BHP : Operational Review for the half year ended 31 December 2022 - Release

Release Time	IMMEDIATE
Date	19 January 2023
Release Number	1/23

BHP OPERATIONAL REVIEW

FOR THE HALF YEAR ENDED 31 DECEMBER 2022

• We remained fatality free at our operated assets for the fourth consecutive year and continued to deliverreliable operational performance during the quarter.
• Western Australia Iron Ore (WAIO) achieved record production of 146 Mt (100% basis) for the half year.
• Production guidance for the 2023 financial year remains unchanged, with Escondida and BHP MitsubishiAlliance (BMA) trending to the low end of their respective guidance ranges.
• Full year unit cost guidance1 for Escondida and WAIO remains unchanged. Unit cost guidance for BMAand New South Wales Energy Coal (NSWEC) has been increased, largely reflecting production impacts from significant wet weather and inflationary pressures.
• BHP entered into a Scheme Implementation Deed with OZ Minerals Ltd (OZL) to acquire 100% of OZL byway of a scheme arrangement for a cash price of A$28.25 per OZL share.

BHP Chief Executive Officer, Mike Henry:

"BHP delivered safe and reliable operating performance in the first half of the 2023 financial year. Employees and contractors across BHP continued to prioritise safety, resulting in the fourth consecutive year without a fatality.

WA Iron Ore (WAIO) delivered record production for the half year through strong supply chain performance, supported by the ongoing ramp-up at South Flank. Copper production at Escondida rose despite road blockades in Chile in the December quarter and the Spence Growth Option continued to ramp up, while Olympic Dam's ongoing smelter performance saw near-record material processing and record gold production. In Queensland, coal production was again impacted by heavy rainfall. As foreshadowed, we are seeing the impact of inflation across our global supply chains and continue to focus on productivity and controllable costs.

BHP believes China will be a stabilising force when it comes to commodity demand in the 2023 calendar year, with OECD nations experiencing economic headwinds. China's pro-growth policies, including in the property sector, and an easing of COVID-19 restrictions are expected to support progressive improvement from the difficult economic conditions of the first half. China is expected to achieve its fifth straight year of over 1 billion tonnes of steel production.

During the quarter, we continued to progress a number of growth pathways to shape our portfolio toward future facing commodities and reduce our operational emissions. In December 2022, BHP's scheme implementation deed to acquire 100% of Australian copper producer OZ Minerals received unanimous support from the OZ Minerals Board ahead of a shareholder vote in the coming months."

Production	Dec H22	Dec Q22
	(vs Dec H21)	(vs Sep Q22)	Dec Q22 vs Sep Q22 commentary
Copper (kt)	834.4	424.3	Higher volumes at Escondida due to higher throughput, higher concentrate volumes
	12%	3%	at Spence reflecting the ramp up of the Spence Growth Option, and strong volumes
			at Olympic Dam as a result of planned refinery maintenance in the prior period.
Iron ore (Mt)	132.0	66.9	Record production at WAIO in the month of December 2022 due to strong supply chain
	2%	3%	performance and reduced impacts of labour constraints and wet weather.
Metallurgical coal (Mt)	13.6	7.0	Higher volumes due to improved strip ratios and the planned longwall move at
	5%	4%	Broadmeadow in the prior period, partially offset by continued significant wet weather.
Energy coal (Mt)	5.5	2.9	Higher volumes due to improved operating conditions, including less significant wet
	(24%)	9%	weather impacts and reduced labour shortages in the December 2022 quarter,
			partially offset by planned wash plant maintenance completed in November 2022.
Nickel (kt)	38.4	17.7	Lower volumes due to planned maintenance at the smelter and refinery.
	(2%)	(14%)
BHP Operational Review for the half year ended 31 December 2022	1

Summary

Operational performance

Production and guidance are summarised below.

			Dec H22	Dec Q22	Dec Q22	Previous	Current
	Dec	Dec	vs	vs	vs	FY23	FY23
Production	H22	Q22	Dec H21	Dec Q21	Sep Q22	guidance	guidance
Copper (kt)	834.4	424.3	12%	16%	3%	1,635 - 1,825	1,635 - 1,825
Escondida (kt)	510.7	258.0	5%	5%	2%	1,080 - 1,180	1,080 - 1,180	Low end
Pampa Norte (kt)	147.3	76.7	8%	12%	9%	240 - 290	240 - 290	Unchanged
Olympic Dam (kt)	104.1	54.4	138%	283%	9%	195 - 215	195 - 215	Unchanged
Antamina (kt)	72.3	35.2	(3%)	(8%)	(5%)	120 - 140	120 - 140	Unchanged
Iron ore (Mt)	132.0	66.9	2%	1%	3%	249 - 260	249 - 260
WAIO (Mt)	129.7	65.8	2%	1%	3%	246 - 256	246 - 256	Unchanged
WAIO (100% basis) (Mt)	146.4	74.3	1%	1%	3%	278 - 290	278 - 290	Unchanged
Samarco (Mt)	2.2	1.1	8%	6%	(5%)	3 - 4	3 - 4	Unchanged
Metallurgical coal - BMA (Mt)	13.6	7.0	5%	10%	4%	29 - 32	29 - 32
BMA (100% basis) (Mt)	27.2	13.9	5%	10%	4%	58 - 64	58 - 64	Low end
Energy coal - NSWEC (Mt)	5.5	2.9	(24%)	(4%)	9%	13 - 15	13 - 15	Unchanged
Nickel (kt)	38.4	17.7	(2%)	(18%)	(14%)	80 - 90	80 - 90	Unchanged

Summary of disclosures

BHP expects its financial results for the half year ended 31 December 2022 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 21 February 2023. Accordingly, the information in the table below contains preliminary information that is subject to update and finalisation.

	H1 FY23
	impact
Description	US$Mi	Classificationii
Unit costs for the December 2022 half year at Escondida are expected to be towards the upper	-	Operating costs
end of full year guidance; unit costs at WAIO, BMA and NSWEC are expected to be above full
year guidance (at guidance exchange rates)
Note: weaker Australian dollar and Chilean peso than guidance rates in the periodiii
For the 2023 financial year, unit costs at WAIO and Escondida are tracking towards the upper	-	Operating costs
end of full year guidance (at guidance exchange rates)
Unit cost guidance for BMA has been increased to between US$100 and US$105 per tonne (at
guidance exchange rates) reflecting full year volumes tracking to the low end of production
guidance due to significant wet weather, inventory movements and inflationary pressures
Unit cost guidance for NSWEC has been increased to between US$84 and US$91 per tonne
(at guidance exchange rates) reflecting production impacts from record wet weather,
inflationary pressures and price-linked logistics costs
Exploration expense	127	Exploration expense
The Group's adjusted effective tax rate for H1 FY23 is expected to be slightly below the full year	-	Taxation expense
guidance range of 30 to 35 per cent
Working capital movements relating to royalties, net price impacts on receivables and payables,	1,000-1,400	↓ Operating cash flow
and other movements
Settlement of derivative related to the funding of the final FY22 dividend (note: together with	~210	↓ Operating cash flow
the payment of US$8.7 billion reported in financing cash outflow, the combined payment of
US$8.9 billion represents the final dividend determined on 16 August 2022 in the financial
results for the year ended 30 June 2022)
Additional net proceedsiv received from the sale of BHP's 80 per cent interest in BMC	74	↑ Investing cash flow
Dividends paid to non-controlling interests	527	↓ Financing cash flow
Financial impact on BHP Brasil of the Samarco dam failure	Refer footnotev	Exceptional item
The financial impact is expected to primarily relate to amortisation of discounting on the
provision and the impact of foreign exchange

1. Numbers are not tax effected, unless otherwise noted.
2. There will be a corresponding balance sheet, cash flow and/or income statement impact as relevant, unless otherwise noted.
3. Average exchange rates for H1 FY23 of AUD/USD 0.67 (guidance rate AUD/USD 0.72) and USD/CLP 920 (guidance rate USD/CLP 830).
4. Second purchase price instalment offset by working capital adjustments.
5. Financial impact is the subject of ongoing work and is not yet finalised. See corporate update section for further information on Samarco.

BHP Operational Review for the half year ended 31 December 2022

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Average realised prices

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

					Dec H22	Dec H22	Dec H22
Average realised pricesi					vs	vs	vs
Dec H22	Dec H21	Jun H22	FY22	Dec H21	Jun H22	FY22
Copper (US$/lb)	3.49	4.31	4.02	4.16	(19%)	(13%)	(16%)
Iron ore (US$/wmt, FOB)	85.46	113.54	112.65	113.10	(25%)	(24%)	(24%)
Metallurgical coal (US$/t)	268.73	259.71	423.82	347.10	3%	(37%)	(23%)
Hard coking coal (US$/t)ii	270.65	278.60	437.60	366.82	(3%)	(38%)	(26%)
Weak coking coal (US$/t)ii	252.12	218.65	382.56	296.51	15%	(34%)	(15%)
Thermal coal (US$/t)iii	354.30	137.68	302.60	216.78	157%	17%	63%
Nickel metal (US$/t)	24,362	19,651	27,399	23,275	24%	(11%)	5%

1. 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.
2. 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.
3. Includes thermal coal sales from metallurgical coal mines.

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 for the December 2022 half year were based on an average moisture rate of 6.8 per cent. The large majority of metallurgical coal and energy coal exports were linked to index pricing for the month of scheduled shipment or priced on the spot market at fixed or index-linked prices, with price differentials reflecting product quality. The large majority of copper cathodes sales were linked to index price for quotation periods one month after month of shipment, and three to four months after month of shipment for copper concentrates sales with price differentials applied for location and treatment costs.

At 31 December 2022, the Group had 319 kt of outstanding copper sales that were revalued at a weighted average price of US$3.80 per pound. The final price of these sales will be determined over the remainder of the 2023 financial year. In addition, 354 kt of copper sales from the 2022 financial year were subject to a finalisation adjustment in the current period. The provisional pricing and finalisation adjustments will decrease Underlying EBITDA by US$59 million in the December 2022 half year and are included in the average realised copper price in the above table.

Corporate update

Portfolio

In December 2022, BHP announced the signing of aScheme Implementation Deed (SID) with OZ Minerals Ltd (OZL)to acquire 100 per cent of OZL through a scheme of arrangement for a cash price of A$28.25 per OZL share. The SID confirms the terms of the scheme and BHP's non-bindingindicative proposal announced on 18 November 2022. The implementation of the scheme is subject to satisfaction of certain conditions including OZL shareholder approval. The OZL Board has unanimously recommended that OZL shareholders vote in favour of the scheme in the absence of a superior proposal and subject to an independent expert concluding that the scheme is in the best interests of OZL shareholders.

In October 2022, BHP agreed to invest an additional US$50 million (the second investment) in the Kabanga Nickel Project (Kabanga) in Tanzania, subject to the satisfaction of customary conditions precedent. On closing, BHP's equity stake in Kabanga will increase to 14.3 per cent. In addition, BHP has signed an agreement with Kabanga Nickel Limited giving BHP the option to increase its interest in Kabanga to 51 per cent.

Decarbonisation

Throughout the December 2022 quarter we continued to make progress towards our decarbonisation targets and goals and supported efforts to reduce greenhouse gas (GHG) emissions across our value chain.

In October 2022, BHP entered into anagreement with ArcelorMittal, Mitsubishi Heavy Industries and Mitsubishi Developmentfor a multi-yeartrial of carbon capture technology, which will involve a feasibility and design study to support progress to full scale deployment, and trials at two of ArcelorMittal's steel plants.

BHP Operational Review for the half year ended 31 December 2022

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In November 2022, BHP signed a renewable Power Purchase Agreement (PPA) with Neoen, which is expected to meet half of Olympic Dam's electricity needs from the 2026 financial year, based on current forecast demand, and allow Olympic Dam to record a net zero emission position for the contracted volume of supply.

Samarco

In December 2022, BHP agreed to fund US$915 million in further financial support for the Renova Foundation. The funding is for the 2023 calendar year and will be offset against the Group's provision for the Samarco dam failure.

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 21 February 2023. Any financial impacts will continue to be treated as an exceptional item.

Copper

Production

			Dec H22	Dec Q22	Dec Q22
			vs	vs	vs
	Dec H22	Dec Q22	Dec H21	Dec Q21	Sep Q22
Copper (kt)	834.4	424.3	12%	16%	3%
Zinc (t)	62,614	29,929	0%	1%	(8%)
Uranium (t)	1,760	943	115%	229%	15%

Copper - Total copper production increased by 12 per cent to 834 kt. Guidance for the 2023 financial year remains unchanged at between 1,635 and 1,825 kt.

Escondida copper production increased by five per cent to 511 kt primarily due to higher concentrator feed grade of

0.79 per cent, compared to 0.72 per cent in the December 2021 half year. The higher grade was partially offset by lower throughput and the impact of road blockades across Chile in the December 2022 quarter, which reduced availability of some key mine supplies. Full year production is trending towards the low end of the guidance range of between 1,080 and 1,180 kt as a result of lower than expected concentrator feed grade and throughput. Production is weighted to the second half of the year, with concentrator feed grade expected to improve compared to the December 2022 half year. Medium term guidance of 1.2 Mtpa of copper production on average over the next five years remains unchanged.

Pampa Norte copper production increased by eight per cent to 147 kt reflecting the continued ramp up of the Spence Growth Option (SGO). Guidance for the 2023 financial year remains unchanged at between 240 and 290 kt. The SGO plant modifications started in August 2022 and are planned to be completed in the 2023 calendar year. Expected capital expenditure for the works remains unchanged at approximately US$100 million. Further studies are ongoing for additional capacity uplift at SGO. Cerro Colorado continues to transition towards planned closure at the end of the 2023 calendar year.

At Spence, we continue to closely monitor previously identified Tailings Storage Facility (TSF) anomalies. We have reduced the volume of water in the tailings facility and continue to work with the local regulatory agencies, including on the implementation of a remediation plan for the TSF. The SGO concentrator continues to operate with no impact to production or market guidance. Spence is expected to reach an average of approximately 270 ktpa of production for four years (including cathodes) following the completion of the SGO plant modifications and remediation of TSF anomalies.

Olympic Dam copper production increased by 138 per cent to 104 kt primarily as a result of the major smelter maintenance campaign (SCM21) in the prior period. Continued strong concentrator and smelter performance resulted in near record material milled and concentrate smelted in the half year. Record gold production was also achieved in the half year as a result of debottlenecking initiatives implemented in the prior year. Copper production guidance for the 2023 financial year remains unchanged at between 195 and 215 kt.

Antamina copper production decreased by three per cent to 72 kt reflecting lower copper head grades partially offset by higher throughput. Zinc production was flat at 63 kt reflecting lower zinc head grades offset by higher throughput. Guidance remains unchanged for the 2023 financial year, with copper production of between 120 and 140 kt, and zinc production of between 115 and 135 kt.

BHP Operational Review for the half year ended 31 December 2022

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Iron ore

Production

			Dec H22	Dec Q22	Dec Q22
			vs	vs	vs
	Dec H22	Dec Q22	Dec H21	Dec Q21	Sep Q22
Iron ore production (kt)	131,975	66,902	2%	1%	3%

Iron ore - Total iron ore production increased by two per cent to 132 Mt. Guidance for the 2023 financial year remains unchanged at between 249 and 260 Mt.

WAIO achieved record production of 130 Mt (146 Mt on a 100 per cent basis) in the December 2022 half year. This reflects continued strong supply chain performance, including improved car dumper utilisation, and lower COVID-19 related impacts than the prior period. This was partially offset by wet weather impacts in the September 2022 quarter. South Flank ramp up to full production capacity of 80 Mtpa (100 per cent basis) by the end of the 2024 financial year remains on track. Natural variability in the ore grade is expected as the mine progresses through the close to surface material, however this is expected to stabilise as we move deeper into the ore body and achieve full ramp up.

WAIO production guidance for the 2023 financial year remains unchanged at between 246 and 256 Mt (278 and 290 Mt on a 100 per cent basis) and reflects the tie-in of the port debottlenecking project (PDP1) as well as the continued ramp up of South Flank in the second half of the year.

Samarco production increased by eight per cent to 2.2 Mt (BHP share), reflecting the successful ramp up of one concentrator, following the recommencement of iron ore pellet production in December 2020. Guidance for the 2023 financial year remains unchanged at between 3 and 4 Mt (BHP share).

Coal

Production

			Dec H22	Dec Q22	Dec Q22
			vs	vs	vs
	Dec H22	Dec Q22	Dec H21	Dec Q21	Sep Q22
Metallurgical coal (kt)	13,614	6,952	5%	10%	4%
Energy coal (kt)	5,473	2,851	(24%)	(4%)	9%

Metallurgical coal - BMA production increased by five per cent to 14 Mt (27 Mt on a 100 per cent basis) driven by an improvement in underlying truck productivity, in particular for the autonomous fleets following completion of the transitions at Goonyella and Daunia, higher yields as a result of mine sequencing, as well as the reduced impact of labour constraints relative to the prior period. This was partially offset by the impact of significant wet weather during the December 2022 half year2. Full year production is trending to the low end of the guidance range of between 29 and 32 Mt (58 and 64 Mt on a 100 per cent basis) as a result of significant wet weather. An additional long wall move at Broadmeadow has been accelerated into the June 2023 quarter due to improved mining rates.

Negotiations for the BMA Enterprise Agreement (EA) 2022 have concluded with a successful workforce ballot on 22 December 2022. The EA applies to the Goonyella Riverside, Peak Downs, Saraji and Blackwater mines. The new EA has been approved by the Fair Work Commission and will operate from 19 January 2023 for a period of three years.

The Queensland Government's decision to raise coal royalties to the highest maximum rate in the world makes Queensland uncompetitive and puts investment and jobs at risk. We see strong long-term demand from global steelmakers for Queensland's high quality metallurgical coal, however in the absence of government policy that is both competitive and predictable, we are unable to make significant new investments in Queensland. This increase to royalties will impact the local businesses, suppliers and communities in Central Queensland where we operate.

Energy coal - NSWEC production decreased by 24 per cent to 5 Mt, reflecting the ongoing impacts of record wet weather, continued labour shortages, planned wash plant maintenance during the December 2022 quarter and an increased proportion of washed coal. Higher quality coals made up approximately 90 per cent of sales, compared to approximately 80 per cent in the December 2021 half year. Production guidance for the 2023 financial year remains unchanged at between 13 and 15 Mt.

BHP Operational Review for the half year ended 31 December 2022

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