SEC Form 6-K filed by BHP Group PlcSponsored ADR

 

 

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

January 19, 2022

 

 

 

BHP GROUP 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 GROUP 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		19 January 2022
Release Number		02/22

BHP OPERATIONAL REVIEW

FOR THE HALF YEAR ENDED 31 DECEMBER 2021

Note: All guidance is subject to further potential impacts from COVID-19 during the 2022 financial year.

 

•

We remained fatality free at our operated assets for the third consecutive year.

 

•

WAIO achieved near record production for the half year and Escondida achieved record material mined, notwithstanding the impacts of significant wet weather and the COVID-19 Omicron variant on some operations.

 

•

Production guidance for the 2022 financial year remains unchanged for iron ore, energy coal and nickel. Full year total copper production is trending towards the low end of the guidance range, reflecting lower production guidance for Pampa Norte. Metallurgical coal guidance has been reduced as a result of significant wet weather impacts and COVID-19 related labour constraints.

 

•

Full year unit cost guidance(1) for WAIO, Escondida and NSWEC remains unchanged. Unit cost guidance for Queensland Coal has been increased, reflecting lower expected volumes for the full year.

 

•

Progress on the review of our lower grade metallurgical coal and thermal coal assets continues. The Cerrejón divestment to Glencore completed in January 2022 and the announced share sale agreement to divest BHP Mitsui Coal (BMC) is expected to complete in the middle of the 2022 calendar year.

 

•

Our potash major projects under development are tracking to plan. The Jansen shaft project is 98% complete and the Jansen Stage 1 project has commenced contract awards.

 

•

BHP announced a final decision to unify BHP’s corporate structure under its existing Australian parent company, BHP Group Limited. Shareholder meetings to vote on unification will be held on 20 January 2022. Subject to shareholder approval and UK Court sanction, unification is expected to complete by 31 January 2022.

 

•

Completion of the proposed merger of our Petroleum business with Woodside is expected in the June 2022 quarter subject to satisfaction of conditions precedent including approval by Woodside shareholders. The half year financial results are being prepared on the basis that the Petroleum business is a discontinued operation and restated financial information for the year ended 30 June 2021 and the half year ended 31 December 2020 is provided in Attachment 1.

 

Production		Dec H21 (vs Dec H20)				Dec Q21 (vs Sep Q21)				Dec Q21 vs Sep Q21 commentary
Copper (kt)			742.0 (12%	)			365.5 (3%	)		Lower volumes at Olympic Dam due to the planned smelter maintenance campaign, completed in January 2022. This was partially offset by higher volumes at Antamina.
Iron ore (Mt)			129.4 1%				66.1 4%			Higher volumes reflecting strong supply chain performance, increased ore car availability and the continued ramp up of South Flank. This was partially offset by the impact of temporary rail labour shortages due to COVID-19 related border restrictions.
Metallurgical coal (Mt)(2)			17.7 (8%	)			8.8 0%			Volumes flat due to double the amount of rainfall recorded in this quarter impacting most operations and planned maintenance in the previous quarter.
Energy coal (Mt)(3)			7.2 5%				3.0 (30%	)		Lower volumes due to three times the amount of rainfall in this quarter impacting stripping and mine productivity, partially offset by mining in lower strip ratio areas.
Nickel (kt)			39.3 (15%	)			21.5 21%			Higher volumes due to planned maintenance across the supply chain in the previous quarter.
Discontinued operations
Petroleum (MMboe)			53.2 5%				25.7 (7%	)		Lower volumes due to reduced seasonal gas demand at Bass Strait. This was partially offset by a Shenzi infill well brought online and higher production at North West Shelf.

Group copper equivalent production decreased by 4%(4) in the December 2021 half year largely due to lower copper and metallurgical coal volumes.

 

BHP Operational Review for the half year ended 31 December 2021		1

Summary

BHP Chief Executive Officer, Mike Henry:

“BHP was fatality free at our operated assets for the third consecutive year. Our continuing focus on people and on operational reliability enabled us to achieve near record production in iron ore and to reduce the impacts of adverse weather and COVID-19 related labour constraints in our operations. Cost control remained strong across the business, in the face of a more inflationary environment. Unit cost guidance remains intact bar a change to metallurgical coal which is a function of the lowering of production guidance as a result of significant wet weather and in anticipation of Omicron headwinds in the early part of the second half of the financial year.

We completed major planned maintenance programs in our Iron Ore, Nickel West and Olympic Dam assets. In Nickel West, we achieved first saleable production of nickel sulphate crystals from the Kwinana plant, an exciting new addition to our product suite that will further enhance our offering into the battery electric vehicle market. The ramp-up of South Flank continues to progress well. The Spence Growth project is realising lower than expected recoveries and we are studying plant design modifications in order to lift recoveries to planned levels.

We continued to progress a number of actions related to our portfolio and corporate structure. We progressed the merger of our petroleum assets with Woodside and prepared for a shareholder vote on a unified corporate structure. We advanced the Jansen potash project and announced a share sale agreement of our interest in the BHP Mitsui Coal metallurgical coal joint venture. We bolstered options in future facing commodities investing in prospective copper assets in the Northern Territory and South Australia and we secured an early stage entry into a world-scale nickel sulphide resource in Tanzania.

Overall we made good progress in positioning our portfolio and performance to deliver returns for shareholders now and into the future.”

Operational performance

Production and guidance are summarised below.

Note: All guidance is subject to further potential impacts from COVID-19 during the 2022 financial year.

 

Production		Dec H21				Dec Q21				Dec H21 vs Dec H20				Dec Q21 vs Dec Q20				Dec Q21 vs Sep Q21				Previous FY22 guidance				Current FY22 guidance
Copper (kt)			742.0				365.5				(12	%)			(15	%)			(3	%)			1,590 – 1,760				1,590 – 1,760				Low end
Escondida (kt)			488.3				244.6				(15	%)			(15	%)			0	%			1,000 – 1,080				1,020 – 1,080				Narrowed range
Pampa Norte (kt)			135.8				68.3				40	%			26	%			1	%			330 – 370				260 – 300				Lowered
Olympic Dam (kt)			43.7				14.2				(56	%)			(70	%)			(52	%)			140 – 170				140 – 150				Narrowed range
Antamina (kt)			74.2				38.4				1	%			(1	%)			7	%			120 – 140				120 – 140				Unchanged
Iron ore (Mt)			129.4				66.1				1	%			6	%			4	%			249 – 259				249 – 259
WAIO (Mt)			127.3				65.1				(1	%)			4	%			5	%			246 – 255				246 – 255				Unchanged
WAIO (100% basis) (Mt)			144.4				73.9				0	%			5	%			5	%			278 – 288				278 – 288				Unchanged
Samarco (Mt)			2.1				1.0				>100	%			>100	%			(2	%)			3 – 4				3 – 4				Unchanged
Metallurgical coal (Mt)(i)			17.7				8.8				(8	%)			(7	%)			0	%			39 – 44				38 – 41
Queensland Coal (100% basis) (Mt)			30.7				15.1				(10	%)			(11	%)			(3	%)			70 – 78				68 – 72				Lowered
Energy coal – NSWEC (Mt)			7.2				3.0				5	%			(8	%)			(30	%)			13 – 15				13 – 15				Unchanged
Energy coal – Cerrejón (Mt)(ii)			4.2				2.2				>100	%			>100	%			6	%			n/a				n/a
Nickel (kt)			39.3				21.5				(15	%)			(10	%)			21	%			85 – 95				85 – 95				Unchanged
Discontinued operations
Petroleum (MMboe)(iii)			53.2				25.7				5	%			8	%			(7	%)			99 – 106				n/a

 

(i)	We announced the share sale agreement to divest our interest in BHP Mitsui Coal (BMC) in November 2021, however will continue to report BMC as part of Queensland Coal. We maintain economic and operating control of BMC until the sale has completed.

(ii)	We have ceased providing Cerrejón production guidance due to the completion of the divestment of our interest. The transaction has an effective economic date of 31 December 2020 and volumes have been reported separately.

(iii)

Given our announcement of a binding share sale agreement for the merger of BHP’s oil and gas portfolio with Woodside in November 2021, no further annual production guidance for FY22 for Petroleum will be provided. However, until merger completion, we expect a production run rate broadly consistent with the original FY22 production guidance of between 99 and 106 MMboe.

 

BHP Operational Review for the half year ended 31 December 2021		2

Summary of disclosures

BHP expects its December 2021 half year financial results 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 15 February 2022. Accordingly the information in the table below contains preliminary information that is subject to update and finalisation.

 

Description		H1 FY22 impact US$M(i)				Classification(ii)
Unit costs for WAIO, Escondida and NSWEC are expected to be in line with full year guidance (at guidance exchange rates), with WAIO tracking towards the bottom end of guidance Note: weaker Australian dollar and Chilean peso than guidance rates in the period(iii)			—			Operating costs
Unit cost guidance for Queensland Coal has been increased to between US$85 and US$94 per tonne (at guidance exchange rates), reflecting lower expected volumes for the full year			—			h Operating costs
Exploration expense (minerals exploration programs)			80			Exploration expense
Higher depreciation and amortisation mainly at WAIO following South Flank commissioning and prior period update of closure provision at Yandi.			425 – 475			h Depreciation, amortisation and impairments
The Group’s adjusted effective tax rate for H1 FY22 is expected to be slightly below the full year guidance range of 32 to 37 per cent given Petroleum will be presented as a discontinued operation. An updated guidance range will be provided in the half year financial results			—			Taxation expense
Working capital movements relating to royalties, inventory builds, net price impacts on receivables and other movements.			2,000 – 2,500			¯ Operating cash inflow
Dividends received from Cerrejón			~240	(iv)		h Operating cash inflow
Dividends paid to non-controlling interests			~1,250			h Financing cash outflow
Impairment of US deferred tax assets no longer expected to be recoverable after the Petroleum merger (after tax)			400 – 450			h Exceptional item charge
Financial impact on BHP Brasil of the Samarco dam failure			Refer footnote	(v)		h Exceptional item charge

 

(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, unless otherwise noted.

(iii)

Average exchange rates for H1 FY22 of AUD/USD 0.73 (guidance rate AUD/USD 0.78) and USD/CLP 798 (guidance rate USD/CLP 727).

(iv)

There will be no net income statement impact in relation to Cerrejón for H1 FY22. While the dividends received will be recognised as other income, the associated adjustment to the proceeds to be received on sale completion results in an offsetting expense to reflect the reduction in the carrying value of the Cerrejón assets held for sale.

(v)	Financial impact is the subject of ongoing work and is not yet finalised. See corporate update section for further information on Samarco.

The December 2021 half year financial results are being prepared on the basis that BHP Petroleum will be reported as a discontinued operation. BHP Petroleum will be excluded from the consolidated Income Statement and will not be included when calculating the minimum dividend payout. BMC will continue to be consolidated with Queensland Coal as a continuing operation until the expected completion in the middle of the 2022 calendar year. On the Balance Sheet, both BMC and BHP Petroleum will be reclassified as assets held for sale and excluded from net operating assets.

Major development projects

At the end of December 2021, BHP had two major projects under development, the US$2.97 billion Jansen mine shafts project and the US$5.7 billion Jansen Stage 1 project.

 

BHP Operational Review for the half year ended 31 December 2021		3

Average realised prices

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

 

Average realised prices(i)		Dec H21				Dec H20				Jun H21				FY21				Dec H21 vs Dec H20				Dec H21 vs Jun H21				Dec H21 vs FY21
Copper (US$/lb)			4.31				3.32				4.34				3.81				30	%			(1	%)			13	%
Iron ore (US$/wmt, FOB)			113.54				103.78				158.17				130.56				9	%			(28	%)			(13	%)
Metallurgical coal (US$/t)			259.71				97.61				114.81				106.64				166	%			126	%			144	%
Hard coking coal (US$/t)(ii)			278.60				106.30				118.54				112.72				162	%			135	%			147	%
Weak coking coal (US$/t)(ii)			218.65				73.17				104.40				89.62				199	%			109	%			144	%
Thermal coal (US$/t)(iii)			137.68				44.35				70.83				58.42				210	%			94	%			136	%
Nickel metal (US$/t)			19,651				15,140				17,537				16,250				30	%			12	%			21	%
Discontinued operations
Oil (crude and condensate) (US$/bbl)			74.26				41.40				63.05				52.56				79	%			18	%			41	%
Natural gas (US$/Mscf)(iv)			5.80				3.83				4.86				4.34				51	%			19	%			34	%
LNG (US$/Mscf)			15.10				4.45				7.04				5.63				239	%			114	%			168	%

 

(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)

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.

(iii)

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

(iv)	Includes internal sales.

The large majority of iron ore shipments were linked to index pricing for the month of shipment, with price differentials predominantly a reflection of market fundamentals and product quality. Iron ore sales were based on an average moisture rate of 7.2 per cent. The large majority of metallurgical coal and energy coal exports were linked to index pricing for the month of shipment or sold on the spot market at fixed or index-linked prices, with price differentials reflecting product quality. The majority of copper cathodes sales were linked to index pricing for quotation periods one month after the month of shipment, and three to four months after the month of shipment for copper concentrates sales with price differentials applied for location and treatment costs. The large majority of oil sales were linked to West Texas intermediate (WTI) or Brent based indices, with differentials applied for quality, locational and transportation costs.

At 31 December 2021, the Group had 333 kt of outstanding copper sales that were revalued at a weighted average price of US$4.42 per pound. The final price of these sales will be determined over the remainder of the 2022 financial year. In addition, 323 kt of copper sales from the 2021 financial year were subject to a finalisation adjustment in the current period. The provisional pricing and finalisation adjustments will increase Underlying EBITDA(5) by US$11 million in the December 2021 half year and are included in the average realised copper price in the above table.

Corporate update

Portfolio

In November 2021, BHP announced it had signed a Share Sale and Purchase Agreement with Stanmore Resources Limited to divest its 80 per cent interest in BHP Mitsui Coal Pty Ltd (BMC), an operated metallurgical coal joint venture in Queensland. The purchase price comprises US$1.1 billion cash on completion, US$100 million in cash six months after completion and the potential for up to US$150 million in a price-linked earn-out payable in the 2024 calendar year. Completion is expected in the middle of the 2022 calendar year subject to the satisfaction of certain conditions, including customary competition and regulatory conditions.

In November 2021, BHP signed a binding Share Sale Agreement for the merger of BHP’s oil and gas portfolio with Woodside to create a global top 10 independent energy company by production. It is proposed that Woodside will acquire BHP Petroleum in exchange for new Woodside shares. Completion of the merger is subject to satisfaction of conditions precedent including regulatory and competition authority approvals and approval by Woodside’s shareholders. The process remains on track and the Australian Competition and Consumer Commission provided informal clearance of the merger in December 2021. The Woodside shareholder meeting to vote on the merger as well as completion of the merger is targeted for the June 2022 quarter. In addition to its primary listing on the Australian Securities Exchange, Woodside is pursuing a standard listing on the London Stock Exchange and a listing of American Depositary Receipts on the New York Stock Exchange.

 

BHP Operational Review for the half year ended 31 December 2021		4

In December 2021, BHP announced a final decision to unify BHP’s corporate structure under its existing Australian parent company, BHP Group Limited. The Board believes that unification is in the best interests of BHP shareholders. Unification will create a corporate structure that is simpler and more efficient, reduces duplication and streamlines BHP’s governance and internal processes. Shareholder meetings of BHP Group Limited and BHP Group Plc will take place on 20 January 2022 to approve unification. Unification is expected to complete by 31 January 2022 subject to shareholder approval of both BHP Group Limited and BHP Group Plc and UK Court sanction of the scheme.

In December 2021, BHP announced it would not increase or extend its offer to acquire Noront Resources. BHP is committed to its strict capital discipline framework and while the Eagle’s Nest deposit is a promising resource, we do not see adequate long-term value for BHP shareholders to support an increase in BHP’s offer to match the proposal from Wyloo Metals Pty Ltd.

In December 2021, BHP advanced its early-stage nickel interests by agreeing to invest in the Kabanga Nickel Project (Kabanga), a high-quality nickel sulphide deposit in Tanzania. Kabanga is a joint venture between Kabanga Nickel Limited (84 per cent interest) and the Government of Tanzania (16 per cent). BHP has made an initial investment of US$40 million in Kabanga, which will convert into an 8.9 per cent equity stake in Kabanga Nickel Limited once approvals and conditions are met. The proceeds will be used to accelerate drilling and study work. Further investments, including a second tranche of US$50 million, have been agreed in principle subject to the parties agreeing definitive documentation and certain other conditions. In parallel, BHP has invested US$10 million in Lifezone Limited to progress its low-carbon hydrometallurgical processing technology.

In January 2022, BHP completed the sale to Glencore of its 33.3 per cent interest in the Cerrejón joint venture in Colombia. The transaction was first announced on 29 June 2021 for a total cash consideration of US$294 million.

Samarco

Samarco’s Judicial Reorganisation process is continuing in the Commercial Courts of Belo Horizonte, State of Minas Gerais. The Judicial Reorganisation is a process for Samarco to restructure its financial debts in order to establish a sustainable independent financial position that would allow Samarco to continue its operations safely and meet its Renova Foundation obligations. BHP Brasil will continue to support Samarco in this process.

Negotiations are ongoing with State and Federal Prosecutors and certain other Brazilian public authorities in relation to the review of the Framework Agreement. The Framework Agreement was entered into between Samarco, Vale and BHP Brasil and the relevant Brazilian authorities in March 2016 and established the Renova Foundation to develop and implement environmental and socio-economic programs to remediate and provide compensation for damage caused by the Samarco dam failure.

In October 2021, the 12th Federal Court delivered a ruling that expanded the scope of eligible individuals of the court mandated compensation process (“Novel System”), extended its geographical scope and increased indemnification amounts for certain categories of damage. The decision is under appeal and applications have been made to clarify certain aspects of the ruling. BHP is currently reviewing the impact of the 12th Federal Court’s decision on the Group’s provision for the Samarco dam failure and it is possible that the provision could materially increase.

In December 2021, BHP agreed to fund US$700 million in further financial support for the Renova Foundation, which will be offset against the Group’s provision for the Samarco dam failure. Further funding requirements for the period to 31 December 2022 continue to be assessed and, will be subject to future approval by BHP.

We will provide an update to the ongoing potential financial impacts on BHP Brasil of the Samarco dam failure with the release of the financial results on 15 February 2022. Any financial impacts will continue to be treated as an exceptional item.

 

BHP Operational Review for the half year ended 31 December 2021		5

Copper

Production

 

		Dec H21				Dec Q21				Dec H21 vs Dec H20				Dec Q21 vs Dec Q20				Dec Q21 vs Sep Q21
Copper (kt)			742.0				365.5				(12	%)			(15	%)			(3	%)
Zinc (t)			62,892				29,603				(18	%)			(29	%)			(11	%)
Uranium (t)			818				287				(55	%)			(70	%)			(46	%)

Copper – Total copper production decreased by 12 per cent to 742 kt. Full year production is trending towards the low end of the guidance range for the 2022 financial year, which reflects lower production guidance at Pampa Norte, and narrowed guidance ranges for Escondida and Olympic Dam. Volumes will be weighted to the second half of the financial year as expected.

Uncertainty around impacts from COVID-19 remains as the pandemic evolves, despite an improved operating environment for our Chilean assets in the December 2021 half year due to high COVID-19 vaccination rates and continued use of successful control measures at our operating sites.

Escondida copper production decreased by 15 per cent to 488 kt due to concentrator feed grade decline despite a record performance for material mined. Guidance for the 2022 financial year has been narrowed to between 1,020 and 1,080 kt as concentrator feed grade is expected to improve in the June 2022 half year as the mine sequence moves towards higher grade areas. Concentrator feed grade decline remains forecasted at approximately two per cent for the 2022 financial year. Medium term guidance of an annual average of 1.2 Mt of copper production over the next five years remains unchanged, with production expected to be weighted towards the latter years.

Pampa Norte copper production increased by 40 per cent to 136 kt, reflecting the continued ramp up of the Spence Growth Option (SGO), partially offset by the impact of planned lower ore stacking grade, which is expected to decline by approximately 10 per cent for the 2022 financial year. SGO demonstrated full concentrator throughput of 95 ktpd in the December 2021 quarter. Guidance for the 2022 financial year has been reduced from between 330 and 370 kt to between 260 and 300 kt, as the result of a fatality at the third party desalination plant which impacted Spence operations, operational uncertainty related to Cerro Colorado water access and licencing, including water extraction, and lower than expected recoveries at SGO. Plant design modifications, including modifications to the rougher floatation circuit will be required to increase SGO recoveries to achieve planned copper production levels. The Spence guidance to average 300 ktpa (including cathodes) in the first four years of production will be subject to the timing of these modifications being completed.

Olympic Dam copper production decreased by 56 per cent to 44 kt as a result of the major smelter maintenance campaign in the period. The maintenance campaign was completed in January 2022 and ramp up to full capacity is now expected by April 2022 (previously March 2022), due to COVID-19 impacts on the availability of workforce. The full scope of the maintenance campaign was delivered, including the rebuild of the flash furnace and its ancillary equipment and refurbishment of the acid plant, which has resulted in significant plant improvements. Guidance for the 2022 financial year has been narrowed to between 140 and 150 kt as production is trending towards the low end of the original guidance range.

Antamina copper production increased by one per cent to 74 kt reflecting higher copper head grades and zinc production decreased by 18 per cent to 63kt reflecting lower zinc head grades. Guidance remains unchanged for the 2022 financial year, with copper production of between 120 and 140 kt, and zinc production of between 115 and 130 kt.

 

BHP Operational Review for the half year ended 31 December 2021		6

Iron Ore

Production

 

		Dec H21				Dec Q21				Dec H21 vs Dec H20				Dec Q21 vs Dec Q20				Dec Q21 vs Sep Q21
Iron ore production (kt)			129,401				66,102				1	%			6	%			4	%

Iron ore – Total iron ore production increased by one per cent to 129 Mt. Guidance for the 2022 financial year remains unchanged at between 249 and 259 Mt.

WAIO finished the half year at near record production levels at 127 Mt (144 Mt on a 100 per cent basis), despite impacts of temporary labour constraints relating to COVID-19 border restrictions and the planned major maintenance on car dumper one and the Jimblebar train load out. This reflects continued strong supply chain performance including higher car dumper performance and improved rail cycle times. South Flank ramp up to full production capacity of 80 Mtpa (100 per cent basis) over three years remains on track with a peak rate of 45 Mtpa achieved in the half year contributing to record lump sales. In December 2021, we approved the South Flank Autonomous Haulage Project to automate the current fleet of Komatsu haul trucks. The project is scheduled to commence in the June 2022 quarter and is expected to be completed within 18 months. The proposed easing of Western Australia’s border restrictions on 5 February 2022 may introduce some short-term disruption to the operating environment as the COVID-19 pandemic evolves in the state.

Samarco production was 2.1 Mt (BHP share), following the recommencement of iron ore pellet production at one concentrator in December 2020. Guidance of between 3 and 4 Mt (BHP share) remains unchanged for the 2022 financial year.

Coal

Production

 

		Dec H21				Dec Q21				Dec H21 vs Dec H20				Dec Q21 vs Dec Q20				Dec Q21 vs Sep Q21
Metallurgical coal (kt)(2)			17,668				8,818				(8	%)			(7	%)			0	%
Energy coal (kt)(3)			7,205				2,967				5	%			(8	%)			(30	%)

Metallurgical coal – Metallurgical coal production decreased by eight per cent to 18 Mt (31 Mt on a 100 per cent basis). Guidance for the 2022 financial year has been reduced to between 38 and 41 Mt (68 and 72 Mt on a 100 per cent basis) from between 39 and 44 Mt (70 and 78 Mt on a 100 per cent basis). The revision is a result of significant La Niña related wet weather impacts during the December 2021 quarter coupled with COVID-19 related labour constraints. Workforce absenteeism arising from the COVID-19 Omicron variant is anticipated to continue into the early part of the second half of the 2022 financial year.

Queensland Coal production decreased due to significant wet weather, with double the amount of rainfall, coupled with COVID-19 related labour constraints impacting stripping and mine productivity across most operations. A longwall move was successfully executed at Broadmeadow and the Caval Ridge wash plant maintenance was also completed on time during the December 2021 quarter.

Following the recent easing of Queensland’s border restrictions, COVID-19 related absenteeism has increased and remains a risk for the remainder of the year.

Energy coal – Energy coal production increased by five per cent to 7 Mt. Guidance for the 2022 financial year remains unchanged at between 13 and 15 Mt. The divestment of our interest in Cerrejón was completed in January 2022 and Cerrejón volumes are no longer included in energy coal guidance.

NSWEC production increased as a result of increased stripping volumes enabled by continued truck productivity and mining in lower strip ratio areas, despite increased rainfall and COVID-19 related impacts. High quality products now make up approximately 80 per cent of sales compared to approximately 60 per cent of sales in the prior period.

 

BHP Operational Review for the half year ended 31 December 2021		7

Other

Nickel production

 

		Dec H21				Dec Q21				Dec H21 vs Dec H20				Dec Q21 vs Dec Q20				Dec Q21 vs Sep Q21
Nickel (kt)			39.3				21.5				(15	%)			(10	%)			21	%

Nickel – Nickel West production decreased by 15 per cent to 39 kt, reflecting planned maintenance at the Kalgoorlie Smelter, Kwinana Refinery and the Leinster and Kambalda concentrators in the September 2021 quarter, and planned asset integrity work to support operational stability completed in the December 2021 quarter. Guidance for the 2022 financial year remains unchanged at between 85 and 95 kt, with volumes weighted towards the second half of the financial year. The first batch of nickel sulphate crystals were produced in the September 2021 quarter and customer certification continues. First saleable production was achieved in the December 2021 quarter.

Potash

Projects

 

Project and ownership		Capital expenditure US$M				Initial production target date		Capacity		Progress
Jansen Potash (Canada) 100%			2,972			CY27		Investment to finish the excavation and lining of the production and service shafts, and to continue the installation of essential surface infrastructure and utilities.		The project is 98% complete. Target project completion in CY22.
Jansen Stage 1 (Canada) 100%			5,723			CY27		Design, engineering and construction of an underground potash mine and surface infrastructure, with capacity to produce 4.35 Mtpa.		Approved in August 2021, project is 3% complete

Minerals exploration

Minerals exploration expenditure for the December 2021 half year was US$110 million, of which US$80 million was expensed. We have continued to add to our early stage options in future facing commodities. Greenfield minerals exploration is being undertaken on advancing copper targets in Chile, Ecuador, Mexico, Peru, Canada, Australia and the south-west United States. Nickel targets are also being advanced in Canada and Australia. Specifically in copper, we are undertaking target drilling in Chile, Ecuador and the United States while further drilling is underway in Australia.

In October 2021, BHP executed its farm-in agreement for the early-stage prospective Elliott copper project covering 7,200 km2 in the Northern Territory, Australia. Under the terms of the agreement, BHP can earn up to 75 per cent interest in Elliott by spending up to A$25 million over 10 years.

Also in October 2021, BHP exercised its option to form an exploration joint venture with Red Tiger Resources for the Intercept Hill copper project, which borders Oak Dam in South Australia.

At Oak Dam in South Australia, BHP is continuing next stage resource definition drilling, after commencing the program in May 2021.

In December 2021, BHP advanced its early-stage nickel interests by investing in the Kabanga Nickel Project (Kabanga), a high-quality nickel sulphide deposit in Tanzania. Kabanga is a joint venture between Kabanga Nickel Limited (84 per cent interest) and the Government of Tanzania (16 per cent).

 

BHP Operational Review for the half year ended 31 December 2021		8

Discontinued operations - Petroleum

Production

 

		Dec H21				Dec Q21				Dec H21 vs Dec H20				Dec Q21 vs Dec Q20				Dec Q21 vs Sep Q21
Crude oil, condensate and natural gas liquids (MMboe)			25.1				12.3				13	%			15	%			(3	%)
Natural gas (bcf)			168.5				80.1				(1	%)			2	%			(9	%)
Total petroleum production (MMboe)			53.2				25.7				5	%			8	%			(7	%)

BHP announced on 22 November 2021 a binding share sale agreement for the proposed merger of BHP’s oil and gas portfolio with Woodside. Completion of the merger is expected in the June 2022 quarter subject to satisfaction of conditions precedent including approval by Woodside shareholders. The effective date of the merger is 1 July 2021. The half year financial results are being prepared on the basis that BHP Petroleum is a discontinued operation.

Total petroleum production increased by 5 per cent to 53 MMboe. No further guidance for the 2022 financial year will be provided for Petroleum given the business will be presented as a discontinued operation. However, until merger completion, we expect a production run rate broadly consistent with the original 2022 financial year production guidance of between 99 and 106 MMboe.

Crude oil, condensate and natural gas liquids production increased by 13 per cent to 25 MMboe, reflecting the additional 28 percent working interest acquired in Shenzi in November 2020, increased volumes from Ruby following first production in May 2021, and lower impact from weather events in the Gulf of Mexico, partially offset by natural field decline across the portfolio.

Natural gas production decreased by one per cent to 169 bcf, reflecting decreased production at North West Shelf and natural field decline across the portfolio, partially offset by increased volumes from Ruby and higher seasonal demand for gas at Bass Strait.

Projects

 

Project and ownership		Capital expenditure US$M		Initial production target date		Capacity		Progress
Mad Dog Phase 2 (US Gulf of Mexico) 23.9% (non-operator)		2,154		Mid-CY22		New floating production facility with the capacity to produce up to 140,000 gross barrels of oil equivalent per day.		On schedule and budget. The overall project is 97% complete.
Shenzi North development (US Gulf of Mexico) 72% (operator)		392		CY24		A two-well subsea tie-in to the Shenzi platform, with the capacity to produce up to 30,000 gross barrels of oil equivalent per day.		On schedule and budget. The overall project is 5% complete.
Scarborough (Western Australia) 26.5% (non-operator)		1,500		CY26		New upstream facilities designed to deliver daily gas quantities to manufacture 8 Mtpa LNG and 180 TJ/day of domestic gas.		Sanctioned in November 2021. On schedule and budget. The overall project is 10% complete.

On 22 November 2021, we announced the approval of US$1.5 billion in capital expenditure for development of the Scarborough upstream project located in the North Carnarvon Basin, Western Australia. The approved capital expenditure represents BHP’s 26.5 per cent participating interest in Phase 1 of the upstream development. Final investment decisions have also been made by Woodside and the Scarborough Joint Venture.

In the December 2021 quarter, we completed the Ruby project in Trinidad & Tobago. The project was completed on schedule and within budget, and the Ruby field is currently producing both oil and gas.

The Mad Dog Phase 2 project’s semi-submersible platform, Argos, was towed to final location in the US Gulf of Mexico and moored. Offshore execution of construction and commissioning is in progress. First production from Mad Dog Phase 2 is expected from mid-calendar year 2022.

In December 2021, we reached a commercial milestone with the Trion project in Mexico with the filing of a Declaration of Commerciality with the National Hydrocarbons Commission. As announced in August 2021, we have moved Trion into the Front End Engineering Design (FEED) phase and work is progressing to plan. Studies are underway, focused on completion of the engineering, commercial arrangements and execution planning required to progress readiness for a Final Investment Decision from mid-calendar year 2022.

 

BHP Operational Review for the half year ended 31 December 2021		9

Petroleum exploration

Exploration and appraisal wells drilled during the December 2021 quarter are summarised below.

 

Well

Location

Target

Formation age

BHP equity

Spud date

Water depth

Total well depth

Status

Bongos-3X

Trinidad & Tobago Block TTDAA 14

Gas

Late Miocene

70% (BHP Operator)

27 July 2021

2,114 m

5,174 m

Hydrocarbons encountered

Bongos-3X ST01

Trinidad & Tobago Block TTDAA 14

Gas

Late Miocene

70% (BHP Operator)

27 July 2021

2,114 m

5,169 m

Hydrocarbons encountered

Bongos-4

Trinidad & Tobago Block TTDAA 14

Gas

Late Miocene

70% (BHP Operator)

6 August 2021

2,177 m

5,163 m

Hydrocarbons encountered

Wasabi-1

Gulf of Mexico GC124

Oil

Early Miocene

75% (BHP Operator)

7 October 2021

764 m

2,673 m

Plugged and abandoned

Wasabi-2

Gulf of Mexico GC124

Oil

Early Miocene

75% (BHP Operator)

17 November 2021

764 m

6,895 m

Drilling ahead(i)

 

(i)	Well depth and status as at 31 December 2021.

In Trinidad and Tobago, the Calypso appraisal drilling programme concluded on 20 December 2021. All wells encountered hydrocarbons. Bongos-3 confirmed volumes downdip of prior penetrations and Bongos-4 established volumes in a new segment. The well results are currently under evaluation and will be incorporated into the development plan.

In the central Gulf of Mexico, the Wasabi-1 well encountered a mechanical difficulty and was plugged and abandoned on 13 November 2021. Wasabi-2 (GC124-002) was spud on 17 November 2021 and drilling operations continue.

In Barbados, a 3D seismic survey was acquired in November 2021 over a portion of the Bimshire and Carlisle Bay blocks(6). Processed data is expected to be delivered in mid-calendar year 2022.

BHP has acquired interests in offshore exploration blocks in the Red Sea in Egypt. In December 2021, the Minister of Energy in Egypt signed the Deed of Assignment for Red Sea Block 1, finalising the assignment of a 45 per cent participating interest from Chevron to BHP. The effective date of the transfer is 12 September 2021. This follows a separate agreement with Shell in March 2021 for BHP to acquire a 30 and 25 per cent non-operated working interest in Egypt’s Red Sea Blocks 3 and 4, respectively. The effective date of BHP’s participation in Blocks 3 and 4 is pending final government approvals.

Petroleum exploration expenditure for the December 2021 half year was US$243 million, of which US$112 million was expensed. An approximately US$540 million exploration and appraisal program is being executed for the 2022 financial year.

 

BHP Operational Review for the half year ended 31 December 2021		10

Variance analysis relates to the relative performance of BHP and/or its operations during the December 2021 half year compared with the December 2020 half 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 is based on 2021 financial year average realised prices.

The following footnotes apply to this Operational Review:

 

(1)	2022 financial year unit cost guidance: Escondida US$1.20-1.40/lb, WAIO US$17.50-18.50/t, Queensland Coal US$85-94/t and NSWEC US$62-70/t; based on exchange rates of AUD/USD 0.78 and USD/CLP 727.

 

(2)	We announced the divestment of our interest in BMC in November 2021, however will continue to report BMC production as part of Queensland Coal. We maintain economic and operating control of BMC until the sale has completed.

 

(3)	We have ceased providing Cerrejón production guidance due to the completion of the divestment of our interest. The transaction has an effective economic date of 31 December 2020 and volumes have been reported separately.

 

(4)	Excludes Petroleum production.

 

(5)

Underlying EBITDA is used to help assess current operational profitability excluding the impacts of sunk costs (i.e. depreciation from initial investment). Underlying EBITDA is earnings before net finance costs, depreciation, amortisation and impairments, taxation expense, discontinued operations and exceptional items. Underlying EBITDA includes BHP’s share of profit/(loss) from investments accounted for using the equity method including net finance costs, depreciation, amortisation and impairments and taxation expense/(benefit).

 

(6)	Permission for survey granted by the Barbados Ministry of Energy.

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 barrels of oil per day (MMbpd); 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’, the ‘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 30 ‘Subsidiaries’ in section 3.1 of BHP’s 30 June 2021 Annual Report and Form 20-F. Those terms do not include non-operated assets. 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. Our non-operated assets include Antamina, Cerrejón, Samarco, Atlantis, Mad Dog, Bass Strait and North West Shelf. BHP Group cautions against undue reliance on any forward-looking statement or guidance in this release, particularly in light of the current economic climate and significant volatility, uncertainty and disruption arising in connection with COVID-19. These forward looking statements are based on information available as at the date of this release and are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and which may cause actual results to differ materially from those expressed in the statements contained in this release.

 

BHP Operational Review for the half year ended 31 December 2021		11

Further information on BHP can be found at: bhp.com

Authorised for lodgement by:

Stefanie Wilkinson

Group Company Secretary

 

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BHP Operational Review for the half year ended 31 December 2021		12

Production summary

						Quarter ended																				Year to date
		BHP interest				Dec 2020				Mar 2021				Jun 2021				Sep 2021				Dec 2021				Dec 2021				Dec 2020
Copper (1)
Copper
Payable metal in concentrate (kt)
Escondida (2)			57.5	%			236.7				202.7				195.6				194.7				196.2				390.9				473.4
Pampa Norte (3)			100.0	%			0.7				5.6				21.1				26.4				24.2				50.6				0.7
Antamina			33.8	%			38.6				34.7				36.1				35.8				38.4				74.2				73.2
Total							276.0				243.0				252.8				256.9				258.8				515.7				547.3
Cathode (kt)
Escondida (2)			57.5	%			50.9				46.6				51.1				49.0				48.4				97.4				98.8
Pampa Norte (3)			100	%			53.6				46.4				48.3				41.1				44.1				85.2				96.1
Olympic Dam			100	%			47.6				55.4				50.8				29.5				14.2				43.7				99.1
Total							152.1				148.4				150.2				119.6				106.7				226.3				294.0
Total copper (kt)							428.1				391.4				403.0				376.5				365.5				742.0				841.3
Lead
Payable metal in concentrate (t)
Antamina			33.8	%			993				468				381				378				277				655				1,683
Total							993				468				381				378				277				655				1,683
Zinc
Payable metal in concentrate (t)
Antamina			33.8	%			41,909				33,299				35,483				33,289				29,603				62,892				76,307
Total							41,909				33,299				35,483				33,289				29,603				62,892				76,307
Gold
Payable metal in concentrate (troy oz)
Escondida (2)			57.5	%			47,789				37,954				38,893				41,962				42,937				84,899				90,121
Pampa Norte (3)			100	%			—				—				4,728				6,967				5,776				12,743				—
Olympic Dam (refined gold)			100	%			23,837				37,075				48,478				26,277				37,805				64,082				60,445
Total							71,626				75,029				92,099				75,206				86,518				161,724				150,566
Silver
Payable metal in concentrate (troy koz)
Escondida (2)			57.5	%			1,627				1,318				1,234				1,291				1,462				2,753				3,207
Pampa Norte (3)			100	%			—				—				214				273				215				488				—
Antamina			33.8	%			1,767				1,463				1,409				1,367				1,308				2,675				3,093
Olympic Dam (refined silver)			100	%			193				275				185				191				258				449				350
Total							3,587				3,056				3,042				3,122				3,243				6,365				6,650
Uranium
Payable metal in concentrate (t)
Olympic Dam			100	%			945				834				614				531				287				818				1,819
Total							945				834				614				531				287				818				1,819
Molybdenum
Payable metal in concentrate (t)
Pampa Norte (3)			100	%			—				—				—				—				—				—				—
Antamina			33.8	%			192				276				111				142				217				359				476
Total							192				276				111				142				217				359				476

 

BHP Operational Review for the half year ended 31 December 2021		13

Production summary
						Quarter ended																				Year to date
		BHP interest				Dec 2020				Mar 2021				Jun 2021				Sep 2021				Dec 2021				Dec 2021				Dec 2020
Iron Ore
Iron Ore
Production (kt) (4)
Newman			85	%			17,637				14,614				14,560				16,461				14,577				31,038				34,047
Area C Joint Venture			85	%			11,567				13,010				15,920				18,947				22,911				41,858				23,456
Yandi Joint Venture			85	%			16,413				16,112				18,405				11,834				12,261				24,095				34,079
Jimblebar (5)			85	%			16,740				15,241				15,337				15,009				15,324				30,333				36,815
Samarco			50	%			37				878				1,023				1,048				1,029				2,077				37
Total							62,394				59,855				65,245				63,299				66,102				129,401				128,434
Coal
Metallurgical coal
Production (kt) (6)
BMA			50	%			7,539				7,727				9,253				6,715				6,300				13,015				14,904
BHP Mitsui Coal (7)(8)			80	%			1,983				1,863				2,570				2,135				2,518				4,653				4,308
Total							9,522				9,590				11,823				8,850				8,818				17,668				19,212
Energy coal
Production (kt)
NSW Energy Coal			100	%			3,229				2,981				4,492				4,238				2,967				7,205				6,853
Total							3,229				2,981				4,492				4,238				2,967				7,205				6,853
Production (kt)
Cerrejón			33.3	%			347				1,795				1,784				2,060				2,176				4,236				1,385
Total							347				1,795				1,784				2,060				2,176				4,236				1,385
Other
Nickel
Saleable production (kt)
Nickel West			100	%			24.0				20.4				22.4				17.8				21.5				39.3				46.2
Total							24.0				20.4				22.4				17.8				21.5				39.3				46.2
Cobalt
Saleable production (t)
Nickel West			100	%			236				273				241				177				220				397				474
Total							236				273				241				177				220				397				474
Discontinued operations
Petroleum (9)
Production
Crude oil, condensate and NGL (Mboe)							10,729				11,601				12,205				12,751				12,345				25,096				22,236
Natural gas (bcf)							78.5				82.6				88.6				88.4				80.1				168.5				169.4
Total (Mboe)							23,812				25,368				26,972				27,484				25,695				53,179				50,469

 

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

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

(3)	Includes Cerro Colorado and Spence.

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

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

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

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

(8)	We announced the divestment of our interest in BHP Mitsui Coal (BMC) in November 2021, but will continue to report BMC as part of Queensland Coal as we maintain economic and operating control of BMC until the sale has completed.

(9)	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 1,000 Mboe.

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

 

BHP Operational Review for the half year ended 31 December 2021		14