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

Release Time	IMMEDIATE
Date	19 January 2022
Release Number	02/22

BHP OPERATIONAL REVIEW

FOR THE HALF YEAR ENDED 31 DECEMBER 2021

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

• We remained fatality free at our operated assets for the third consecutive year.
• WAIO achieved near record production for the half year and Escondida achieved record material mined,notwithstanding the impacts of significant wet weather and the COVID-19Omicron variant on some operations.
• Production guidance for the 2022 financial year remains unchanged for iron ore, energy coal and nickel.Full year total copper production is trending towards the low end of the guidance range, reflecting lower production guidance for Pampa Norte. Metallurgical coal guidance has been reduced as a result of significant wet weather impacts and COVID-19related labour constraints.
• Full year unit cost guidance(1) for WAIO, Escondida and NSWEC remains unchanged. Unit cost guidancefor Queensland Coal has been increased, reflecting lower expected volumes for the full year.
• Progress on the review of our lower grade metallurgical coal and thermal coal assets continues. TheCerrejón divestment to Glencore completed in January 2022 and the announced share sale agreement to divest BHP Mitsui Coal (BMC) is expected to complete in the middle of the 2022 calendar year.
• Our potash major projects under development are tracking to plan. The Jansen shaft project is 98%complete and the Jansen Stage 1 project has commenced contract awards.
• BHP announced a final decision to unify BHP's corporate structure under its existing Australian parent

company, BHP Group Limited. Shareholder meetings to vote on unification will be held on 20 January 2022. Subject to shareholder approval and UK Court sanction, unification is expected to complete by 31 January 2022.

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

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

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

BHP Operational Review for the half year ended 31 December 2021

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Summary

BHP Chief Executive Officer, Mike Henry:

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

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

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

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

Operational performance

Production and guidance are summarised below.

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

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

1. We announced the share sale agreement to divest our interest in BHP Mitsui Coal (BMC) in November 2021, however will continue to report BMC as part of Queensland Coal. We maintain economic and operating control of BMC until the sale has completed.
2. We have ceased providing Cerrejón production guidance due to the completion of the divestment of our interest. The transaction has an effective economic date of 31 December 2020 and volumes have been reported separately.
3. Given our announcement of a binding share sale agreement for the merger of BHP's oil and gas portfolio with Woodside in November 2021, no further annual production guidance for FY22 for Petroleum will be provided. However, until merger completion, we expect a production run rate broadly consistent with the original FY22 production guidance of between 99 and 106 MMboe.

BHP Operational Review for the half year ended 31 December 2021

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Summary of disclosures

BHP expects its December 2021 half year financial results to reflect certain items as summarised in the table below. The table does not provide a comprehensive list of all items impacting the period. The financial statements are the subject of ongoing work that will not be finalised until the release of the financial results on 15 February 2022. Accordingly the information in the table below contains preliminary information that is subject to update and finalisation.

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

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 FY22 of AUD/USD 0.73 (guidance rate AUD/USD 0.78) and USD/CLP 798 (guidance rate USD/CLP 727).
4. There will be no net income statement impact in relation to Cerrejón for H1 FY22. While the dividends received will be recognised as other income, the associated adjustment to the proceeds to be received on sale completion results in an offsetting expense to reflect the reduction in the carrying value of the Cerrejón assets held for sale.
5. Financial impact is the subject of ongoing work and is not yet finalised. See corporate update section for further information on Samarco.

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

Major development projects

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

BHP Operational Review for the half year ended 31 December 2021

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Average realised prices

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

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

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

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

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

Corporate update

Portfolio

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

In November 2021, BHP signed a binding Share Sale Agreement for the merger of BHP's oil and gas portfolio with Woodside to create a global top 10 independent energy company by production. It is proposed that Woodside will acquire BHP Petroleum in exchange for new Woodside shares. Completion of the merger is subject to satisfaction of conditions precedent including regulatory and competition authority approvals and approval by Woodside's shareholders. The process remains on track and the Australian Competition and Consumer Commission provided informal clearance of the merger in December 2021. The Woodside shareholder meeting to vote on the merger as

BHP Operational Review for the half year ended 31 December 2021

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well as completion of the merger is targeted for the June 2022 quarter. In addition to its primary listing on the Australian Securities Exchange, Woodside is pursuing a standard listing on the London Stock Exchange and a listing of American Depositary Receipts on the New York Stock Exchange.

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

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

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

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

Samarco

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

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

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

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

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

BHP Operational Review for the half year ended 31 December 2021

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