional shareholder returns compete with investments Better placed for the next downturn 0.0 0 Strength and • Debt moving counter-cyclically while dividends move FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 flexibility pro-cyclically FY19e³ • Supports improved capital allocation through the cycle Special dividend Progressive dividend Additional amount 50% payout dividend Commodity basket index (RHS) 1. TSR: Total shareholder returns. 2. US$3.8 billion additional dividend amounts returned in last two years, plus US$5.2 billion special dividend announced in relation to Onshore US divestment. 3. Assumes minimum 50% payout ratio dividend amount only based on 2018 consensus prices. Capital allocation briefing 21 November 2018 34
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Share buy-back analysis The Capital Allocation Framework underpins the form of returns of the shale proceeds Materiality thresholds for off-market Buy ‘cheapest to deliver’ vs on-market buy-backs Size Cost (Ltd with up to 14% off-market Buy-back limit of 10% of shares discount versus DLC spread) outstanding Risk and return metrics fully Risk and Strong Diversity of shareholder views considered (share price, FX, shareholder Shareholder return (institutional perspective, retail commodity prices, competitiveness value/returns base metrics preference for dividends) relative to other investments) Efficiency of franking credit Net asset value per share, earnings Franking Market distribution to reflect investor per share and dividend per share credits metrics preferences and value implications accretion Capital allocation briefing 21 November 2018 35
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Investment evaluation: Key messages Thorough approach to investment evaluation to optimise our decisions Broad suite of attractive opportunities across commodities and time periods Portfolio Objectively assessed through comprehensive risk-return framework across the development life cycle Wide range of metrics to assess returns across project, portfolio and shareholder level Return Used in conjunction to provide holistic view on returns Full risk assessment across quantitative and qualitative criteria Risk Consider full set of material risks relevant to each capital allocation decision Risk-adjusted Our focus on risk-adjusted returns allows us to better understand embedded optionality and value returns Appropriately considering the investment risk and reward characteristics enables better decisions Constantly replenishing options with flexibility at entry and exit points to manage risk Options Focus on options with a low cost of carry Capital allocation briefing 21 November 2018 36
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Structural changes to our investment evaluation processes to improve objective opportunity assessment Strategic Transparent Centralised opportunity assessment to increase Early and iterative investment review process strategic alignment and reduce bias Fully incorporate impacts of incremental Simplified processes and robust internal supply in investment decisions capability enable fast investment decisions Capital Allocation Working Group formed and recommendations implemented Objective Flexible Quantitative and qualitative risk-return analysis Assets identify and optimise opportunities Focus on a range of inputs and outcomes Low, medium and high scenarios considered to understand volatility to improve downside protection Standardised across major, minor projects, exploration and M&A Capital allocation briefing 21 November 2018 37
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Project risk-return assessment A broad range of metrics used to assess risk-returns across project, portfolio and shareholder level Metrics used in conjunction to provide Investment return must at least match the returns from comprehensive view on returns alternatives with similar risk and time horizons Risk-adjusted • Appropriate risk-return balance returns • Consistent long-term assumptions Valuation multiple • Returns at project, portfolio and shareholder level Base Cash value returns Tested against higher of cost of capital or return of Shareholder Opportunity share buy-back NPV cost of capital • Flexibility according to market conditions ROCE Maximise Risk returns metrics Commodity Consideration of option value potential balance Optionality • Future expansion options considered Incorporating • Exploration, early stage M&A, organic options real options Capital Net • Capital allocation guides investment decisions across Efficiency operating real options Ratio cash flow IRR and Payback Free Margin cash flow Capital allocation briefing 21 November 2018 38
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Focused on risk-adjusted returns Simple hurdle rates may prevent us from making optimal decisions • Investment into Tier-1 assets have been highly value accretive, returning Appropriately considering the investment risk and reward characteristics significantly above the market average for ~30 years enables better investment decisions – these investments may have been missed if the decision was based on a hurdle rate, rather than their risk and reward characteristics Cash flow distribution Real options and payback • In Onshore US, the expected high returns on short-cycle investments with volatile commodity prices were not realised – we have learnt from this • Near vs long-term view on • Multiple commodity price cash flows cycle improvement Asset returns (annualised)1,2 • Period of time initial capital is • Assessing expansion, (%) at risk deferral and exit costs 30 ~25% 25 20 Industry cost curve Downside / upside ~15% ~14% 15 position risk distribution 10 5 • Sustainable high margins • Probabilistic analysis 0 Escondida WAIO Bowen Basin Coal³ enabled • Cost curve steepness Original expected Actual S&P Index 30 year average • Understanding of both downside and upside risk 1. IRR real on a risked, 100% basis. Indicative internal analysis. 2. Source: Thomson Reuters, BHP. Market indices reflected with Total Shareholder Return (TSR). 3. Includes BMA, BMC and Gregory Crinum. Capital allocation briefing 21 November 2018 39
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Holistic approach to project risk Improved understanding of risk is driving better investment decisions Quantitative risk Qualitative risks Integrated risk assessment 6 Operational risk HSEC exposure 5 4 Macroeconomic risk Geopolitical risks 3 Corporate Capability V. Low Mid High High Project NPV distribution 0 (US$ billion) Capability / experience Issues Risk 1 0 2 4 6 Major 2 P90 Mean P10 Others >2 Understand NPV and IRR ranges to Qualitative risks assessed using Consider full set of material risks mitigate downside risks and improve dedicated framework relevant to each capital allocation certainty of outcomes decision to compare against returns Capital allocation briefing 21 November 2018 40
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Broad suite of attractive opportunities Comprehensive approach to evaluate and rank opportunities based on returns, risk and optionality Optionality In execution Orphan Basin exploration South Flank Higher (Petroleum) (Iron ore) return Ecuador exploration Atlantis Phase 3 (Copper) (Petroleum) Trion appraisal Mad Dog Phase 2 (Petroleum) (Petroleum) Olympic Dam open pit expansion Spence Growth Option (Copper) (Copper) WAIO outer harbour Scarborough (Iron ore) (Petroleum) Lower return Onshore US Jansen Stage 1 (Petroleum) (Potash) Higher risk Lower risk Capital allocation briefing 21 November 2018 41
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital prioritisation: Key messages Improved capital prioritisation is encouraging purer competition for capital and driving improved capital productivity Fundamental Bottom-up scenario and range analysis to consider the optimal level of investments analysis Greater rigour in option evaluation mitigates downside risks and improves certainty of outcomes Structured Opportunity assessment starts at the assets before competing centrally approach Bottom-up build during the Life of Asset planning process Multi- Weighing optimal capital towards balance sheet strength, growth, M&A and shareholder returns disciplinary Incorporating input from other areas of the business (including treasury, marketing, tax, accounting and projects) Portfolio Capital allocation framework provides level playing field for diverse opportunities to compete optionality Growth, exploration and early stage M&A options assessed from a portfolio perspective Time Lessons learnt from the past to better manage inevitable cyclicality of the mining industry horizons Embedded in our short, medium and long-term decision-making Capital allocation briefing 21 November 2018 42
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Fundamental changes to our capital prioritisation processes to enable objective portfolio assessment Holistic Competitive Capital prioritised from a portfolio perspective Purer competition for capital consistent with long-term strategy, drives capital productivity to ensure maximum value and returns Investment tested against buy-backs Includes major, minor & sustaining projects, and acquisition options latent capacity, exploration, technology and functional initiatives Objective Discipline Capital prioritisation managed centrally Standardised investment and evaluation approach to avoid bias from asset submissions Fully consider risk vs reward, qualitative factors Whole of portfolio view drives better decisions and investment constraints Guided by the Capital Allocation Framework Capital allocation briefing 21 November 2018 43
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital prioritisation is integral to our planning process Capital prioritisation bridges planning across all time horizons to ensure alignment with strategy and day-to-day operations Corporate Opportunity Capital 5-year 2-year Value & Life of Asset strategy assessment prioritisation plan budget returns Focus on Assessment of an Long-term plan to Optimise Rolling plan to Rolling budget, Ensuring stronger competitive asset’s options to maximise allocation and outline actions the prepared annually outcomes for our advantage grow value and resource timing of capital to assets/functions in monthly shareholders considering a economic value deliver a portfolio will take in the increments range of and inform plan representing medium to short alternatives decisions and the most valuable term actions at the risk-adjusted asset level growth portfolio Long term Medium term Short term Capital allocation briefing 21 November 2018 44
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Structured approach to assess options Information generated by the assets Centrally assessed in corporate office with Healthy competition of options during Life of Asset planning process common criteria against other options with objective approach Optimise value for Bottom-up build up considered level of risk Strategic Scenarios Risk- Sequencing fit return Capital allocation briefing 21 November 2018 45
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Bottom-up build during Life of Asset planning process Assets identify different options to grow value of the business and include these in their Life of Asset plans Life of Asset plans for capital prioritisation incorporates: Current base plan Potential growth Minor & Sustaining: >500 options Includes latent capacity, asset integrity, compliance, risk reduction, and improvement A current long-term plan Potential growth options Technology: Value Chain Optimisation Focused on integration and automation excluding unapproved based on insights from capital projects Opportunity Assessment Value creating initiatives BHP Operating System; World Class Functions; Centres of Excellence Closure plan Asset preferred plan Growth projects: >20 options Focused on long-term opportunities Exploration: >10 regions Plans for closure are A long-term plan preferred Focused on Petroleum and Copper incorporated into the long by the assets including Major investments evaluated against buy-back and acquisition options; term development plan value creating options global investment process underpins all major decisions Information generated by the assets during Life of Asset planning process Capital allocation briefing 21 November 2018 46
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Portfolio optionality assessed by centralised planning Options assessed from a portfolio perspective against a number of metrics The assessment of options evaluates: Valuation multiple Base Cash value returns Strategic fit Scenarios Shareholder NPV ROCE Alignment to BHP’s Stress test plans against Maximise portfolio strategy different pricing scenarios Risk returns metrics Commodity Optionality balance Risk-return Sequencing Capital Net Efficiency operating Ratio cash flow Evaluate capital projects Consider the timing of IRR and Payback Free against different risk-return options to deliver the Margin cash flow metrics optimal value Options are assessed across number of metrics at project and portfolio level Capital allocation briefing 21 November 2018 47
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Value is optimised for a considered level of risk An optimised portfolio plan represents the most valuable risk-adjusted growth portfolio The optimised portfolio plan considers: Options portfolio value (US$ billion) 40.0 Portfolio risk-return Portfolio correlation 35.0 Projects with lower than Projects with the portfolio Portfolio correlation of each 30.0 higher than the Long-term growth portfolio volatility portfolio volatility major growth project optimised on a risk-return 25.0 considered to help manage basis risk 20.0 Balance sheet Timing 15.0 Stress testing of balance 10.0 Criticality and optionality value sheet under different pricing around project execution scenarios 5.0 Increasing—Increasing individual project volatility Capital allocation briefing 21 November 2018 48
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Portfolio considerations A strong portfolio gives us stability and flexibility through the cycle Optimised Opportunities are assessed against strategic framework Group portfolio NPV Portfolio 135 Strategic • Prioritise safety in all decisions fit • Targeting the right commodity and assets • Enabled by the right internal capabilities and capacities NPV Optimised portfolio assessed for impact on balance sheet Enterprise Balance • Stress testing the portfolio on multiple scenarios sheet • Consider size of projects and impact to capital structure impact • Explore options for partnership-based risk sharing structures (e.g. Jansen) Group portfolio returns 40% Assess options to better ‘balance’ portfolio exposures • Avoid concentration towards one economic driver (e.g. steel demand or energy) Portfolio • Stable portfolio reduces volatility of cash flows and lowers 3 risk funding costs Returns • Optionality to take advantage of opportunities throughout the 2 commodity cycle 2 6 LT 7 average capex 8 incl. exploration 9 (US$ 10 billion real) 11 Optimise value for considered level of risk Capital allocation briefing 21 November 2018 49
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Value maximised through our Global Investment Process Fundamental process underpinning all major decisions before commitment of project capital Global Investment Process (GIP) Project Study Project stages Examples include Escondida Debottlenecking Phased process with independently reviewed tollgates Conceptual Spence Ripios Processing Management Committee oversight and endorsement Resolution through phases and execution Projects can be referred back to previous phases for Scarborough further study, de-risking and optimisation Pre-feasibility Olympic Dam Brown Field Expansion Hay Point Ship Loader Project Delivery Jansen Stage 1 Feasibility Atlantis Phase 3 Constant monitoring on project execution Ruby Barracouta West Periodic reporting on Board set KPIs Spence Growth Option (23% complete) Mad Dog II (31% complete) Material changes in execution trigger a Supplementary Execution Approval Request South Flank (15% complete) Escondida Water Supply Expansion Capital allocation briefing 21 November 2018 50
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital stewardship in Minerals Australia: Key messages Embedding the culture, capability and processes to drive better capital decisions through to the front line Capital Greater respect for every dollar of capital across all levels of the organisation stewardship Competition for capital and disciplined mindset now embedded throughout Competition All project capital >US$2 million goes through a robust prioritisation process for capital Capital discipline encourages innovation and more intense testing of the ‘optimise without capital’ case Significant improvement in project capital efficiency Efficiency Faster, better studies; programs of work increase synergies and reduce effort; dedicated contracts team Increased Improved project delivery in accordance with safety, time and cost targets certainty Enhanced project management across all projects throughout the portfolio Deep project expertise drives value optimisation during study phase Capability Business case to justify capital applications are better defined, bringing more scrutiny into business benefits Capital allocation briefing 21 November 2018 51
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Significant improvement in major project performance (externally benchmarked); permeated into all projects in a fit for purpose way Certainty Capital efficient Integrated planning provides stability Enhanced study expertise drives earlier value optimisation Portfolio tracking enables early escalation Greater performance benchmarking Project-specific commercial skills and discipline Disciplined Integrated Simplified operating requirements Working as a single projects community Consistent standards applied to Projects Centre of Excellence to all projects >US$10 million accelerate improvement Standard approach to safety in design to improve long-term outcomes Capital allocation briefing 21 November 2018 52
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Disciplined approach to choose only the right projects Front-line has to justify capital demand and understand trade-offs Prioritisation of minor and sustaining capital • All projects >US$2 million must submit business case (US$) (fit for purpose) to be included in prioritisation process Iterative process to determine – grouped by type; prioritised for compliance, risk optimal level of spend Process reduction and asset integrity • Fed into iterative Group-wide prioritisation process to allow best allocation of limited resources (e.g. capital; 1 or 2 34 or or capability) integrity capacity Group Group Group Group execution reduction • All projects assessed against relevant standard metrics1In Compliance Risk Asset Sustaining Sustaining capacity improvement Sustaining capacity improvement Sustaining capacity improvement • General Managers need to compete with each other for Value the best place to invest • Increased maturity in asset integrity and sustaining RER CER capital requirements for the long term RER watermark CER watermark Prioritised Excluded $m Prioritised Excluded $m 1. Includes Capital Efficiency Ratio (CER); Internal Rate of Return (IRR); Net Present Value (NPV); Risk Efficiency Ratio (RER); Asset Integrity Assessment. Capital allocation briefing 21 November 2018 53
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia More value captured through high-quality studies Study specialists work hand-in-hand with the operation to fully evaluate possibilities before scope is locked • Invested in people with deep expertise in study Clarifier at Olympic Dam leadership • With an increased focus on brownfield projects, we How bring a ‘whole of business’ mindset to what we do (not just ‘the builder of stuff’) – shift in focus from ‘what needs to be built’ to ‘what needs to be solved’ • Identified that Olympic Dam clarifier could be replaced (rather than repaired, as originally proposed) for similar capital, but with less risk and while catering for BFX • Proved that leaving a major substation was higher Substation at Peak Downs Examples value than relocating to extract coal from underneath • Competition between iron ore mines for incremental capital proved which has best metric; changed batting order to match Capital allocation briefing 21 November 2018 54
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Significant improvement in project efficiency We are leveraging the scale of Minerals Australia Projects to drive efficiency and continuous improvement More projects delivered to plan drives efficiency and predictability • We have benchmarked (internally and externally) (Minerals Australia project delivery performance, %) extensively to understand project performance 100 Measuring Optimal delivery1 • We sit at, or better than, industry averages including our for study costs and durations, and construction performance 50 productivity • Underpins strong safety performance 0 FY17 FY18 FY19 FY17 FY18 FY19 • Opportunities exist through more scrutiny Cost Schedule Between stretch and threshold Less than stretch Greater than threshold Still more – every dollar of scope to get – engineering service provider performance More efficient studies (Study and engineering cost as % of total cost) – in-field productivity 30 20 10 0 External benchmark Minerals Australia Median Q1 1. Stretch set at P10 and threshold set at P90. Therefore, 80% of projects should be delivered between stretch and threshold. Capital allocation briefing 21 November 2018 55
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia South Flank: Getting the most out of every dollar Investment returns were compelling, but we actively analysed every element to improve efficiency Learning from past projects to optimise OHP design Delivering an improvement in capital efficiency (A$/tpa) (Capital intensity1, US$/t) 8.00 150 4.00 0.00 Yandi (RGP5) Jimblebar South Flank Design improvements means NPI supports larger fleet 100 (Heavy vehicles/bay) 10 5 0 Yandi (RGP5) Jimblebar South Flank 50 Integrated teams reduce costs and drive better outcomes (Engineering and EPCM costs as % of plant and infrastructure costs) 30 20 10 0 Mt Whaleback Yandi (RGP5) Jimblebar South Flank Mt Whaleback Yandi Jimblebar South Flank (RGP4) (RGP4) (RGP5) 1. Includes pre-commitment funding. Capital allocation briefing 21 November 2018 56
BHP
BHP
Appendix
Debt maturity profile Debt balances1 (US$ billion) 8 6 4 2 0 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 Post FY29 US$ Euro Sterling A$ C$ Bonds34 Bonds34 Bonds34 Bonds Bonds Subsidiaries % of portfolio 38% 34% 12% 3% 3% 10% Capital markets 90% Asset financing 10% 1. As at 30 June 2018. Capital allocation briefing 21 November 2018 59
Latent capacity – attractive returns, limited risk Continuous replenishment of our suite of capital efficient, low risk, high return options supports the next wave of latent capacity Options IRR1 Risk1 Timing1 Capex Description (%) (1-5) (US$m) WAIO Supply chain debottlenecking initiatives at the port and rail, and releasing latent capacity at >100 • <2 years <250 Debottlenecking Jimblebar to increase production to 290 Mtpa Barracouta West Non ~20 <2 years ~200 Brownfield tieback opportunity to existing infrastructure in the Bass Strait. Petroleum Operated Escondida Expansion of desalination plant to reduce groundwater usage and maximise concentrator >50 •• <2 years ~500 EWS Expansion throughput Escondida >100 •• various >500 Concentrator debottlenecking, sulphide leach reprocessing of ripios, truck and shovel fleet upgrades Debottlenecking Spence ~60 •• 2-5 years 250-500 Reprocessing of ripios dumped since the beginning of the Spence operations Ripios processing Queensland Coal Investing in stripping capacity and pipeline of productivity initiatives to shift the bottleneck towards >100 • >5 years >500 Latent capacity the coal handling plants Spence Processing lower grade hypogene material with increased recoveries, concentrator debottlenecking, >15 ••• >5 years >500 Debottlenecking in-pit semi mobile ore conveying Aggregate >100 ~US$4 bn Up to ~2 Mt of incremental Cu eq. capacity with ~US$16 bn unrisked NPV 1. Projects as presented in May 2018 at the Bank of America Merrill Lynch Global Metals, Mining & Steel Conference; IRR: Returns at 2018 consensus price forecasts; ungeared, post tax, nominal return; Risk profile is based on a BHP assessment of each project against defined quantified and non-quantified risk metrics rated out of 5; 5 represents more risk; Timing: Represents potential first production Capital allocation briefing 21 November 2018 60
Future options – worked for value, timed for returns Investment decisions made in accordance with our capital allocation framework and fully consider the broader market impact Options Description Potential Capex GIP IRR1 Risk1 Investment considerations execution (US$m) tollgate1 (1-5) timing ̶ Resilient to price ̶ Non-operated JV Atlantis Phase 3 Tie back to existing Atlantis facility unlocked Non <1 year >500 Feasibility ~25 ̶ Low risk, robust economics Petroleum through Advanced Seismic Imaging Operated ̶ Similar scope to existing tie backs ̶ Early life sensitivity to oil price Ruby Tie back into existing processing facilities in ̶ Utilisation of existing facility capacity <1 year >150 Feasibility >25 •• Petroleum Trinidad & Tobago Accelerated development into the Southern ̶ Resilient to price ̶ Continued resource definition Olympic Dam BFX ̶ Improved Cu grades in the Southern Mine ̶ Power network instability Mine Area, debottlenecking of existing surface <5 years >2,000 Pre-feasibility ~20 •• Copper Area infrastructure to increase production ̶ Tier 1 resource ̶ Oversupply of LNG driving low price market Scarborough Non ̶ Ability to process through North West environment Tie back development to existing LNG facility <5 years <2,000 Pre-Feasibility >15 Petroleum Operated Shelf ̶ Remote field location, deep water, severe metocean conditions ̶ Tier 1 resource ̶ Geological definition required to de-risk Wards Well Long-life, premium hard coking coal resource, Opportunity >5 years >1,000 ~15 •••• ̶ Proximity to existing operating assets ̶ Risk of impact on market supply Metallurgical Coal greenfield underground long-wall mine assessment ̶ Supply chain logistic complexities ̶ High copper grades ̶ Non-operated JV Resolution Underground block cave with attractive grade Non ̶ Resilient to price ̶ Technical risk due to caving at the resource depth >5 years <3,000 Conceptual >15 Copper profile and competitive cost curve position Operated and tailings options. ̶ Permitting requirements ̶ Tier 1 resource, stable jurisdiction ̶ Risk of market oversupply Jansen Stage 12 Tier 1 resource with valuable expansion ̶ Operating costs of ~US$100/t (FOB ̶ New commodity entry <5 years ~5,000 Feasibility ~13 ••• Potash optionality Vancouver) ̶ Sensitive to price ̶ Unrivalled position of land ̶ High capital cost and long payback ̶ Long term growth optionality and value ̶ Risk of market oversupply Jansen Stage 2-4 Sequenced brownfield expansions of up to 12 ~4,000 Opportunity generation ̶ Complexities from project size >15 years ~16 •• Potash Mtpa (4 Mtpa per stage) per stage assessment ̶ Significant capital requirement ̶ Further de-risking required Aggregate ~17 Aggregate unrisked value of ~US$15 bn spanning commodities and time periods 1. Projects as presented in May 2018 at the Bank of America Merrill Lynch Global Metals, Mining & Steel Conference; Global Investment Process (GIP) tollgate; IRR: Returns at 2018 analyst consensus price forecasts; ungeared, post-tax, nominal rates; Risk profile is based on a BHP assessment of each project against defined quantified and non-quantified risk metrics rated out of 5; 5 represents more risk. 2. Jansen Stage 1: IRR is ~14% excluding the remaining investment for completion of the shafts and installation of essential service infrastructure and utilities. Capital allocation briefing 21 November 2018 61
Exploration – extending our conventional reserve life Investment decisions made in accordance with our Capital Allocation Framework and fully consider the broader market impact Options Location Ownership Maturity Earliest first Description Planned future activity production Wildling 80+% Large oil resource across multiple horizons near operated USA—Gulf of Mexico Appraisal Mid 2020s Complete additional appraisal to optimize development Petroleum Operator infrastructure in US Gulf of Mexico Western GOM 100% Commenced acquisition of Ocean Bottom Node seismic USA—Gulf of Mexico Frontier Early 2030s Acquired a significant acreage position in Western Gulf of Mexico Petroleum Operator survey in August 2018 Trion Mexico—Gulf of 60% Commenced drilling first operated appraisal well in Appraisal Mid 2020s Large oil discovery in the Mexican deepwater Gulf of Mexico. Petroleum Mexico Operator November 2018 Magellan Southern 65% Potential material gas play in Deepwater Trinidad, well positioned Gas Trinidad and Tobago Exploration Mid 2020s Rig completed 2 well exploration program in October 2018 Operator to the Atlantic LNG plant onshore T&T Petroleum Northern Gas 70% Potential material gas play in Deepwater Trinidad, well positioned Additional exploration to test other prospects following the Trinidad and Tobago Exploration Mid 2020s Petroleum Operator to the Atlantic LNG plant onshore T&T recent Bongos-2 success Northern Oil 70% Trinidad and Tobago Frontier Late 2020s Potential oil play in deepwater Trinidad Further geotechnical analysis Petroleum Operator Exmouth sub-basin Australia 35-75% Exploration Mid 2020s Proved hydrocarbon system with producing oil and gas discoveries 3D seismic data has been received and is being analysed Petroleum Orphan Basin 100% Recent bid success for blocks with large oil resource potential in the Canada Frontier Early 2030s Exploration work programs of US$140 million up to FY2021 Petroleum Operator offshore Orphan Basin in Eastern Canada. Samurai Appraised field in 2018 with Samurai-2 and Samurai-2 USA—Gulf of Mexico 50% Appraisal Early 2020s Oil discovery in the Wildling mini basin Petroleum sidetrack. Evaluating further appraisal and development plans Multi-billion barrel equivalent risked potential; unrisked NPV of up to US$15 billion* Note: Petroleum exploration NPV: Unrisked values at BHP long-term price forecasts as presented in May 2018 at the Bank of America Merrill Lynch Global Metals, Mining & Steel Conference. Capital allocation briefing 21 November 2018 62
BHP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BHP Billiton Limited and BHP Billiton Plc | ||||||
| Date: November 21, 2018 | By: | /s/ Rachel Agnew | ||||
| Name: | Rachel Agnew | |||||
| Title: | Company Secretary | |||||