BBL BHP Group Plc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

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NEWS RELEASE

BHP RESULTS AND STRATEGIC UPDATE

GROWING VALUE AND POSITIONING FOR THE FUTURE

FINANCIAL YEAR ENDED 30 JUNE 2021

BHP delivered a strong set of results for the 2021 financial year, with a safe and reliable operational performance and strong financial returns. On the back of these results, the Board has announced a record final dividend of US$2.00 per share, bringing BHP’s returns to shareholder to more than US$15 billion for the full year.

Our strategy is to deliver long-term value and returns through the cycle. We aim to do this through owning a portfolio of world class assets with exposure to highly attractive commodities which benefit from the mega-trends playing out in the world around us, by operating them exceptionally well, by maintaining a disciplined approach to capital allocation and through being industry leaders in sustainability and the creation of social value.

As the world continues to evolve, BHP is positioning itself to benefit from the mega-trends and through sustainability leadership.

To this end, today we have announced:

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News release

BHP Results for the year ended 30 June 2021

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

Keeping our people and communities safe

Operational excellence: Strong operational performance and free cash flow generation, with a margin of 64%

Disciplined capital allocation: Four major projects delivered and early stage options added    

Value and returns: Consistently high cash returns, US$15.2 billion of total announced returns to shareholders

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BHP Results for the year ended 30 June 2021

Strategic Update

Investment in the Jansen Stage 1 potash project which is aligned with our strategy of growing our exposure to future facing commodities in world class assets

Agreement to pursue a merger of our Petroleum business with Woodside to create a global top 10 independent energy company with a large-scale portfolio of producing, development and exploration assets

Intention to unify our corporate structure under BHP’s existing Australian parent company to drive simplicity and flexibility

Additional information included on pages 17 to 21.

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News release

Delivering strong performance

BHP delivered a strong set of results for the 2021 financial year. We were safe, more reliable and more productive, and we increased our efforts to pursue further improvements in our safety and wellbeing performance. We have now had over two and a half years without a fatality at our operated assets and we have seen a sustained improvement in our key safety performance indicators. High Potential Injury frequency has decreased by 17 per cent during the year and a reduction of 35 per cent since the 2019 financial year. Total Recordable Injury Frequency has continued to decline, down 11 per cent during the year to 3.7^(vi), and a reduction of 21 per cent over the last two years. Our two largest assets, Western Australia Iron Ore and our Escondida copper mine have continued to deliver production and throughput respectively at record levels, as did Olympic Dam which achieved the highest annual copper production since BHP acquired the asset in 2005 and the highest gold production ever for the operation. When combined with our strong reliability and disciplined cost control, this has helped us to benefit from record high iron ore and copper prices.

We generated record free cash flow, return on capital employed strengthened to 32.5 per cent and our balance sheet is strong, with net debt finishing the year at US$4.1 billion. On the back of these results, the Board has announced a record final dividend of US$2.00 per share, bringing BHP’s returns to shareholder to more than US$15 billion for the full year, and more than US$38 billion over the past three years.

We are continuing to unlock even greater performance from our equipment and infrastructure through enabling our people and investing in capability. We continue to build a more inclusive and diverse workforce to further enhance performance excellence. This includes our aspirational goal of a gender balanced workforce by 2025. We had 48 per cent female external hires during the year, which has resulted in a material increase of female representation⁽ⁱ⁾ in the workforce, up three percentage points to 29.8 per cent. The Executive Leadership Team established last year has 50 per cent female representation.

We are reliably delivering our major growth and sustaining capital projects in copper, iron ore and petroleum, with all major projects during the year executed on time and on budget despite COVID-19 challenges. The Spence Growth Option (SGO) copper project and the South Flank iron ore sustaining project, which will contribute to improved grade and increased lump in our iron ore product suite, both began production and are ramping up. In Petroleum, the Atlantis Phase 3 and Ruby growth projects both started producing over the last 12 months, and we completed the counter-cyclical acquisition of an additional interest in the Shenzi asset. In nickel and copper, we have established further exploration partnerships, acquired new tenements and progressed greenfield exploration.

In addition to strengthening economic growth, in the past year we have seen growing national ambitions and some positive steps towards overcoming the challenge of climate change. This is aligned with, and has reinforced, our perspective on the unfolding mega-trends of decarbonisation, electrification, population growth and the drive for higher living standards in the developing world, which we see becoming key drivers of commodity demand. We expect our diversified portfolio to be resilient under a number of different long-term scenarios, and in fact, that many of our commodities would further benefit from an accelerated decarbonisation pathway^(vii). We continue to pursue opportunities to further strengthen our portfolio and our exposure to these long-term trends.

We have invested through the cycle in high returning growth projects, and in options for future development and value creation in copper, nickel, oil and potash through innovation, exploration, early stage investment and development. Creating and securing more options in future facing commodities remains a priority.

Creating social value

We are committed to creating long-term value for our shareholders and consider social value and financial value in the decisions we make. Social value is our positive contribution to society – to our people, partners, economy, environment and local communities.

Safety and sustainability

The safety, health and wellbeing of our workforce and the communities in which we operate are fundamental to our ability to contribute to social value. We have continued to demonstrate this throughout the COVID-19 pandemic with the ongoing, safe performance of our operated assets. We have provided significant support to local businesses, and regional and Indigenous communities where we operate in response to COVID-19 and have established programs to support the public health response.

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BHP Results for the year ended 30 June 2021

At our operated assets, we remain vigilant and will continue with social distancing and hygiene practices, and other additional protocols as appropriate to protect our workforce and communities from COVID-19, in line with guidelines from local and national government bodies and expert health advice in the countries where we operate. Many of these measures remain in place. Our Australian operations have effectively managed the rapidly changing environment relating to interstate travel and border access, however ongoing frequent border restrictions create uncertainty in managing the business. In Chile, the operating environment is expected to continue to be challenging as COVID-19 cases in the country remain elevated, with reductions in our on-site workforce forecast to continue in the 2022 financial year.

Despite the challenges, our people have continued their focus on safety. Our global safety improvement programs are progressing well and our safety leading indicators have continued a strong positive trend underpinning the current safety performance. We have now had over two and a half years without a fatality at our operated assets and we continue to focus on fostering a culture of respect and ensuring our workplace is safe at all times.

Our ambition to minimise our withdrawals of high-quality fresh water^(viii) and replace them with seawater or low-quality withdrawals where feasible saw a continued reduction in freshwater withdrawals⁽ⁱ⁾, which were 11 per cent lower in the 2021 financial year compared to the prior year and are now 27 per cent below the 2017 baseline for our five year target.

Communities remain a critical part of our social value contribution

Our community and social investment commitment (one per cent of pre-tax profit), which began 20 years ago, is aligned with our broader business priorities and contributes to the resilience of the communities and environment where we have a presence. This is one of the critical parts of creating social value.

In response to COVID-19, we have worked closely with local businesses, and regional and Indigenous communities where we operate in both the immediate response to COVID-19 and in the recovery phase. This has included financial support to local and regional health networks, the provision of essential community services including mental health, training and upskilling, enhancing technology and targeted support to remote Indigenous communities. In addition, we secured and donated medical personal protective equipment and other health and sanitation goods to communities and organisations where supply was interrupted.    

We also partnered with the communities where we operate, by offering training and apprenticeships on emerging technologies, systems and practices to build future capabilities.

As part of our social value contribution, we also fund the BHP Foundation, which continues to work with partner organisations globally to address some of the world’s most critical sustainable development challenges. These efforts are designed to address challenges that are directly relevant to the global resources sector and contribute towards many of the United Nations Sustainable Development Goals focussing on the governance of natural resources, environmental resilience and education equity. The BHP Foundation’s global partnership with Transparency International supports governments to identify and address corruption risks in mining licensing processes, and its global programs supporting Indigenous peoples have enabled Indigenous land management activities covering the Ten Deserts of Australia and traditional lands in the Boreal Forests of Canada and the Amazon basin of Peru. Further information can be found at: bhp.com/foundation.

With effect from 1 July 2021, BHP has reduced to seven-day payment terms for all small, local and Indigenous suppliers, getting cash into their hands sooner. This will benefit over 4,000 suppliers globally, including in Australia, Chile, North America and Canada. These include suppliers that are a part of the Local Buying Program in Australia and South America.

Our approach to cultural heritage is driven by the commitments made in our Indigenous Peoples Policy Statement, our Indigenous Peoples Strategy and our Reconciliation Action Plan. During the year, we continued to work with Traditional Owner groups and other Indigenous representative organisations to further strengthen our cultural heritage management practices. We also continue to support efforts to further strengthen the laws, policies and practices that regulate the management of cultural heritage values.

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News release

Delivering on our climate change commitments

We have made strong progress on actions required to meet our commitments to reduce operational emissions.

In September 2020, we signed a renewable power purchasing agreement (PPA) to meet half of our electricity needs across our Queensland Coal operations from low emissions sources. We also executed a 15-year contract extension to our power purchase agreement at Nickel West, which provides additional ability to integrate renewable electricity generation. Our four new renewable power contracts for Escondida and Spence commence from the 2022 financial year, as part of our aim to achieve 100 per cent renewable supply at both operations by the mid-2020s. In August 2021, BHP became a founding member of Komatsu’s GHG Alliance, providing engineering, technical and mining expertise with the aim of accelerating the path to market of zero-greenhouse gas emissions haul trucks.

In line with the 2030 Scope 3 goals we set in 2020, we have taken actions to contribute to decarbonisation in our value chain. In steelmaking, we have entered into three partnerships that are targeted at the development and deployment of technologies to support a reduction in greenhouse gas emissions in integrated steelmaking for an aggregate investment of up to US$65 million. We signed a Memorandum of Understanding (MoU) with:

The combined output of these three steelmakers equates to around 10 per cent of global steel production^(ix).

In shipping, we have also taken a number of actions to help reduce emissions in our value chain:

Building on our leading practice in climate risk management, disclosure and engagement, we plan to put forward a non-binding advisory Say on Climate to shareholders at our 2021 AGMs in the form of a vote with respect to our new Climate Transition Action Plan (CTAP). The CTAP will cover the focus areas of the Climate Action 100+ Net Zero Company Benchmark and in particular, provide further information on our approach to addressing emissions in our value chain (Scope 3 emissions).

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BHP Results for the year ended 30 June 2021

Social value: key indicators scorecard⁽¹⁾

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News release

Samarco

BHP remains committed to supporting the Renova Foundation and its work to progress the remediation and compensatory programs to restore the environment and re-establish communities affected by the Samarco tragedy. In total, Renova has spent R$14 billion (approximately US$3.3 billion^(x)) on remediation and compensation programs to 30 June 2021.

Compensation and financial assistance of approximately R$4.7 billion (approximately US$1.1 billion) has been paid to support approximately 336,000 people affected by the Fundão dam failure up until 30 June 2021^(xi). Resettlement of communities continues to progress despite ongoing challenges, including the implementation of precautionary measures to minimise the spread of COVID-19^(xii).

A 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 socioeconomic programs to remediate and provide compensation for damage caused by the Samarco dam failure. Negotiations are ongoing with State and Federal Prosecutors and certain other Brazilian public authorities on the review of the Framework Agreement, seeking a definitive and substantive settlement of claims relating to the dam failure. It is not possible to provide a range of outcomes or a reliable estimate of potential settlement outcomes and there is a risk that a negotiated outcome may be materially higher than amounts currently reflected in the Samarco dam failure provision. Until any revisions to the Programs are agreed, Fundação Renova will continue to implement the Programs in accordance with the terms of the Framework Agreement and the Governance Agreement. The suspended R$155 billion (approximately US$30 billion^(x)) Federal Public Prosecution Office claim is under discussion as part of these negotiations.

BHP has reported a total income statement charge of US$1.2 billion (after tax) in relation to the Samarco dam failure for the 2021 financial year. This charge is recognised as an exceptional item. Additional commentary is included on page 53.

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BHP Results for the year ended 30 June 2021

Financial performance

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

Earnings and margins

Operational performance and costs

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News release

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BHP Results for the year ended 30 June 2021

Cash flow and balance sheet

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News release

Dividends

Capital and exploration

Projects

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BHP Results for the year ended 30 June 2021

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News release

Operations Services and apprenticeships

In Australia, we have created 3,850 permanent jobs with Operations Services and deployed people across 20 locations in WAIO, Olympic Dam, Queensland Coal and NSWEC. We have provided training to new employees and a mastery program to address the needs of a high-calibre permanent workforce operating in modern mining. Operations Services have successfully accelerated safety and productivity improvements across our operations, including a two per cent increase in availability of haul trucks serviced by Operations Services.

In October 2020, BHP announced a further commitment to the training and funding of 2,500 Australian apprenticeships and training positions over the next five years through our FutureFit Academy. As part of this announcement, BHP also committed to supporting a further 1,000 skills development opportunities across a range of sectors in regional areas. In the last 12 months, the BHP FutureFit academy has welcomed over 400 apprentices and maintenance associates across two locations at Mackay in Queensland and Perth in Western Australia. The first intake of maintenance associates from the FutureFit Academy have been progressively deployed to an Operations Services maintenance team at WAIO and Queensland Coal during the second half of the 2021 financial year.

Capital Allocation Framework

Adherence to our Capital Allocation Framework aims to balance value creation, cash returns to shareholders and balance sheet strength in a transparent and consistent manner.

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BHP Results for the year ended 30 June 2021

Outlook

Economic outlook

We remain positive in our outlook for long-term global economic growth and commodity demand. Population growth, the infrastructure of decarbonisation and rising living standards are all expected to drive demand for energy, metals and fertilisers for decades to come.

The outlook for the short term remains uncertain. While momentum towards recovery remains intact across many key regions, vigilance with respect to COVID-19 risks is still a constant for all.    

Inflation trends and exchange rates have been volatile. In our business specifically, many commodity-linked uncontrollable costs have moved higher. For some of our assets, constraints on the free movement of parts of our workforce are creating localised shortages and associated cost increases. While this situation persists, operational risks will be elevated.

Commodities outlook

Global crude steel production was unbalanced in the 2020 calendar year, with strong growth in China offset by a steep fall in the rest of the world (ROW). In the 2021 calendar year to date, this has corrected to some degree, with utilisation rates in the ROW back close to normal, on average, even as China continues to produce at very high run-rates. Notwithstanding regulatory uncertainty with respect to periodic output controls, and COVID-19 risks, Chinese steel production is expected to increase by around 5 per cent in the 2021 calendar year. Steel prices and margins have achieved record levels in some key ROW regions as the supply recovery has lagged the rapid improvement in downstream demand. We anticipate a continuation of strong end-use demand conditions in China and ongoing recovery in the rest of world over the course of the 2022 financial year.

Efforts to decarbonise steel making are expected to proceed at different rates in different regions, based on availability of lower carbon raw feedstock (including but not exclusively scrap), the age of existing facilities, variable levels of policy support, net trade positions and differential demands for affordable steel. We expect developing nations such as India to deploy principally optimisation and transitional technologies across their steel making fleets in the coming decades. Leading mills in China and in developed regions are already experimenting with transitional and green end-state technology, with commercialisation of hydrogen-based DRI anticipated from the mid-2030s, with Europe at the forefront. Accordingly, we expect that the steel making industry will be a large purchaser of carbon offsets in coming decades even as it positions itself to pursue long run carbon neutrality.

Iron ore prices have been elevated since the Brumadinho tailings dam tragedy in Brazil first disrupted the market in early 2019. Conditions have been particularly tight since the second half of the 2020 calendar year, with new record highs for the 62% Fe index fines and the lump premium established. Forces contributing to price gains over the most recent half have been strong Chinese pig iron production, recovering ROW pig iron production and tight supply of branded fines products. This latter factor was partly due to production coming in towards the lower end of guidance for some of the other major iron ore producers. Other material factors in terms of the supply-demand balance included robust shipments from Port Hedland, Australia, and incremental growth from a high base from price-sensitive sources of supply. The premium for lump product has been very favourable in the most recent half, buoyed by similar factors to fines, in addition to sintering restrictions in parts of China. Medium term, China’s demand for iron ore is expected to be lower than it is today as crude steel production plateaus and the scrap-to-steel ratio rises. In the long-term, prices are expected to be determined by high cost production, on a value-in-use adjusted basis, from Australia or Brazil. Quality differentiation is expected to remain a factor in determining iron ore prices.

Metallurgical coal prices faced by Australian producers in the free-on-board (FOB) market were weak for most of the 2021 financial year. Australian FOB prices were able to stage a recovery late in the financial year based on pronounced multi-regional supply constraints, recovering ROW demand and an associated acceleration of trade flow adjustments. Even so, the differential between FOB prices and the China CFR equivalent remains very wide, which represents value leakage for FOB producers. The industry faces a difficult and uncertain period ahead while natural trade flows are impaired. Long term, we believe that a wholesale shift away from blast furnace steel making, which depends on metallurgical coal, is still decades in the future. That assessment is based on our bottom-up analysis of likely regional steel decarbonisation pathways, as discussed above. Demand for seaborne Hard Coking Coals (HCC), or also referred to as high quality metallurgical coals, is expected to expand alongside the growth of the steel industry in HCC importing countries such as India.

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News release

Energy coal prices began to recover from their COVID-19 induced lows late in the 2020 calendar year, assisted by a pick-up in demand due to cold weather in North Asia, constrained supply and a bounce in Indian industrial activity. Prices FOB Newcastle rallied again moving into the North Asian summer, with supply disruptions and strengthening demand intersecting. China’s policy in respect of energy coal imports remains a key medium-term uncertainty.

Copper prices have been strong, with new record highs established on the LME in the second half of the 2021 financial year. With ROW demand recovering and China’s economy continuing to perform well, the short term outlook for demand remains constructive. On the supply side, we note that actual disruption rates have been below both the long-term average and more recent experience in the calendar year to date, despite potential headwinds from COVID-19 outbreaks, political uncertainty and a number of wage negotiations at Chilean mines. Longer term, both demand and supply factors indicate that copper is an attractive avenue for future growth. Regulatory uncertainty is an emerging risk across more than one key supply region, the outcome of which could potentially influence the identity and cost of long-run marginal supply.

Nickel prices have been volatile within an approximate range of US$15,000/t to US$20,000/t on the LME over the second half of the 2021 financial year. Prices have been boosted, at times, by positive sentiment towards pro-growth assets, supply disruptions across multiple regions and a strong demand rebound. Demand improvements have come from both traditional uses and the battery-electric vehicle (EV) complex. Periods of price appreciation have been interspersed with abrupt but ultimately short-lived declines related to prospective developments in upstream or downstream technology. Longer term, we believe that nickel will be a substantial beneficiary of the global electrification mega-trend and that nickel sulphides will be particularly attractive. This is due to their relatively lower cost of production of battery-suitable class-1 nickel than for laterites, as well as the favourable position of integrated sulphide operations on the emission intensity curve.

Potash prices have increased sharply over the last 12 months, despite ongoing excess production capacity. According to CRU, granular spot prices - CFR Brazil and US (New Orleans) FOB barge - increased to around $600 per tonne in July 2021, up more than 150 per cent and 180 per cent from a year ago respectively. Strong demand due to favourable farm economics and constrained supply from presently operating assets have combined to inspire the rally. EU sanctions on certain grades of Belarussian potash exports have amplified the existing upswing. Longer term, potash stands to benefit from the intersection of a number of global mega-trends: rising population, changing diets and the need for the sustainable intensification of agriculture. Our analysis suggests that this latter imperative becomes even more critical under certain decarbonisation pathways. We anticipate trend demand growth will progressively absorb the excess capacity currently present in the industry. That, in turn, is expected to create the need for new greenfield supply by the late 2020s or early 2030s. Canadian greenfield solution mines, which tend to be higher opex and consume more energy and water than conventional mines, are expected to set the industry’s long run trend price.

Crude oil prices have recovered to above US$70 per barrel as the 2022 financial year opens. We believe further gains from here are possible given our constructive view of demand tailwinds. However, future developments in price are also expected to rely in large part on the rate at which currently curtailed supply returns, which is highly uncertain. Looking beyond this phase, our bottom-up analysis of demand, allied to systematic field decline rates, points to a long run structural supply-demand gap. Considerable investment in conventional oil is going to be required to fill that gap and maintain market balance. If that investment is not forthcoming in a timely way, the possibility of oil prices increasing aggressively cannot be ruled out.

The Japan-Korea Marker price for LNG was extraordinarily volatile across the 2021 financial year. The market balance shifted from heavily over-supplied to extremely tight going into the Northern hemisphere winter. Since that time, prices have remained elevated relative to seasonal norms, with robust demand combined with ongoing supply outages. Longer term, we believe the commodity offers a combination of systematic base decline and an attractive demand trajectory. Within global gas, LNG is expected to gain share due to indigenous supply depletion and/or competitiveness vis-a-vis pipeline imports in some regions. Against this backdrop, assets advantaged by their proximity to existing infrastructure or customers, or both, in addition to competitive emissions intensities, are expected to be attractive.

Further information on BHP’s economic and commodity outlook can be found at: bhp.com/prospects

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BHP Results for the year ended 30 June 2021

Portfolio

Overview

Our strategy is to deliver long-term value and returns through the cycle. We aim to do this through owning a portfolio of world class assets with exposure to highly attractive commodities which benefit from the mega-trends playing out in the world around us, by operating them exceptionally well, by maintaining a disciplined approach to capital allocation and through being industry leaders in sustainability and the creation of social value.

We regularly review our portfolio to improve our asset base and optimise capital allocation decisions. We have simplified and strengthened our portfolio in recent years. We have invested through the cycle in high returning growth projects and continued to invest in options for future development and value creation in copper, nickel, oil, advantaged gas and potash through exploration, early stage investment and development, and innovation.

As the world continues to evolve, BHP is positioning itself to benefit from the mega-trends and through sustainability leadership.

To this end, today we have announced a major growth investment in the Jansen Stage 1 potash project, which is aligned with our strategy of growing our exposure to future facing commodities in world class assets, as well as our further plans to strengthen our portfolio, improve long-term value, provide choice for shareholders and to streamline our corporate structure, better enabling execution of our strategy.

These decisions will enable a greater allocation of capital in the portfolio to be directed towards future facing commodities and enhanced shareholder returns, as determined under our Capital Allocation Framework.

Approval of Jansen Stage 1 potash project

BHP has today approved US$5.7 billion (C$7.5 billion) in capital expenditure for the Jansen Stage 1 (Jansen S1) potash project in the province of Saskatchewan, Canada. Potash is a future facing commodity and Jansen S1 is aligned with BHP’s strategy of growing our exposure to future facing commodities in world class assets that are large, low cost and expandable.

Jansen S1 includes the design, engineering and construction of an underground potash mine and surface infrastructure including a processing facility, a product storage plant, and a continuous automated rail loading system. It also includes a Remote Operating Centre located in Saskatoon. Jansen S1 product will be shipped to export markets through Westshore, in Delta, British Columbia and the project includes funding for the required port infrastructure.

Jansen S1 was approved following a thorough evaluation of its risk and return metrics under our Capital Allocation Framework and it seeks to create long-term, sustainable value and returns for shareholders. Potash provides BHP with increased leverage to key global mega-trends including rising population, changing diets, decarbonisation and improving environmental stewardship. It will also give BHP diversity of product, customer and operating jurisdiction. The Jansen project also offers significant high returning growth optionality in the world’s best potash basin and an attractive investment jurisdiction.

Jansen S1 is expected to produce approximately 4.35 million tonnes of potash per annum^(iv). First ore is targeted in the 2027 calendar year, with construction expected to take approximately six years, followed by a ramp up period of two years. The Jansen S1 development incorporates the latest proven equipment and digital technologies, with a hard-to-replicate design and built in structural advantages. Jansen S1 is designed with a focus on sustainability, including a low carbon footprint and low water intensity embedded in the design.

As the world’s largest undeveloped potash deposit, future expansions at Jansen have been de-risked through the existing shaft capacity. This enables lower capital intensity, shorter execution duration and high-return brownfield expansions, with a basin position that could support a 100-year operation.

At consensus prices^(v), the go-forward investment on Jansen S1 is expected to generate an internal rate of return of 12 to 14 per cent, an expected payback period of seven years from first production and an underlying EBITDA margin of approximately 70 per cent given its expected first quartile cost position.

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News release

We have previously acknowledged the US$4.5 billion (pre-tax) of capital invested to date has resulted in a significant initial outlay and that our approach would be different if considering the project again today. The investment to date includes construction of the shafts and associated infrastructure (US$2.97 billion^(xiv) scope of work), as well as engineering and procurement activities, and preparation works related to Jansen S1 underground infrastructure. The construction of two shafts and associated infrastructure at the site is 93 per cent complete and expected to be finalised in the 2022 calendar year. To date approximately 50 per cent of all engineering required for Jansen S1 has also been completed, significantly de-risking the project. If the investment to date were to be included, the full cycle project would yield a much lower internal rate of return.

In addition to the investment approval, we have also assessed the carrying value of the existing potash asset base as at 30 June 2021 and have recognised a pre-tax impairment charge of US$1.3 billion (US$2.1 billion after-tax). The impairment will reduce the carrying value of the potash asset base to approximately US$3.3 billion. The impairment charge against our potash assets reflects analysis of recent market perspectives and the value that we would now expect a market participant to attribute to our investments to date.

Agreement to pursue a merger of Petroleum with Woodside

BHP announced today a merger proposal to combine its Petroleum (Petroleum) business with Woodside Petroleum Ltd (Woodside) (refer joint announcement, 17 August 2021).

BHP and Woodside have entered into a merger commitment deed to combine their respective oil and gas portfolios by an all-stock merger. The merger is subject to confirmatory due diligence, negotiation and execution of full form transaction documents which is targeted for October 2021, and satisfaction of conditions precedent including shareholder, regulatory and other approvals.

The proposed merger would create a global top 10 independent energy company by production, with a global top 10 position in the LNG industry, and would be the largest energy company listed on the ASX. It will give our shareholders greater choice about how to weight their exposure to the different investment propositions of BHP and Petroleum via Woodside.

With the combination of two high quality asset portfolios, the combined business will have a high margin oil portfolio, long life LNG assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition.

The substantial benefits of the proposed merger for BHP’s shareholders is expected to include:

Under the proposed transaction, Woodside or a wholly owned subsidiary of Woodside, will acquire 100 per cent of the issued share capital of BHP Petroleum International Pty Ltd in exchange for shares in Woodside, which will hold the combined business. The Woodside shares will be immediately distributed to BHP shareholders. On completion, it is expected Woodside would be owned approximately 52 per cent and 48 per cent by existing Woodside and BHP shareholders respectively. Woodside will remain listed on the ASX with listings on additional exchanges being considered. It is intended that the Woodside Board will appoint a current BHP director as a Woodside director on completion.

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BHP Results for the year ended 30 June 2021

Both the BHP and Woodside Boards of directors confirm their support for the proposed merger. The merger is expected to be completed in the second quarter of the 2022 calendar year with an effective date of 1 July 2021.

The merger is subject to confirmatory due diligence, negotiation and execution of full form transaction documents which is targeted for October 2021, and satisfaction of conditions precedent including shareholder, regulatory and other approvals. Under the merger commitment deed, each party has agreed to pursue a merger transaction and agreed to certain exclusivity arrangements and to each pay a reimbursement fee of approximately US$160 million in certain circumstances.

Further information about the proposed merger with Woodside will be provided in due course.

In a separate arrangement, BHP and Woodside have committed to a plan towards Scarborough Final Investment Decision (FID) by the end of the 2021 calendar year, prior to the proposed completion date for the merger. As part of this plan, BHP and Woodside have agreed an option for BHP to divest its 26.5 per cent interest in the Scarborough Joint Venture (JV) to Western and its 50 per cent interest in the Thebe and Jupiter JVs to Woodside if the Scarborough JV takes a FID by 15 December 2021. The option is exercisable by BHP in the second half of the 2022 calendar year and if exercised, consideration of US$1 billion is payable to BHP with adjustment from an effective date of 1 July 2021. An additional US$100 million is payable contingent upon a future FID for a Thebe Development.

Intention to unify BHP’s Dual Listed Company (DLC) Structure

BHP announced today that it intends to unify its DLC structure, subject to final Board and other approvals.

BHP’s DLC structure has two parent companies (BHP Group Limited and BHP Group Plc) operating as a single economic entity and was established with the BHP and Billiton merger in 2001.

The rationale for and efficacy of the DLC structure have been subject to regular evaluation as the attraction of increased simplification has always been clear. Today’s announced plans, combined with changes over recent years to our portfolio, a significant reduction in earnings contribution from Plc assets as well as a material reduction in the expected costs of unification, have prompted a renewed assessment of the continued suitability of the DLC structure.

The key benefits of unification comprise:

A simplified corporate structure with a single unified share register

We have regularly sought to streamline and improve our corporate and governance processes. Unification would further simplify the BHP corporate structure and shareholder registers, reduce duplication and streamline our governance and internal processes.

Unification will enable one market capitalisation and one global pool of liquidity, with the same share trading via the Group’s listings on the Australian, London and Johannesburg stock exchanges and its NYSE listed ADR program.

Unification will not change BHP’s strong fundamentals. It will not change BHP’s underlying assets or operations, workforce, executive leadership team, Board or cash flow generation. It will not change our dividend policy or ability to distribute fully franked dividends.

Enhanced strategic flexibility for undertaking future portfolio changes

As we position the company for the future operating environment, a unified structure will improve flexibility for portfolio reshaping to maximise value for shareholders over the long-term.

Certain equity based acquisitions, demergers and equity raisings will be able to be executed more efficiently. In the near-term, unification of the DLC would facilitate a simpler and more efficient separation of Petroleum.

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News release

Earnings contribution from Plc assets have significantly reduced

Plc’s earnings have reduced over time relative to Limited’s earnings, due to the divestment of assets previously held by Plc and changes in commodity prices. There have also been increases in overall BHP dividend payments. In recent years, Limited has paid significant dividends to Plc through the DLC Dividend Share. Plc has used the earnings generated by the DLC Dividend Share dividends to pay dividends to its shareholders that match the dividends paid to Limited shareholders. If unification does not occur, BHP expects that the ongoing earnings imbalance between Plc and Limited assets will result in Limited continuing to pay significant DLC Dividend Share dividends to Plc. Any DLC Dividend Share dividends paid by Limited must be franked to the same extent as regular Limited dividends and the franking credits that are attached to these dividends cannot be distributed by Plc to BHP shareholders. Unification will remove the DLC-related constraints on dividend arrangements and result in franked distributions being paid directly to all BHP shareholders.    

Costs of unification have materially reduced

The expected costs associated with unification have significantly reduced as a result of portfolio and corporate structure changes in recent years, including BHP’s settlement of the marketing dispute with the ATO and the recently updated assessment of the likelihood of recovering NSWEC associated tax losses. These changes represent a reduction in unification costs of approximately US$1.2 billion. One-off unification costs are now expected to range between US$400 to US$500 million. In comparison, in 2017 we assessed a loss of value of up to US$3 billion based on a single United Kingdom incorporated company. Under the transaction structure currently contemplated, the most significant component of these expected costs is related to stamp duties levied on Limited as a result of its acquisition of shares in Plc in order to implement unification.

Unification process and timing

Unification is subject to final Board approval, third party consents, regulatory, shareholder and court approvals.

Unification would involve Limited acquiring the shares of Plc and would be implemented by way of an English scheme of arrangement. Unification will require the approval of Plc and Limited shareholders voting separately and UK court approval. If unification is implemented, eligible Plc shareholders would be entitled to receive one Limited share for each Plc share they own. Following unification, both Limited and Plc shareholders would have the equivalent voting and economic interests in BHP as exist under the current DLC structure.

It is expected that a unified BHP would have its primary listing on the ASX, a standard listing on the LSE, a secondary listing on the JSE, and a sponsored Level II ADR program on the NYSE. A unified BHP would retain inclusion in the S&P/ASX indices. We have started engagement with FTSE Russell and understand that, based on their existing indexation methodology, a unified BHP would not qualify for inclusion in the FTSE UK Index Series. BHP’s corporate and operational presence in Australia, the UK and other key locations are expected to remain unchanged. Following unification, BHP will retain its ongoing commitment to high corporate governance standards. The Board also intends to continue its practice of holding annual director elections.

If approved, unification is expected to occur in the first half of the 2022 calendar year, with the proposed Petroleum merger with Woodside to follow. Further information about the proposed unification of BHP’s DLC structure will be provided in due course.

Update on our non-core coal divestment process

In August 2020, we announced plans to divest our interests in BHP Mitsui Coal^(xv) (BMC), NSWEC and Cerrejón in order to focus our coal portfolio on higher quality metallurgical coals used in steelmaking.

In June 2021, we announced the signing of a Sale and Purchase Agreement to divest our 33.3 per cent interest in Cerrejón for US$294 million cash consideration. Subject to the satisfaction of customary competition and regulatory requirements, this is expected to complete in the second half of the 2022 financial year.

The process for BMC and NSWEC is progressing, in line with the two-year timeframe we set last year. We remain open to all options and continue consultation with relevant stakeholders.

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BHP Results for the year ended 30 June 2021

A stronger and more competitive BHP

The plans we have announced today will help position BHP for the future. The investment and potential future growth in potash, coupled with the proposed merger of Petroleum with Woodside will result in a portfolio with greater net positive exposure to the mega-trends of decarbonisation and electrification. Copper, potash, nickel, and iron ore all stand to benefit from these trends, as does higher quality metallurgical coal in the near to medium term.

The proposed unification would further simplify the BHP corporate structure with a single share register. It would also improve strategic flexibility for increasing long-term portfolio exposure towards future facing commodities.

Following our investment in Jansen S1, the proposed separation of Petroleum and exit of our non-core coal assets, BHP will be focussed on high quality iron ore and metallurgical coal for the steel that is needed for infrastructure including for renewable energy; copper to support unprecedented demand for renewable energy; nickel for batteries; and potash to make food production and land use more efficient. We will also continue to create and secure further options in future facing commodities

We are a long-term focused company that creates value and returns over generations for our investors, partners and communities. We do this by striving to be excellent operators, by demonstrating industry leadership in sustainability, by maintaining a disciplined approach to capital allocation, and by ensuring exposure to commodities that benefit from the mega-trends playing out in the world around us.

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News release

Income statement

Underlying attributable profit and Underlying EBITDA are presented below.

Underlying attributable profit

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BHP Results for the year ended 30 June 2021

Underlying EBITDA

The following table and commentary describes the impact of the principal factors⁽ⁱⁱ⁾ that affected Underlying EBITDA for the 2021 financial year compared with the 2020 financial year:

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News release

Prices and exchange rates

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

In Copper, the provisional pricing and finalisation adjustments increased Underlying EBITDA by US$47 million in the 2021 financial year and are included in the average realised copper price in the above table.

The following exchange rates relative to the US dollar have been applied in the financial information:

Depreciation, amortisation and impairments

Depreciation, amortisation and impairments excluding exceptional items increased by US$891 million to US$7.1 billion. This increase reflected higher depreciation and amortisation at Petroleum following a decrease in estimated remaining reserves at Bass Strait due to underperformance of the reservoir in the Turrum field and lower overall condensate and natural gas liquids (NGL) recovery from the Bass Strait gas fields, higher depreciation at WAIO due to a change in Yandi’s life of mine and higher depreciation on right-of-use (lease) assets associated with index-linked freight contracts, including continuous voyage charters (CVCs), as a result of an increase in the prevailing freight index (Baltic C5 index).

Net finance costs

Net finance costs increased by US$394 million to US$1,305 million due to premiums of US$395 million paid as part of the value accretive multi-currency hybrid repurchase programs completed during the year.

24

BHP Results for the year ended 30 June 2021

Taxation expense

The Group’s adjusted effective tax rate, which excludes the impact of exchange rate movements and exceptional items, was 34.1 per cent (2020: 33.2 per cent). The adjusted effective tax rate is above 30 per cent and higher than at 30 June 2020 primarily as a result of higher withholding tax on dividends, driven by higher profitability from our Chilean operations, and current period losses which are not recoverable (including NSWEC and certain Petroleum exploration projects). The adjusted effective tax rate is expected to be in the range of 32 to 37 per cent for the 2022 financial year.

Other royalty and excise arrangements which are not profit based are recognised as operating costs within Profit before taxation. These amounted to US$3.2 billion during the period (2020: US$2.4 billion).

Exceptional items

The following table sets out the exceptional items for the 2021 financial year. Additional commentary is included on page 48.

Debt management and liquidity

BHP continues to optimise its balance sheet and debt position.

During the 2021 financial year, gross debt decreased by US$6.0 billion to US$21.0 billion at 30 June 2021. A US$2.8 billion reduction was achieved by the completion of two multi-currency hybrid repurchase programs: for US$1.7 billion on 17 September 2020 and US$1.1 billion on 23 November 2020. These programs were funded from surplus cash and were value accretive, with the reduction of future interest costs being higher than the premium paid to repurchase the targeted hybrid notes. An additional US$2.8 billion debt reduction came from the early redemption of hybrid notes including US$1.0 billion of 6.250 per cent hybrid notes on 19 October 2020, US$0.3 billion of 6.750 per cent hybrid notes on 30 December 2020 (the balance following the repurchase programs), and EUR€1.25 billion of 4.750 per cent hybrid notes on 22 April 2021. The redemptions were also completed using surplus cash.

At the subsidiary level, Escondida borrowed US$550 million to refinance maturing long-term debt during the 2021 financial year.

BHP continues to hold a robust liquidity position with US$15.2 billion in cash and cash equivalents. The Group also has a US$5.5 billion commercial paper program backed by a US$5.5 billion revolving credit facility, which expires in October 2025. As at 30 June 2021, the Group had no outstanding commercial paper and no drawn amount under the revolving credit facility.

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News release

Dividend

The BHP Board today determined to pay a final dividend of US$2.00 per share (US$10.1 billion). The final dividend to be paid by BHP Group Limited will be fully franked for Australian taxation purposes.

BHP’s Dividend Reinvestment Plan (DRP) will operate in respect of the final dividend. Full terms and conditions of the DRP and details about how to participate can be found at: bhp.com

BHP Group Plc shareholders registered on the South African section of the register will not be able to dematerialise or rematerialise their shareholdings between the dates of 1 September 2021 and 3 September 2021 (inclusive) and transfers between the UK register and the South African register will not be permitted between the dates of 27 August 2021 and 3 September 2021 (inclusive). Details of the currency exchange rates applicable for the dividend will be announced to the relevant stock exchanges following conversion and will appear on the Group’s website.

Any eligible shareholder who wishes to participate in the DRP, or to vary a participation election should do so in accordance with the timetable above, or, in the case of shareholdings on the South African branch register of BHP Group Plc, in accordance with the instructions of your CSDP. The DRP Allocation Price will be calculated in each jurisdiction as an average of the price paid for each share actually purchased to satisfy DRP elections. The Allocation Price applicable to each exchange will made available at: bhp.com/DRP^(xvi)

Corporate governance

Stefanie Wilkinson was appointed Group Company Secretary of BHP Group Limited and BHP Group Plc, effective from 1 March 2021.

As previously announced in December 2020, Susan Kilsby stepped down as the Chair of BHP’s Remuneration Committee, effective 1 March 2021 and intends to retire as a BHP Director during the 2021 calendar year, and no later than the 2021 Annual General Meetings.

The current members of the Board’s committees are:

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BHP Results for the year ended 30 June 2021

Segment summary⁽¹⁾

A summary of performance for the 2021 and 2020 financial years is presented below.

Group profit before taxation comprised Underlying EBITDA, exceptional items, depreciation, amortisation and impairments of US$11,473 million (FY2020: US$7,650 million) and net finance costs of US$1,305 million (FY2020: US$911 million).

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News release

Petroleum

Underlying EBITDA for Petroleum increased by US$93 million to US$2.3 billion in the 2021 financial year.

Petroleum unit costs increased by 11 per cent to US$10.83 per barrel of oil equivalent primarily due to lower volumes and unfavourable exchange rate movements, partially offset by a reduction in price-linked costs. Unit costs in the 2022 financial year are expected to be between US$11 and US$12 per barrel (based on an exchange rate of AUD/USD 0.78) reflecting the impact of an increase in exchange rate and forecast higher price-linked costs. In the medium term, we expect an increase in unit costs to be maintained at less than US$13 per barrel (based on an exchange rate of AUD/USD 0.78) primarily as a result of natural field decline.

During the 2021 financial year, we maintained our record of strong safety and operational performance while delivering several key milestones and outperforming our production and unit cost targets. We demonstrated capital discipline and strengthened our competitiveness through the counter-cyclical acquisition of an increased working interest in Shenzi, resulting in the addition of high margin barrels to the portfolio. We also accelerated our Shenzi infill drilling program to capture commodity price upside, simplified and restructured our organisational model, and continued to de-risk and improve the competitiveness of our growth options and future opportunities.

We also completed a transaction in May 2021 transferring our ownership interest in the operated Neptune asset in the Gulf of Mexico to EnVen Energy Ventures, LLC.

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BHP Results for the year ended 30 June 2021

In the June 2021 quarter, drilling commenced on the second Shenzi infill well. Drilling of the first Shenzi infill well took place in March 2021, with production expected from both infill wells in the 2022 financial year.

On 5 August 2021, the Board approved the funding to develop the Shenzi North project, a two-well subsea tie-in to the Shenzi platform. First production is targeted for the 2024 calendar year. Additional plans for the 2022 financial year include advancing Trion into the Front End Engineering Design (FEED) phase, with competitive risk-weighted returns, and progressing the Calypso appraisal program, with the first appraisal well spud in late July 2021. Further targets include a potential Board decision on investment in the Scarborough gas development by the end of the 2021 calendar year, prior to the proposed completion date for the merger with Woodside, and expected first production from Mad Dog Phase 2 in the middle of the 2022 calendar year. Reflecting these projects, as well as natural field decline, average production is expected to increase to approximately 109 MMboe over the medium term.

Petroleum exploration

Petroleum exploration expenditure for the 2021 financial year was US$322 million, of which US$296 million was expensed. An approximately US$540 million exploration and appraisal program is planned for the 2022 financial year. This is an increase of approximately US$200 million and reflects drilling two Calypso appraisal wells in Trinidad and Tobago, and increased exploration drilling in the Gulf of Mexico.

In Trinidad and Tobago, we fulfilled our drilling commitments in the Southern licences with the drilling of the Broadside-1 exploration well in the first half of the 2021 financial year. The Transocean drilling rig arrived on location in our Northern licences in June 2021 and commenced drilling the first of the two Calypso gas appraisal wells in July 2021.

In Mexico, we commenced an Ocean Bottom Node seismic acquisition^(xvii) over the Trion field on 9 November 2020, as part of our ongoing evaluation and analysis. The survey was completed in early January 2021 and the results will be incorporated into the current evaluation of the Trion opportunity. In addition, we received formal approval for a 124-day extension for the evaluation and exploration periods through 1 July 2021 and 1 July 2022 respectively, as a result of the suspension of activities in 2020 due to COVID-19.

In the US Gulf of Mexico, we expanded our acreage position through the acquisition of two blocks in the central regions and three blocks in the western region, aligned with our strategy of growing our Gulf of Mexico heartland.

In Eastern Canada, we have flexibility on timing with our two licences in the Orphan Basin, while evaluating the farm-out opportunities. The technical evaluation to support exploration well planning is ongoing.

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News release

Financial information for Petroleum for the 2021 and 2020 financial years is presented below.