BHP Shareholder Q&A 2023

Welcome to BHP's online information session for shareholders. I'm Gab Notley, and I'm joined here today by Mike Henry, our chief executive officer, Geraldine Slattery, president of our Australian operations, and David Lamont, our Chief Financial Officer. Thank you all for joining. Well, the first half of the 2023 financial year has been very busy for BHP. We've made further progress on our strategic priorities, and this has been at a time where there's been a lot of volatility in the share markets, commodity markets, and around the world. And of course, we've just recently announced our half year results and dividend. So we've got lots to talk about today. Shareholders have sent in some great questions about our recent performance and are also interested in where the company is going. But before we do go to those, I know Mike you are keen to talk about safety, and I do have a question for you on this. It's from a shareholder who has written following the tragic loss of a colleague in our operations last month. The question is from David, and he asks: I was concerned to learn of the fatality at Port Hedland in February. I appreciate the huge amount of work BHP has historically done and continues to do to make operations safe and healthy. However, I would like to challenge the words of the chief executive officer when he said at BHP delivering safely is our number one priority. I was reminded of a talk given by Helen Fitzroy, who lost her husband in a mining accident in 1991. She said how much she dislikes the phrase as it implies that safety can be traded, priorities can shift. We all know words matter and their meanings matter, especially from the CEO. So my question is: will safety ever be spoken about as a fundamental value at BHP rather than one of just a number of competing priorities, albeit the most important one? Mike.

Okay Gab, look, thank you David for asking the question. I might just start by, for those shareholders who aren't aware of what's happened, we have had such a focus on making BHP a safe place to work, and after four years of being fatality free across BHP, we tragically did lose a colleague in our Port Hedland rail operations last month, Jody Byrne. Jody leaves behind wife, children, grandchildren, many friends and colleagues, and it is a real tragedy, and we're providing what support we can. Of course we have an investigation kicked off, and once the conclusions of that investigation are reached, the learnings will be very rigorously implemented across the company and shared widely including with others in industries so others can also learn and use that to help make themselves safer as well. But the point that David calls out on wording, look, it's a great call out in that words do matter. And of course safety is a value for the company, in fact it's the lead-in to the words associated with our first value of sustainability. So first value that the company is set out in the company charter is sustainability, and it starts off with putting health and safety first. And when I talk about the priority that we place on safety, I'm trying to articulate exactly what David is calling out. And it's by no means something that can be traded off against other priorities. And so if that's not the way that my words are being heard, then I'll reflect on how I can better articulate the intent, which is exactly as David calls out, this is core to our being, it has to be part of the BHP DNA, and it's not a trade-off of this or that, it's safety day in and day out before we then pay attention to anything else.

Thanks very much Mike. There were a number of questions about the performance in the half which there has been media coverage about, so maybe if I could ask you to give a quick overview of how you saw the half and BHP's performance.

So before, the underlying businesses perform quite well thanks to the work of Geraldine and Rag and all of the business leaders below as well as the others around BHP. Production across all of our major businesses was up period on period, that includes iron ore, copper, BMA. We are seeing a bit of the inflation bite come through in underlying cost, but thanks to the real focus on discipline management of costs and the way that we've set ourselves up as a business, including with the globalized procurement function that sits under Vandita, we have managed to do a better job than most in containing costs. So some inflation coming through, we had flagged that previously, but the team's doing a pretty good job of keeping a relative lid on costs. So delivering reliably operationally, strategically as well, continuing to deliver building out the growth options that we have across the company, continuing to make good progress on the Jansen stage one project. Of course we have an offer out there currently for OZ Minerals, and we may speak a little bit more about that later. But this underlying strong operational performance coupled with an environment of still pretty healthy commodity prices allowed us to declare a 90 cent per share dividend this time around, that's roughly 4.6 billion US dollars. That comes on top of the over seven billion dollars in taxes and royalties paid for the period, the significant spend that we have with indigenous businesses, remember it was about 140 million dollars during the period, 40 million dollars to social programs and initiatives across the business. So the contribution that we're able to make back to shareholders, to governments in the form of royalties and taxes, and to other stakeholders is quite significant. But again it all relies upon the solid delivery of operational outcomes coupled with strong markets for the commodities that we operate in.

Thanks Mike. We do have a question on the dividend actually, so David I might direct that to you. There's a couple. Emilio asks: what is your dividend policy generally speaking? And another question from Arthur: is the dividend paid net or gross?

Thanks Gab for those. Let me start by saying we think about our dividend in the context of our capital allocation framework. The capital allocation framework was put in place in 2016 and it helps us to decide how much of the cash that we generated do we reinvest back into the business to sustain the operations but also look for growth, how much we put to the balance sheet to shore up the strength of our balance sheet, and also how we return money back to shareholders. Since the framework has been put in place we've returned on average around about 74 percent as the payout ratio for dividends. Mike referenced earlier the 90 cents US per share for the interim dividend and that was at 69 percent payout ratio. So we constantly look at how do we pay to shareholders above the minimum which we have said through the capital allocation framework of 50 percent. And we determine that with directors on a half yearly basis, looking at the underlying performance of the business, the best way to actually utilize the cash that's being generated, and we have had a history of therefore paying money back out to shareholders. The interim dividend will be paid on the 30th of March for the Australian shareholders, that'll be 136 cents per share and that will be the gross amount that shareholders will receive. If you're an Australian shareholder and you qualify, you'll also get the franking credit to offset the tax paid on that gross dividend, and that represents the tax that we've paid in Australia on the earnings that we've delivered, and so that way there is a mitigation against individuals' tax payments and that references the significant amount of taxes that we actually pay here in Australia.

Thanks very much David. Sticking in Australia, I might direct this question to you Geraldine. It's a question from Sophie who asks about the impact of coal price caps on BHP's business and profits, and does that impact the way you're thinking about the future of BHP producing coal in New South Wales.

Sorry Gab, maybe if I can just build on what Geraldine said because I think she's made a great call out here. None of the money that comes into BHP, right at the end of the day everything that comes into BHP actually ultimately gets distributed. And I spoke earlier to what's being paid in taxes and royalties and so on. But the other thing that I think many members of the public don't understand is that about 70 percent of Australians, so we're looking at 17 million plus Australians, actually hold shares in BHP either directly or through their superannuation funds. And BHP makes up roughly 10 percent of the ASX, so on average we're going to find that circa 10% of retirement savings are BHP shares. And that then goes to the importance of the health of a company like BHP in the broader mining sector because not only is it contributing to the economy today, it's contributing to the well-being and income of 17 million Australians in the future. And so we've all got a shared interest in the sector. The other stat I just wrote down is we've paid about 10 percent of all corporate tax in Australia in the course of the past year. So it's in all of our interests that the sector and the company remain competitive, able to compete globally. And market interventions and the sudden royalty increases, the one in Queensland was particularly egregious, these things certainly don't help the investment case for Queensland and will hurt the bottom line.

Thanks very much Mike. Perhaps flowing on a little from that is some of the commitments that the company has made generally around its social value that it contributes. And there's a particular question from Joshua who does ask: could he get an update on BHP's progress on gender balance in the workforce and also on indigenous employment?

I'm quite passionate about it. It is set out in our social value framework. So the social value framework that we announced last year talks to these two issues. But I would just call out that it's a contribution that the company makes back to the society around it, but these things support underlying business performance as well. Since the time that we put in place our aspirational goal to be a gender balanced company by 2025, we put that goal in place back in 2016, we've roughly doubled the percentage of the workforce that's comprised of women, so it's now over 33 percent. And it should be no surprise that as we've achieved that, as we've brought new thinking into the company, as we've shifted culture which comes hand in glove with that, we've seen improved underlying business performance as well, both on the safety front and on the productivity front. So this is BHP making a significant contribution back into the society around us and at the same time doing so in a way that helps lift underlying business performance and long-term shareholder value. The same thing can be said on the indigenous employment front, where we continue to increase the proportion of the workforce made up by indigenous, and it varies a little bit by region, but making strong inroads there. And in addition to that, we're increasing spend with indigenous owned and operated businesses again right around the world. That includes recently in our Western Australian iron ore operations where we've put in place an arrangement with a Benjamin owned and operated company to operate one of the semi-mobile crushers that we have in our business. And so there are these success stories for the company, success stories for what we're contributing back to society, and in the case of indigenous businesses, where we're helping through the opportunities that BHP is able to create with indigenous businesses, we're actually supporting long-term business outcomes and business growth.

Mike, you mentioned in first response OZ Minerals and we do have a couple of questions from shareholders on our offer. This from Anthony: can you let me know what are the synergies and cost savings from the takeover of OZ Minerals, in particular the synergies between Olympic Dam and Prominent Hill, and also is BHP looking to expand its gold operations? I suspect this is from a South Australian shareholder. And perhaps I'll start with you Mike on that as well.

Well, why don't I provide some high-level comments and then Geraldine I might pass to you for some of the detail. So where's the process at? The OZ Minerals board has provided their unanimous recommendation that shareholders approve the deal. The independent expert has now come out and that's included in the scheme booklet that OZ has now issued, but the independent expert also has concluded this is in the interest of shareholders. This will go to a vote mid April, and assuming the vote gets up, then implementation would be at the beginning of May. Now as to the question of synergies, I'm sure you'll have a few words on that Geraldine, but I would just call out there's still a lot of technical work and detailed work that will need to be undertaken to fully unlock what we see as an attractive opportunity for synergies and growth over the long term. Because there will be synergies between the groups of assets. OZ Minerals, as most shareholders would know, is particularly in copper and nickel, two of the commodities that we've indicated are important for BHP's future. But there will be some further work to look at exactly how we bring the assets together and unlock long-term synergies. Geraldine?

Thanks Geraldine. And I know we'll move to potash and I'll may ask you these questions Mike. We have a couple: one from Sal who asks, I among many others I'm sure applaud BHP for pursuing the Jansen potash project in Canada, but how confident is BHP in the project that it will play a significant part in aiding global food security for decades to come? And a separate question from Stephen who says, how do you view the future of fertilizers within the BHP portfolio? Are you looking to acquire a bigger stake? And can you update us on the Jansen project in Canada?

Okay, well, look, Jansen and potash are definitely something shareholders should be interested in because this is going to be a big part of BHP's future. And I might start, Gab, with why we like potash before I come back to the specific project. There are three main fertilizers that are needed for global food production: you have nitrates, phosphates, and potassium or potash. So it's one of the three main fertilizers essential for global agricultural production. And in a world where the global population is continuing to grow, where there's pressures on arable land including because of climate change, but even outside of the pressures on arable land, there's a need to conduct agriculture or farming in a more sustainable fashion going forward, and the balanced application of nutrients is going to help with that. So these things coming together, growing population, improving diets which tend to be more calorie intensive as well, coupled with the need for more overall sustainable agricultural production, are going to drive strong continued growth in demand for fertilizers, and we believe in particular for potash. Against that backdrop, we have the world's best greenfield undeveloped potash resources, it's in Saskatchewan in Canada and sitting under BHP's wing now, and Jansen is the first amongst them. And this has been a long time in the making. Back in the second half of calendar year 2021, we made the final investment decision and the project remains on track. Still a few years to go before we get first production. We've recently indicated first production in 2026, that's earlier than we had originally spoken about which was 2027. But with everything that's happened in the period since, which has highlighted some of the security of supply challenges in that commodity with the tragedy that's played out in Ukraine and the impact that's had on potash supply from a competing region, I think that bolsters the case for the importance of this project to global food security for decades to come. Now of course Jansen was never just about stage one, or our potash ambitions aren't just about Jansen stage one. There are successive stages here at Jansen: stage two, stage three, stage four, which over time will make this quite a material business for BHP, or have the potential to be a material business for BHP. For the time being, as we continue to execute Jansen stage one, we've also accelerated the studies into Jansen stage two, and we'll have those studies completed now in financial year 24, a year earlier than originally planned. And that will give us the option then to be able to grow the potash business more quickly if market circumstances warrant, and of course if we continue to execute everything according to plan on Jansen stage one.

Thank you, thank you for that update. I'm going to move to much more in the near term. Some shareholders have been interested in the economic conditions that the company has been operating in, particularly this last period. David, I might direct this question to you. It's from Laura: she says many companies are mentioning higher costs as big factors as part of their results reporting. How is BHP managing these factors, and should we expect inflation to continue?

Yeah, so thanks for the question Laura. Let me start by saying we aren't immune from the inflationary aspects that are playing out across the globe, and certainly we are seeing some lag effect of that. But if I was to draw attention to one area as a bit of a focus, our raw materials is one of the key parts to our cash costs, and diesel period on period was up some 70 percent. And that actually meant from our overall cost space, it's gone from what was around about 5 percent of our cash costs to about 8 percent of our cash costs. So on the back of that, what we're needing to do is constantly look at how do we run the operations efficiently and effectively. And the adoption of the BHP operating system is one way that we actually mitigate some of those, and we look at taking out waste where we see things, we look to prioritize our activities on the things that are critical to the ongoing operations. Now as I said, we aren't immune from that and there is certainly some lag effects coming through. But if you look at things like diesel, we think that we've seen the peak of that. Equally, if you look at inflationary pressures across the globe, we are starting to see some peaks behind us and we think that certainly in the second half we should get some relief on some of those aspects. Having said that, if you look at our performance versus others in this sector, we continue to perform extremely well. If you look at our Western Australian iron ore operation, we are the lowest cost iron ore producer globally. If you look at how we actually performed in both our BMA assets and also at Escondida, we saw that the differential between us and our competitors grew. So we're not immune, we need to continue to focus on what we can control in that regard, and the adoption of things like the BHP operating system is putting us in good stead.

Thanks David. And now a question around the labor market. Geraldine, I'll ask this of you. The question is: with the Australian labor market as tight as it is, how confident are you that you can find enough qualified workers without overpaying for them?

Thank you. One of our shareholders has actually asked a somewhat related question around some of the portfolio changes that we announced just recently. Let me read this question from Anthony, who says: what is the thinking behind the divestment of Daunia and Blackwater while other companies are reporting huge profits off the back of their coal assets? And then a second one from Eleanor, who asks whether coal royalties were part of the motivation for that decision and whether positions will be made available at other BHP mines for any employees from Daunia and Blackwater who want to remain with BHP.

So thank you Anthony and Eleanor. So we did announce at half year, with our joint venture partner Mitsubishi, the divestment of Daunia and Blackwater, and we're progressing that. Look, certainly we've seen high prices and we ourselves of course have seen that in our results. Our decision is a strategic decision that goes beyond any one year in terms of prices, and it's fundamentally based on seeking to high-grade our metallurgical coal portfolio to those assets that we believe are best positioned in terms of what the steel market will be looking for, particularly around decarbonization. We know that our customers will continually seek to optimize their coking coal supply relative to its CO2 potential, and Daunia and Blackwater are at the lower end of the quality spectrum. Now, there's still great assets, but within the portfolio we think they certainly have a place in the future of the industry, just not necessarily competing within the BHP portfolio. To Eleanor's question on the royalties, look, fundamentally it was a strategic decision. What I will say though is that the royalties certainly call into question the competitiveness of investing in Queensland, and so not the direct driver but certainly is just another overlay on the competitiveness of those assets. And maybe finally to pick up Eleanor's question in terms of the divestment, we do see these as strong assets, and we don't see a case whereby we would close the assets, so we will continue to work in sharing the process and the progress with our employee base and with shareholders.

Thank you. I might take a step back now. This is a question in relation to some national issues that are being discussed in Australia. This is a question on the voice and it comes from Derek. Mike, I might ask you to respond to this one. He asks: I understand BHP some months ago expressed a view broadly in favor of the voice constitutional amendment. In light of legal complications and many unknowns of the detail now being raised in the media as more information of the proposal becomes available, are you still of that same view? Perhaps BHP should adopt a more neutral position on what is becoming a very divisive political issue. The constitutional amendment will be decided by a vote by Australian citizens, not companies, financial institutions, or boards. Mike, over to you.

So I might start my response with the back end of the question, the point that was made. Yes, at the end of the day this will be a referendum and decided by the Australian people, and it's not for companies to just direct employees or others how to vote. Having said that, I do think it's appropriate, particularly for something like this where the partnership and the relationship that we have with First Nations and Indigenous people globally, but including here in Australia, is just so fundamental to the company. Everywhere BHP operates, we operate on or close to the lands of First Nations peoples. Here in Australia, we have traditional owners associated with all of our operations. And against that backdrop of the importance and the special nature of the relationship between the resources sector and Indigenous peoples, and BHP and Indigenous peoples, we have been long-standing supporters of reconciliation between Indigenous and non-Indigenous Australians. Back in 2019, after a process of engagement with traditional owners, with employees, with other Indigenous and Aboriginal and Torres Strait Islander leaders across Australia, we came out in support of the Uluru Statement from the Heart, inclusive of the call for voice, and we maintain that support. In the period since, we've continued to engage internally and externally to ensure that our understanding of the topic is current and to appropriately calibrate the contribution that we can make to this in terms of the public discourse, and that position remains. The other point I would note is that of course our efforts in respect of reconciliation go well beyond support for the Uluru Statement and voice. We're Australia's largest resources sector employer of Indigenous Australians. We're an increasingly big business partner to Indigenous businesses across Australia. And the same can be said for the other regions that BHP operates in.

Geraldine, is it something that's of conversation at the operations?

Thank you Geraldine. I'm now on to a couple of questions around battery metals. And Mike, I'll ask you to take these. Jeffrey asks: are you considering any new mergers and acquisitions in lithium, especially with the uptake of electric vehicles? And Sal separately asks: is BHP actively pursuing a lithium project strategy?

So what an exciting space, battery minerals, and they're going to make a critical contribution to the world's ability to mitigate climate change and to keep the world at no more than 1.5 degrees. The electric vehicle space along with the broader electrification of the economy is going to be absolutely essential. Now we as BHP need to be deliberate about the role that we choose to take up in helping to meet that need for electrification. If I talk specifically about lithium, lithium is a commodity where we've said, we're broadly aligned with others, we think that there's going to be strong growth in demand for lithium for electric vehicles, but it's not a commodity for BHP. Instead, we're choosing to prioritize copper, and I'll come back to why in a second. In the case of lithium, whilst we see the demand outlook being strong, that's not enough to make it a BHP commodity. There has to be sufficient scale in the industry for it to be a needle mover for BHP. It has to afford the opportunity, through the shape of the cost curve, the difference between the high cost players and the low-cost players, to generate attractive margins over time. We have to be able to secure big, long-life assets which are the sorts of assets that BHP is good at operating. And it has to be aligned with our capabilities. And there are a number of dimensions in there that for lithium don't quite match up with those requirements from a BHP perspective. Whereas in the case of copper, it's a bigger industry both now and in the future, the underlying assets can be at quite large scale as we see with the likes of Escondida, Spence, and Olympic Dam, wholly aligned with BHP's capabilities, something we've been doing for decades now. And the cost curves, because of the difference in grade and so on, we believe that it's going to afford better margin potential for the company over time. So we've elected to prioritize copper, but of course nickel as well. So if we come back to the thematic of electric vehicles, electric vehicles yes they use lithium, they actually use a lot more nickel, and we believe that nickel demand for electric vehicle batteries and batteries more broadly is going to be pretty durable. Nickel is really important for high energy density batteries. And we have the world's second largest nickel sulfide resource, we've got the world's largest copper resource, world's second largest nickel sulfide resource. We have a great set of infrastructure in place in Nickel West in Western Australia. We've moved a little bit further downstream in terms of the battery raw materials supply chain in that we've stood up our first nickel sulfate plant, so we've gone from just producing nickel to now producing nickel sulfate, which then goes into battery precursor, which goes into battery manufacturing. Is BHP going to be a battery manufacturer? Coming back to the other half of the question: no, because that's not within BHP's capability set. But certainly the mining of the resource, a degree of processing around the metal both for copper and nickel, is aligned with what we're good at, and two commodities along with potash which are going to underpin future growth for the company and our ability to continue to grow value for shareholders and other stakeholders.

Perhaps I'll ask about another commodity: hydrogen. And maybe Geraldine, I'll push this one to you. It's from Gordon. He says: does BHP have any current or near-term interest in hydrogen investments in Australia?

Thank you Geraldine. We are just about out of time. I think you would all agree that our shareholders have taken you around the world in the near term and our prospects, but also into the long term and some of the exciting things that you have planned ahead for us and our shareholders. Maybe Mike, I'll finish with you. If there's anything that you would like to leave shareholders with?

Well look, let me come back to where we started the conversation, Gab, on safety. This is a fundamental value for the company. It's something that everybody sitting up here, David, Geraldine, myself, the rest of the ELT, and the BHP board takes incredibly seriously. And off the back of the tragic loss of life that occurred last month, we are doubling down, tripling down to find new ways to further strengthen the focus that we have on this and our underlying safety performance. The company is performing well. This underlying focus through the BHP operating system and the way that we've set ourselves up, focus on continuous improvement year in and year out, eking out that little bit of incremental performance across the business, coupled with such a strong approach to social value and enduring commitment to that, together with our disciplined approach to capital allocation, David referenced the capital allocation framework earlier, all of that brought together with this very clear plan on how we're going to grow the company across the commodities of potash, copper, and nickel while continuing to grow shareholder value in our iron ore and metallurgical coal businesses, I think provides a pretty compelling proposition for shareholders. All the commodities we now have in our portfolio stand to see upside in a growing global economy and faster decarbonizing world. And so we've increasingly got the portfolio that we're seeking to support long-term shareholder value growth, and we've coupled that with this strong approach to operations and strong approach to social value as well.

Thanks Mike. And thank you to all of you who joined us for the discussion and for your ongoing interest and support, particularly at a time when mining and minerals are very topical for investors and there's a lot of questions around. We look forward to speaking with you all again soon.