BHP Group Regulatory News (BHP)

BHP OPERATIONAL REVIEWFOR THE YEAR ENDED 30 JUNE 2019

· Exceeded full year production guidance for petroleum and met revised guidance for copper and iron ore. Metallurgical coal and energy coal production marginally below guidance predominantly as a result of lower than expected wash plant yields and adverse weather impacts during the June 2019 quarter.

· Group copper equivalent production increased by 11% in the June 2019 quarter reflecting a strong operational performance across the portfolio, particularly at Western Australia Iron Ore and Queensland Coal which achieved annualised run rates above 290 Mt (excluding the impact of Tropical Cyclone Veronica) and 48 Mt respectively during the quarter.

· Group copper equivalent production for the 2019 financial year declined by 2%(1), with annual production records at two petroleum and four minerals operations offset by grade and natural field decline, weather-related interruptions and several unplanned outages.

· We expect to achieve full year unit cost guidance(2) at Petroleum, Escondida and Western Australia Iron Ore. Queensland Coal and New South Wales Energy Coal unit costs are expected to be marginally above guidance (based on 2019 financial year guidance exchange rates of AUD/USD 0.75 and USD/CLP 663).

· Group copper equivalent production(1) for the 2020 financial year is expected to be slightly higher than the 2019 financial year despite a ~7% decline in petroleum volumes largely due to natural field decline.

· In Petroleum, the Bélé-1, Tuk-1 and Hi-Hat-1 exploration wells in Trinidad and Tobago all encountered hydrocarbons during the quarter. Over the full year, seven out of nine wells drilled were successful.

· All major projects under development are tracking to plan.

· Underlying improvements in productivity were largely offset by the impact of unplanned production outages of US$835 million during the first half, in addition to grade decline in copper and higher unit costs in coal. A negative movement of approximately US$1 billion is now expected to be recorded for the 2019 financial year.

We expect the financial results for the second half of the 2019 financial year to reflect certain items as summarised in the table on page 3.

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Summary

BHP Chief Executive Officer, Andrew Mackenzie:

"We finished the 2019 financial year with an 11 per cent increase in quarterly production, driven by strong operational performances across our portfolio, including annual production records at a number of our petroleum, copper, iron ore and metallurgical coal operations. Our overall production was broadly in line with last year, overcoming the impacts of weather, grade and natural field decline, and unplanned outages in the first half. Our exploration program delivered encouraging results, with seven out of nine petroleum wells successful and further evaluation of the Oak Dam copper prospect underway. Strong underlying performance puts us in a position to deliver higher volumes in the 2020 financial year. BHP's suite of attractive options, together with our culture and transformation programs, will grow returns and create long-term financial and social value."

Production and guidance are summarised below.

(i) Other copper comprises Pampa Norte, Olympic Dam and Antamina.

(ii) Increase in BHP's share of volumes reflects the expiry of the Wheelarra Joint Venture sublease in March 2018, with control of the sublease area reverted to the Jimblebar Joint Venture, which is accounted for on a consolidated basis with minority interest adjustments.

During the year, the North West Shelf Greater Western Flank-B project achieved first production ahead of schedule and under budget. The BHP Board also approved the Atlantis Phase 3 project in the US Gulf of Mexico.

At the end of the 2019 financial year, BHP had five major projects under development in petroleum, copper, iron ore and potash, with a combined budget of US$11.1 billion over the life of the projects.

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BHP expects its financial results for the second half of the 2019 financial year to reflect certain items as summarised in the table below. The table does not provide a comprehensive list of all items impacting the period. The financial statements are the subject of ongoing work that will not be finalised until the release of the financial results on 20 August 2019. Accordingly the information is subject to update.

(i) Numbers are not tax effected, unless otherwise noted.

(ii) There will be a corresponding balance sheet, cash flow and/or income statement impact as relevant.

(iii) Financial impact is the subject of ongoing work and is not yet finalised.

(iv) Increase is attributable to closed mines managed by Petroleum due to their geographical location.

Underlying improvements in productivity were largely offset by the impact of unplanned production outages of US$835 million during the December 2018 half year. Productivity for the June 2019 half year has been impacted by higher than expected unit costs at Queensland Coal (lower volumes, wet weather and increased contractor stripping costs); New South Wales Energy Coal (higher strip ratio and contractor stripping costs); and Nickel West (mine plan changes); in addition to expected grade decline in copper. As a result, we expect a negative movement in productivity of approximately US$1 billion for the 2019 financial year, excluding the impact of Tropical Cyclone Veronica on our WAIO operations.

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The average realised prices achieved for our major commodities are summarised below.

(i) Based on provisional, unaudited estimates. Prices exclude sales from equity accounted investments, third party product and internal sales, and represent the weighted average of various sales terms (for example: FOB, CIF and CFR), unless otherwise noted. Includes the impact of provisional pricing and finalisation adjustments.

(ii) Includes internal sales.

(iii) Comparative financial information has been restated for the new accounting standard, IFRS 15 Revenue from Contracts with Customers, which became effective from 1 July 2018.

(iv) Hard coking coal (HCC) refers generally to those metallurgical coals with a Coke Strength after Reaction (CSR) of 35 and above, which includes coals across the spectrum from Premium Coking to Semi Hard Coking coals, while weak coking coal (WCC) refers generally to those metallurgical coals with a CSR below 35.

(v) Export sales only; excludes Cerrejón. Includes thermal coal sales from metallurgical coal mines.

The majority of iron ore shipments were linked to the index price for the month of shipment, with price differentials predominantly a reflection of market fundamentals and product quality. The majority of metallurgical coal and energy coal exports were linked to the index price for the month of shipment or sold on the spot market at fixed or index-linked prices, with price differentials reflecting product quality.

At 30 June 2019, the Group had 322 kt of outstanding copper sales that were revalued at a weighted average price of US$2.72 per pound. The final price of these sales will be determined in the 2020 financial year. In addition, 364 kt of copper sales from the 2018 financial year were subject to a finalisation adjustment in the current period. The provisional pricing and finalisation adjustments will decrease Underlying EBITDA(3) by US$242 million in the 2019 financial year and is included in the average realised copper price in the above table.

On 26 June 2019, BHP Western Australia Iron Ore and its Joint Venture Partners (JVPs) settled a dispute with the Western Australian Government in relation to a long-standing deduction made by BHP and its JVPs in the calculation of royalties. The settlement resolved all issues relating to this deduction and there is no assertion by the State that BHP, or its JVPs, have deliberately or knowingly sought to avoid or minimise the royalties payable to the State of Western Australia. As part of the settlement, BHP and its JVPs have ceased to claim the deduction in question and have agreed to make a payment of A$250 million (100 per cent basis) to the State in resolution of the dispute. The payment will be made in the first half of the 2020 financial year.

In January 2019, BHP agreed to fund US$438 million in financial support for the Renova Foundation until 31 December 2019 which will be offset against the Group's provision for the Samarco dam failure. In addition, in June 2019 BHP agreed to fund a short-term facility of up to US$79 million to be made available to Samarco until 31 December 2019.

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BHP is currently reviewing the assumptions used to determine the Group's provision for the Samarco dam failure, including an expected increase in the total cost estimate related to the timing of lifting the fishing ban, delays in the resettlement of communities impacted by the dam failure and increases in the number of people eligible for financial assistance and compensation. For the second half of the 2019 financial year, we are not yet in a position to provide an update to the ongoing potential financial impacts on BHP Billiton Brasil of the Samarco dam failure. Any financial impacts will continue to be treated as an exceptional item.

Due to legislative changes in Brazil, Samarco is currently progressing plans for the accelerated decommissioning of its upstream tailings dams (the Germano dam complex). The accelerated timing is expected to result in a provision of approximately US$260 million (BHP share), as Samarco is not currently expected to generate sufficient cash flows to fund the required decommissioning costs. BHP will recognise this in its financial results for the second half of the 2019 financial year and treat it as an exceptional item.

Petroleum

Petroleum - Total petroleum production increased by one per cent to 121 MMboe. Volumes are expected to decrease to between 110 and 116 MMboe in the 2020 financial year as a result of planned maintenance at Atlantis and natural field decline across the portfolio.

Crude oil, condensate and natural gas liquids production decreased by four per cent to 55 MMboe due to natural field decline across the portfolio and a 70-day planned dry dock maintenance program at Pyrenees completed during the September 2018 quarter. This decline was partly offset by higher uptime and stronger field performance at Atlantis and Mad Dog.

Natural gas production increased by five per cent to 397 bcf, reflecting increased tax barrels at Trinidad and Tobago in accordance with the terms of our Production Sharing Contract and higher uptime at North West Shelf. This was partially offset by planned maintenance at Trinidad and Tobago in the December 2018 quarter, the impact of Tropical Cyclone Veronica in Western Australia and natural field decline across the portfolio.

The Bass Strait West Barracouta project is tracking to plan and study work continues on the Ruby project in Trinidad and Tobago with an investment decision expected during the September 2019 quarter.

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Exploration and appraisal wells drilled during the June 2019 quarter are summarised below.

In Trinidad and Tobago, Phase 3 of our deepwater drilling campaign was completed. This campaign included three wells - Bélé-1, Tuk-1 and Hi-Hat-1 - which have all been successfully drilled and encountered gas. These three discoveries in our Northern licences have established additional volumes around the Bongos discovery and evaluations are ongoing. Technical work is underway to assess further exploration targets and commercial options for the Northern Gas play.

In Australia, as part of the North West Shelf Joint Venture, we participated in the Achernar-1 exploration to fulfil a well commitment on the WA-28-P exploration permit. The well was a dry hole and was plugged and abandoned.

In Mexico, we spud the Trion-3DEL appraisal well on 9 July 2019 to further delineate the scale and characterisation of the resource.

Petroleum exploration expenditure for the 2019 financial year was US$685 million, of which US$388 million was expensed.

Copper

Copper - Total copper production decreased by four per cent to 1,689 kt. Production of between 1,705 and 1,820 kt is expected in the 2020 financial year.

Escondida copper production decreased by six per cent to 1,135 kt, as an expected 12 per cent decline in copper grade was partially offset by record average concentrator throughput of 344 ktpd. Production of between 1,160 and 1,230 kt is expected in the 2020 financial year, underpinned by a further uplift in concentrator throughput, partly offset by an approximately five per cent reduction in copper grade of concentrator feed.

Pampa Norte copper production decreased by seven per cent to 247 kt due to adverse weather impacts in the March 2019 quarter and a production outage at Spence following a fire at the electro-winning plant in September 2018. This was partially offset by record ore milled at Spence and Cerro Colorado after implementing maintenance improvement initiatives as part of our broader transformation program. Production at Pampa Norte is expected to be between 230 and 250 kt in the 2020 financial year.

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Olympic Dam copper production increased by 17 per cent to 160 kt as a result of the major smelter maintenance campaign in the prior period, which was partially offset by an unplanned acid plant outage in August 2018, and two minor production outages in May 2019 relating to the smelter and to the refinery crane. Underground operations continue to perform well, with record development kilometres achieved(4). Production is expected to increase to between 180 and 205 kt in the 2020 financial year reflecting improved operational performance, partially offset by planned maintenance related to the replacement of the refinery crane (pre-work scheduled for the September 2019 quarter and physical replacement and commissioning scheduled for the March 2020 quarter). During the 2019 financial year, we successfully completed the heap leach research and development trial, confirming the viability of the technology to extract copper, uranium, gold and silver at Olympic Dam.

Antamina copper production increased by six per cent to 147 kt and zinc production decreased by 18 per cent to 98 kt, reflecting higher copper head grades and lower zinc head grades, in line with the mine plan. Antamina successfully completed a collective agreement with the SUTRACOMASA Union on 11 June 2019, for 36 months expiring on 31 July 2021. Copper production of approximately 135 kt and zinc production of approximately 110 kt is expected in the 2020 financial year.

During the June 2019 quarter, we went live with our Integrated Operations centre in Santiago, which enables planning, control and monitoring across the supply chains for Escondida and Spence.

Iron Ore

Iron ore - Total iron ore production was broadly unchanged at 238 Mt (270 Mt on a 100 per cent basis). Production of between 242 and 253 Mt (273 and 286 Mt on a 100 per cent basis) is expected in the 2020 financial year as we undertake a significant maintenance program at Port Hedland. This program is designed to improve productivity and provide a stable base for our tightly coupled supply chain as we sustainably increase production towards 290 Mtpa (100 per cent basis). As part of this, a major car dumper maintenance campaign is planned for the September 2019 quarter, with a corresponding impact expected on production.

At WAIO, volumes were flat reflecting record production at Jimblebar and inventory impacts from the Mt Whaleback fire in the prior period. This was offset by the impacts of planned maintenance in the September 2018 quarter, a train derailment on 5 November 2018 and Tropical Cyclone Veronica in March 2019. The port ramp up subsequent to the cyclone was achieved on 10 April 2019. During the quarter, WAIO achieved an annualised run rate above 290 Mt, excluding the cyclone impact.

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Mining and processing operations at Samarco remain suspended following the failure of the Fundão tailings dam and Santarém water dam on 5 November 2015.

Coal

Metallurgical coal - Metallurgical coal production was broadly flat at 42 Mt (75 Mt on a 100 per cent basis). Production is expected to be between 41 and 45 Mt (73 and 79 Mt on a 100 per cent basis) in the 2020 financial year. With major wash plant shutdowns at Goonyella, Peak Downs and Caval Ridge planned in the September 2019 quarter, volumes will be significantly weighted to the subsequent three quarters of the financial year.

At Queensland Coal, record annual production was achieved at BMC due to improved wash plant performance and increased yields at South Walker Creek and higher wash plant throughput at Poitrel following the purchase of the remaining 50 per cent of Red Mountain processing facility. Despite record stripping, BMA's production decreased slightly due to unfavourable weather impacts (March and June 2019 quarters) and lower wash plant yields (June 2019 quarter).

Energy coal - Energy coal production for the 2019 financial year decreased six per cent to 27 Mt. Production is expected to decrease to between 24 and 26 Mt in the 2020 financial year.

New South Wales Energy Coal production decreased by two per cent as record stripping performance was offset by higher strip ratios and lower wash plant yields as we progress through the monocline and optimise our mine plan to focus on higher quality products given widening quality differentials. In the 2020 financial year, the combination of the monocline and a changed product mix to focus on higher quality products is expected to result in a decrease in production to between 15 and 17 Mt.

Cerrejón production decreased by 13 per cent due to adverse weather and its impacts on mine sequencing. Production is expected to be approximately 9 Mt in the 2020 financial year.

Other

Nickel - Nickel West production decreased by six per cent to 87 kt as operations were suspended following a fire at the Kalgoorlie smelter in September 2018. The smelter returned to operation on 1 October 2018, with final repairs and ramp up completed in the March 2019 quarter. The Kwinana refinery achieved record saleable production of 74 kt in the 2019 financial year. Total nickel production is expected to be broadly unchanged in the 2020 financial year.

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Minerals exploration

Minerals exploration expenditure for the 2019 financial year was US$188 million, of which US$128 million was expensed. Greenfield minerals exploration is predominantly focused on advancing copper targets within Chile, Ecuador, Peru, Canada, South Australia and the South-West United States.

During the June 2019 quarter, the second phase of the drilling program at Oak Dam was progressed, with 12,425 metres in 10 holes. The program tested lateral continuity, thicknesses and orientation of the central part of the mineralised system, with the drill results currently being evaluated and interpreted.

Consistent with our exploration focus on copper, in April 2019, BHP secured a five per cent interest in Midland Exploration Inc., which has copper exploration tenements in Canada.

In May 2019, BHP entered into a two-year, US$2 million Exploration Financing Agreement with Riverside Resources to fund exploration in Mexico's north-eastern Sonora region. The exploration program will focus on the central part of the Laramide Copper Belt.

In July 2019, BHP entered into a binding earn-in and joint venture agreement with Luminex for its Tarqui and Tarqui 2 mining concessions in Ecuador. BHP will act as manager and operator of the joint venture company, and is preparing to continue exploration activities on the sites.

Variance analysis relates to the relative performance of BHP and/or its operations during the 2019 financial year compared with the 2018 financial year, unless otherwise noted. Production volumes, sales volumes and capital and exploration expenditure from subsidiaries are reported on a 100 per cent basis; production and sales volumes from equity accounted investments and other operations are reported on a proportionate consolidation basis. Numbers presented may not add up precisely to the totals provided due to rounding. Copper equivalent production based on 2019 financial year average realised prices.

The following footnotes apply to this Operational Review:

(1) Excludes production from Onshore US

(2) 2019 financial year unit cost guidance: Petroleum

(3) Underlying EBIT and Underlying EBITDA are used to reflect the underlying performance of BHP. Underlying EBIT is earnings before net finance costs, taxation and any exceptional items. Underlying EBITDA is Underlying EBIT before depreciation, amortisation and impairment.

(4) Based on business-as-usual development; excludes project development.

The following abbreviations may have been used throughout this report: barrels (bbl); billion cubic feet (bcf); cost and freight (CFR); cost, insurance and freight (CIF); dry metric tonne unit (dmtu); free on board (FOB); grams per tonne (g/t); kilograms per tonne (kg/t); kilometre (km); metre (m); million barrels of oil equivalent (MMboe); million cubic feet per day (MMcf/d); million tonnes (Mt); million tonnes per annum (Mtpa); ounces (oz); pounds (lb); thousand barrels of oil equivalent (Mboe); thousand barrels of oil equivalent per day (Mboe/d); thousand ounces (koz); thousand standard cubic feet (Mscf); thousand tonnes (kt); thousand tonnes per annum (ktpa); thousand tonnes per day (ktpd); tonnes (t); and wet metric tonnes (wmt).

In this release, 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 as defined in note 27 'Subsidiaries' in section 5.1 of BHP's 30 June 2018 Annual Report and Form 20-F, unless stated otherwise. Notwithstanding that this release 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.

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Production summary

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Production summary

(1) LPG and ethane are reported as natural gas liquids (NGL). Product-specific conversions are made and NGL is reported in barrels of oil equivalent (boe). Total boe conversions are based on 6 bcf of natural gas equals 1 MMboe.

(2) Metal production is reported on the basis of payable metal.

(3) Shown on a 100% basis. BHP interest in saleable production is 57.5%.

(4) Includes Cerro Colorado and Spence.

(5) Iron ore production is reported on a wet tonnes basis.

(6) Shown on a 100% basis. BHP interest in saleable production is 85%.

(7) Metallurgical coal production is reported on the basis of saleable product. Production figures include some thermal coal.

(8) Shown on a 100% basis. BHP interest in saleable production is 80%.

(9) Production restated to include other nickel by-products.

Throughout this report figures in italics indicate that this figure has been adjusted since it was previously reported.

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Production and sales report