UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

OR

FOR THE FISCAL YEAR ENDED 30 JUNE 2018.

OR

Date of event requiring this shell company report                     

For the transition period from                      to                     

Securities registered or to be registered pursuant to section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

BHP

Our Charter

We are BHP,

a leading global resources company.

All references to websites in the Annual Report are intended to be inactive textual reference for information only and information contained in or accessible through any such website does not form a part of this Annual Report.

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BHP Billiton Limited. ABN 49 004 028 077. Registered in Australia. Registered office: 171 Collins Street, Melbourne, Victoria 3000, Australia. BHP Billiton Plc. Registration number 3196209. Registered in England and Wales. Registered office: Nova South, 160 Victoria Street London SW1E 5LB United Kingdom. Each of BHP Billiton Limited and BHP Billiton Plc is a member of the Group, which has its headquarters in Australia. BHP is a Dual Listed Company structure comprising BHP Billiton Limited and BHP Billiton Plc. The two entities continue to exist as separate companies but operate as a combined group known as BHP.

The headquarters of BHP Billiton Limited and the global headquarters of the combined Group are located in Melbourne, Australia. The headquarters of BHP Billiton Plc are located in London, United Kingdom. Both companies have identical Boards of Directors and are run by a unified management team. Throughout this publication, the Boards are referred to collectively as the Board. Shareholders in each company have equivalent economic and voting rights in the Group as a whole.

In this Annual Report, the terms ‘BHP’, ‘Group’, ‘BHP Group’, ‘our business’, ‘Company’, ‘organisation’, ‘we’, ‘us’, ‘our’ and ‘ourselves’ refer to BHP Billiton Limited, BHP Billiton Plc and, except where the context otherwise requires, their respective subsidiaries as defined in note 27 ‘Subsidiaries’ in section 5.1 of this Annual Report, unless stated otherwise. Those terms do not include non-operated assets. This Annual Report covers BHP’s assets (including those under exploration, projects in development or execution phases, sites and closed operations) that have been wholly owned and/or operated by BHP and assets that have been owned as a joint venture¹ operated by BHP (referred to in this Report as ‘assets’, ‘operated assets’ or ‘operations’) during the period from 1 July 2017 to 30 June 2018. Our Marketing and Supply business and our functions are also included.

BHP also holds interests in assets that are owned as a joint venture but not operated by BHP (referred to in this Annual Report as ‘non-operated joint ventures’ or ‘non-operated assets’). Notwithstanding that this Annual Report may include production, financial and other information from non-operated assets, non-operated assets are not included in the BHP Group and, as a result, statements regarding our operations, assets and values apply only to our operated assets unless stated otherwise.

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Contents

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Forward looking statements

This Annual Report contains forward looking statements, including statements regarding trends in commodity prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; closure or divestment of certain assets, operations or facilities (including associated costs); anticipated production or construction commencement dates; capital costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; provisions and contingent liabilities; and tax and regulatory developments.

Forward looking statements may be identified by the use of terminology including, but not limited to, ‘intend’, ‘aim’, ‘project’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’, ‘expect’, ‘may’, ‘should’, ‘will’, ‘continue’ or similar words. These statements discuss future expectations concerning the results of assets or financial conditions, or provide other forward looking information.

These forward looking statements are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and which may cause actual results to differ materially from those expressed in the statements contained in this Annual Report. Readers are cautioned not to put undue reliance on forward looking statements.

For example, our future revenues from our assets, projects or mines described in this Annual Report will be based, in part, on the market price of the minerals, metals or petroleum products produced, which may vary significantly from current levels. These variations, if materially adverse, may affect the timing or the feasibility of the development of a particular project, the expansion of certain facilities or mines, or the continuation of existing assets.

Other factors that may affect the actual construction or production commencement dates, costs or production output and anticipated lives of assets, mines or facilities include our ability to profitably produce and transport the minerals, petroleum and/or metals extracted to applicable markets; the impact of foreign currency exchange rates on the market prices of the minerals, petroleum or metals we produce; activities of government authorities in the countries where we are exploring or developing projects, facilities or mines, including increases in taxes, changes in environmental and other regulations and political uncertainty; labour unrest; and other factors identified in the risk factors set out in section 1.6.4 of this Annual Report.

Except as required by applicable regulations or by law, BHP does not undertake to publicly update or review any forward looking statements, whether as a result of new information or future events.

Past performance cannot be relied on as a guide to future performance.

Agreements for sale of Onshore US

On 27 July 2018, BHP announced it had entered into agreements for the sale of its entire interests in the Eagle Ford, Haynesville, Permian and Fayetteville Onshore US oil and gas assets for a combined base consideration of US$10.8 billion, payable in cash. BP America Production Company, a wholly owned subsidiary of BP Plc, has agreed to acquire 100% of the issued share capital of Petrohawk Energy Corporation, the BHP subsidiary which holds the Eagle Ford, Haynesville and Permian assets, for a consideration of US$10.5 billion (less customary completion adjustments). MMGJ Hugoton III, LLC, a company owned by Merit Energy Company, has agreed to acquire 100% of the issued share capital of BHP Billiton Petroleum (Arkansas) Inc. and 100% of the membership interests in BHP Billiton Petroleum (Fayetteville) LLC, which hold the Fayetteville assets, for a total consideration of US$0.3 billion (less customary completion adjustments). Both sales are subject to the satisfaction of customary regulatory approvals and conditions precedent.

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For IFRS accounting purposes, Onshore US is treated as Discontinued operations in BHP’s Financial Statements. Unless otherwise stated, information in section 5 of this Annual Report has been presented on a Continuing operations basis to exclude the contribution from Onshore US assets. Details of the contribution of Onshore US assets to the Group’s results are disclosed in note 26 ‘Discontinued operations’ in section 5. All other information in this Annual Report relating to the Group has been presented on a Continuing and Discontinued operations basis to include the contribution from Onshore US assets, unless otherwise stated.

Unless otherwise stated, comparative financial information for FY2017, FY2016, FY2015 and FY2014 has been restated to reflect the announcement of the sale of the Onshore US assets on 27 July 2018 and the demerger of South32 in FY2015, as required by IFRS 5/AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. Consolidated Balance Sheet information for these periods has not been restated as accounting standards do not require it.

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Form 20-F Cross Reference Table

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1    Strategic Report

About this Strategic Report

This Strategic Report in section 1 provides insight into BHP’s strategy, operating and business model, and objectives. It describes the principal risks BHP faces and how these risks might affect our future prospects. It also gives our perspective on our recent operational and financial performance.

This disclosure is intended to assist shareholders and other stakeholders to understand and interpret the Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) included in this Annual Report. The basis of preparation of the Consolidated Financial Statements is set out in section 5.1. We also use alternative performance measures to explain our underlying performance; however, these measures should not be considered as an indication of, or as a substitute for, statutory measures as an indicator of actual operating performance or as a substitute for cash flow as a measure of liquidity. To obtain full details of the financial and operational performance of BHP, this Strategic Report should be read in conjunction with the Consolidated Financial Statements and accompanying notes. Underlying EBITDA is the key measure that management uses internally to assess the performance of the Group’s segments and make decisions on the allocation of resources. Unless otherwise stated, data in section 1 is presented on a Continuing operations and Discontinued operations basis.

This Strategic Report in section 1 meets the requirements of the UK Companies Act 2006 and the Operating and Financial Review required by the Australian Corporations Act 2001.

References to sections of the Annual Report beyond section 1 are references to other sections in this Annual Report 2018. Shareholders may obtain a hard copy of the Annual Report free of charge by contacting our Share Registrars, whose details are set out in our Corporate Directory on the inside back cover of this Annual Report.

1.1    Chairman’s Review

Dear Shareholder,

I am pleased to provide this Annual Report of your Company’s performance in FY2018.

This year, we have further simplified and strengthened BHP, enhanced our Capital Allocation Framework, sharpened our focus on culture and productivity and delivered a solid set of financial results. This has enabled us to announce a record final dividend of 63 US cents per share.

We have also invested in the future. Earlier this year, your Board approved US$2.9 billion in capital expenditure for the South Flank iron ore project in Western Australia, following a thorough evaluation against our Capital Allocation Framework. South Flank offers attractive returns for shareholders and will enhance the average quality grade of BHP’s Western Australia Iron Ore production.

To further strengthen our portfolio, we undertook a robust and competitive sales process for our Onshore US assets in FY2018. We anticipate completing the sale of these assets by the end of October, for US$10.8 billion. We understand that cash returns are important to shareholders, and we expect to return the net proceeds from these transactions to shareholders.

Throughout this first year as Chairman of BHP, I have visited a number of our assets around the world. Wherever I have travelled, I have been struck by the commitment of our people to Our Charter values and their dedication to this great company.

Our people are the backbone of BHP and their safety is of paramount importance. So it is with deep sadness that we report the deaths of two of our colleagues at work in FY2018. We achieve nothing if it is not done safely and in the wake of these tragedies, we have redoubled efforts to protect the health and safety of everyone who works at BHP.

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Throughout FY2018, I have also met with many of our shareholders and stakeholders. I recently concluded my second global investor roadshow, where discussions centred on five key priorities for BHP – safety, our portfolio, capital discipline, capability and culture, and our social licence. Our unrelenting focus on these key areas is fundamental to our efforts to create value for our shareholders, and to continue to make a difference.

I will provide an update on our progress against these themes at our Annual General Meetings in London and Adelaide, later in the calendar year.

Your Board takes a structured and rigorous approach to succession planning. We consider Board size, tenure and the skills, experience and attributes required to effectively govern and manage risk within BHP to ensure we have the right balance between experience and fresh perspectives. We also take account of the rapidly changing external environment and BHP’s circumstances.

I would like to take this opportunity to acknowledge the significant contribution Wayne Murdy has made to the Board of BHP over the last nine years. Wayne recently advised that he will not stand for re-election at the 2018 Annual General Meetings. On behalf of all of his colleagues on the Board, I would like to thank Wayne for his valuable contribution, friendship and wise counsel, and I wish him all the best for the future.

While we remain cautious about the short-term market outlook, our long-term view remains positive and we are well placed to meet demand for commodities that the world needs well into the future.

I am confident that BHP, led by Andrew Mackenzie and his management team, has the right assets and capability, and your Company is well placed to continue delivering shareholder value and returns.

Thank you for your continued support of BHP.

Ken MacKenzie

Chairman

1.2    Chief Executive Officer’s Report

Dear Shareholder,

BHP has been on a deliberate path to maximise cash flow, maintain capital discipline and increase value and returns to our shareholders. In FY2018, solid operating performance, combined with high commodity prices, saw us achieve a strong set of results.

The safety, health and wellbeing of our people is our number one priority. Tragically, this year two of our colleagues died at work – Daniel Springer at Goonyella Riverside in August 2017 and a colleague at our Permian Basin operations last November. It is vital we learn as much as we can from these tragedies. This year, leaders across BHP held safety engagements with all employees and contractors. We will build on these to share the lessons with as many people as possible.

We also had an increase in our total recordable injury frequency performance to 4.4 per million hours worked. While the increase was modest, I am encouraged that our safety initiatives have helped reduce, by eight per cent, the number of events with the potential to cause a fatality. It is an important leading indicator of future safety performance.

Our commitment to health and safety is an important part of Our Charter value of Sustainability. So too is our commitment to responsible environmental stewardship.

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This year, BHP released its inaugural Water Report. This is the first step in our long-term plan to disclose more effectively our water use and performance as we strengthen water management and governance across our assets. Increased pressure on water resources throughout the world means we must do more to responsibly meet water needs today and safeguard water supplies for future generations.

We also disclose our performance across a range of other safety, environmental, and community metrics in our Sustainability Report, which reinforces our commitment to transparency and accountability.

Overall, BHP is in very good shape. In FY2018, underlying attributable profit was up 33 per cent to US$8.9 billion. We delivered an eight per cent increase in annual production compared to FY2017 and achieved record output at Western Australia Iron Ore, Queensland Coal and at our Spence copper mine in Chile.

For the second consecutive year, we generated over US$12 billion of free cash flow. Consistent with our strict Capital Allocation Framework, this strong cash generation gives us flexibility in how we balance debt reduction, investment in projects and cash returns to shareholders.

This year, we returned US$6.3 billion to shareholders and announced our highest ever final dividend of 63 US cents per share. We also announced the sale of our Onshore US assets for US$10.8 billion.

Our diversified portfolio of tier one assets and, importantly, our team of talented people made these returns possible. Success is not just about the right portfolio. It’s how we operate our business that makes the difference.

BHP has a highly capable team who have made our work methods fit-for-purpose, embraced the business case for diversity and better connected our workforce.

The combination of our people, strategy and assets will build momentum into 2019 and beyond, and is key to our future success.

Finally, thank you to our people, shareholders, suppliers, customers and host communities. We are truly committed to build shared value, and without you this would not be possible.

Andrew Mackenzie

Chief Executive Officer

1.3    BHP at a glance: FY2018 performance summary

Not required for US reporting. Refer to sections 1.11 and 1.12.

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1.3    BHP at a glance: What we do

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1.4    About BHP

1.4.1    Our strategy

Our strategy is to own and operate large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market.

Consistent with this strategy, our plan to create long-term value is focused on six key areas:

Cost efficiencies: Focused on further gains

Since 2012, our annualised productivity gains exceed US$12 billion. The combination of our simplified portfolio, streamlined systems, large scale and connected workforce ensures we are well positioned to deliver approximately US$1 billion in additional productivity gains by the end of FY2019, with strong momentum carried into FY2020.

Technology: Improves safety, costs and unlocks resource

We will continue to integrate and automate our value chain to unlock resource and drive a step change in safety, volume and cost. We have accelerated high-value initiatives across mine autonomy, decision automation and precision mining. We have proving grounds to de-risk and trial technology solutions in real conditions.

Our diverse portfolio allows us to adapt technology developed for one commodity to other areas of the business. For example, our integrated remote operations centres were first deployed in Western Australia Iron Ore, providing an advanced control room that allows us to optimise our production supply chain. The same approach has now been established (or is in the process of being established) at our other operated Minerals assets, such as coal and copper.

Latent capacity: Attractive returns, limited risk

Our latent capacity options are about unlocking untapped production with minimal risk. We have replenished our suite of latent capacity opportunities to optimise and debottleneck our existing mine, rig, port, rail and processing facilities. That means we can achieve more production, or replace production from our existing infrastructure, for lower cost.

The Caval Ridge Southern Circuit (CRSC) project in Central Queensland’s Bowen Basin is a good example of a latent capacity project that is starting to take shape. The CRSC will effectively link the Peak Downs Mine to the coal handling preparation plant at the neighbouring Caval Ridge mine with a new conveyor system, and in doing so, take advantage of unutilised capacity at the prep plant. The plant uses the latest coal processing technology to run very efficiently, and by linking the plant to the mining fleet at Peak Downs, will enable the business to maximise the effectiveness of both operations. We’re able to do this with minimal risk as we are able to draw on our knowledge of other BHP assets in designing and building the conveyor system.

Future options: Worked for value, timed for returns

We have a pipeline of potential growth projects that could create significant shareholder value over the long term, in particular in conventional oil, copper and coal. This includes the Mad Dog Phase 2 project, which has the potential to produce up to 140,000 gross barrels of crude oil per day, and the Spence Growth Option. In the first 10 years of operation, incremental production from the Spence Growth Option is expected to be approximately 185 kilotonnes per annum (ktpa) of payable copper in concentrate and 4 ktpa of payable molybdenum, with first production scheduled for FY2021.

Exploration: Focused on petroleum and copper

We are focused on finding new oil and copper deposits through targeted exploration. Production of these commodities is declining, while demand is forecast to increase.

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In Petroleum, we have made discoveries in four out of the six prospects tested over the past two years, across two key basins. We have also secured more than 100 highly prospective blocks in the Gulf of Mexico, and acquired the Trion discovered resource in Mexico after a competitive process.

Onshore US: Exit to maximise value and returns

On 27 July 2018, we announced that we had entered into agreements for the sale of our entire interest in the Eagle Ford, Haynesville, Permian and Fayetteville Onshore US oil and gas assets for a combined consideration of US$10.8 billion payable in cash (less customary completion adjustments). Both sales are subject to the satisfaction of customary regulatory approvals and conditions precedent. We expect completion of both transactions to occur by the end of October 2018. The effective date at which the right to economic profits transfers to the purchasers is 1 July 2018.

1.4.2    Our Operating Model

Our Operating Model

We have a simple and diverse portfolio of tier one assets around the world, with low-cost options for future growth and value creation.

Our assets are high quality, largely located in low-risk locations and have strong development potential.

In addition to having the right assets in the right commodities, we also create value through how we operate our assets.

Our Operating Model allows us to leverage integrated systems and technology, replicate expertise and apply high standards of governance and transparency.

Our Operating Model includes:

Assets: Assets are a set of one or more geographically proximate operations (including open-cut mines, underground mines and onshore and offshore oil and gas production and processing facilities). We produce a broad range of commodities through these assets. Our operated assets include assets that are wholly owned and operated by BHP and assets that are owned as a joint venture and operated by BHP. BHP also holds interests in assets that are owned as a joint venture but are not operated by BHP.

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Asset groups: We group our assets into geographic regions in order to provide effective governance and accelerate performance improvement. We do this through sharing and replicating best practice, combining efforts to take advantage of our scale and through common improvement initiatives. Our oil and gas assets are grouped together as one global Petroleum asset group, reflecting the operating environment in that sector. This allows us to share best practice and promote new technology across our portfolio.

Marketing and Supply: Our commercial businesses are responsible for optimising our working capital and managing our inward and outward supply chains. Our Marketing business sells our products, gets our commodities to market and supports strategic decision-making through market insights. Supply’s role is to source the goods and services we need for our business, sustainably and cost effectively.

Functions: Functions operate along global reporting lines to provide support to all areas of the organisation. Functions have specific accountabilities and deep expertise in areas such as finance, legal, governance, technology, human resources, corporate affairs, health, safety and community.

Leadership: Our Executive Leadership Team (ELT) is responsible for the day-to-day management of the Group and for leading the delivery of our strategic objectives.

We disclose financial and other performance primarily by commodity. This provides the most meaningful insight into the nature and financial outcomes of our business activities and facilitates greater comparability against industry peers.

1.4.3    Managing performance and risk

Corporate strategy and planning

Our corporate planning process is designed to deliver our strategic objective, which is to position BHP to leverage our values, capabilities and competitive resources to meet the evolving needs of markets and to create sustainable long-term value.

To achieve this, we aspire to have the best capabilities in the natural resources industry and apply these capabilities to a portfolio of world-class assets in the most attractive commodities.

Informed by our strategy, our annual corporate planning process is fundamental to creating alignment across BHP; it guides the development of plans, targets and budgets to help us decide where to deploy our capital and resources.

Plans are assessed at the Group level to balance the goal of maximising the value of our individual assets with the goal of creating value and mitigating investment risks at the portfolio level. We evaluate the range of investment opportunities and aim to optimise the portfolio based on our assessment of risk and returns. We then develop a long-term capital plan and guidance for the Group.

Assessment and monitoring

We review our strategy and portfolio against a constantly changing external environment to capture and manage emerging opportunities and risks. Our strategy is cascaded through our planning processes. Long-term scenario planning is used to evaluate our preferred commodities and portfolio of assets, to help us identify new opportunities and to test the robustness of our strategy over a range of possible outcomes. We also use signals tracking to monitor near-term trends and events. Signals also support actions to position BHP to benefit from potential new opportunities and to mitigate risks, while helping to inform major portfolio investment decisions.

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Risk management

Identifying and managing risk and opportunity are central to achieving our strategy and creating long-term value.

We embed risk management in the critical business activities, functions, processes and systems of our assets through the following mechanisms:

We apply established processes when entering or commencing new activities in high-risk countries. These include risk assessments and supporting risk management plans to ensure potential reputational, legal, business conduct and corruption-related exposures are managed and legislative compliance is maintained.

For information on our principal risks, refer to section 1.6.4. For information on our risk management governance, refer to sections 2.13.1 and 2.14.

Capital discipline

Our Capital Allocation Framework is the framework by which we assess decisions relating to the most efficient deployment of capital.

We put capital to work to:

We then look at what would be the most valuable risk-adjusted use for any excess capital that remains after these three priorities are met, and decide whether to:

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1.4.4    Our locations

BHP locations (includes non-operated)

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1.5    Our performance

Key performance indicators

Our key performance indicators (KPIs) enable us to measure our sustainable development and financial performance. These KPIs are used to assess performance of our people throughout the Group. For information on our approach to performance and reward, refer to section 1.7. For information on our overall approach to executive remuneration, including remuneration policies and remuneration outcomes, refer to section 3.

Following BHP’s sale of the Onshore US assets announced on 27 July 2018, the contribution of these assets to the Group’s results is presented in this Annual Report as Discontinued operations and related assets and liabilities reclassified to held for sale unless otherwise stated. For more information on the accounting treatment, refer to section 5. To enable more meaningful comparisons with prior year disclosures, and in some cases to comply with applicable statutory requirements, the data in section 1.5 has been presented to include Onshore US, except for Underlying EBITDA. Footnotes to tables and infographics indicate whether data presented in this section 1.5 is inclusive or exclusive of Onshore US.

1.5.1    Financial KPIs

Financial KPIs

In FY2018, higher prices and a strong operating performance generated strong cash flow, enabling us to reduce net debt and increase our dividends.

Profit and earnings

Attributable profit of US$3.7 billion in FY2018 includes an exceptional loss of US$5.2 billion (after tax), compared to an attributable profit of US$5.9 billion, including an exceptional loss of US$842 million (after tax), in the prior period. The FY2018 exceptional loss is related to the impairment of Onshore US assets, US tax reform and the Samarco dam failure.

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Our Underlying attributable profit was US$8.9 billion (FY2017: US$6.7 billion).

We reported Underlying EBITDA of US$23.2 billion (FY2017: US$19.4 billion), with higher prices, increased volumes and one-off items (in total US$5.6 billion) more than offsetting the impacts of higher costs, unfavourable exchange rate movements, inflation and other net movements (in total US$1.8 billion).

Cash flow and balance sheet

Our Net operating cash flow of US$18.5 billion in FY2018 reflects higher commodity prices and a strong operating performance during the year.

Our balance sheet was strong, with net debt at US$10.9 billion at FY2018 year-end (FY2017: US$16.3 billion; FY2016: US$26.1 billion), a reduction of more than US$15 billion over two years. The reduction of US$5.4 billion in FY2018 reflects strong free cash generation as well as a favourable non-cash fair value adjustment of US$108 million related to interest rate and exchange rate movements, partially offset by dividends to shareholders of US$5.2 billion and dividends paid to non-controlling interests of US$1.6 billion.

Our gearing ratio in FY2018 was 15.3 per cent (FY2017: 20.6 per cent).

Capital management

Net operating cash flows of US$18.5 billion in FY2018 reflect higher commodity prices and a strong operating performance during the year, with free cash flow⁽¹⁾⁽³⁾ of US$12.5 billion. This is the second consecutive year of free cash flow above US$12 billion.

Our dividend policy provides for a minimum 50 per cent payout of Underlying attributable profit at every reporting period. The minimum dividend payment for the second half was 46 US cents per share. Recognising the importance of cash returns to shareholders, the Board determined to pay an additional amount of 17 US cents per share, taking the final dividend to 63 US cents per share which is covered by free cash flow generated in FY2018. In total, dividends of US$6.3 billion (118 US cents per share, an increase of 42 per cent from FY2017) have been determined for FY2018, including additional amounts of US$1.8 billion above the minimum payout ratio.

Capital and exploration expenditure increased by 29 per cent to US$6.8 billion in FY2018 in line with guidance, reflecting continued investment in high-return latent capacity projects, increased Onshore US drilling activity and an increase post the approval of Mad Dog Phase 2 and the Spence Growth Option in FY2017. Capital and exploration expenditure guidance is unchanged at below US$8 billion per annum for FY2019 and FY2020, subject to exchange rate movements.

Productivity

Strong operating performance at Escondida and Western Australia Iron Ore (WAIO) underpinned a US$374 million productivity gain in the second half of FY2018, bringing the total financial year movement to negative US$96 million. Productivity gains of approximately US$1 billion are now expected for FY2019 with strong momentum carried into FY2020.

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This lower guidance (from the previous guidance of US$2 billion over the two years to the end of FY2019) reflects the announced divestments of Onshore US and Cerro Colorado, being a reduction of US$200 million. In addition, modified assumptions in respect of the pace of productivity uplift over the two-year period at Queensland Coal have resulted in a reduction of approximately US$700 million following the challenging operating conditions at the Broadmeadow and Blackwater mines during FY2018. WAIO unit costs decreased by two per cent to $14.26 per tonne despite the impact of a stronger Australian dollar. Conventional petroleum, Escondida and Queensland Coal unit costs increased by 16 per cent, 15 per cent and 14 per cent, respectively. WAIO unit costs declined due to reductions in labour and a three per cent increase in production as a result of improved productivity and stability across the supply chain. Conventional petroleum unit costs were higher due to lower volumes as a result of the impact of Hurricanes Harvey and Nate on US Petroleum assets and natural field decline. Escondida unit costs increased due to a change in estimated recoverable copper contained in the Escondida sulphide leach pad which benefited costs in the prior period. Queensland Coal unit costs were higher, driven by unfavourable fixed cost dilution from reduced volumes at Broadmeadow and Blackwater mines and additional contractor stripping fleet costs and debottlenecking activities.

Reconciling our financial results to our key performance indicators

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1.5.2    Non-financial KPIs

Capital management KPIs

Sustainability KPIs

Total shareholder return (TSR) shows the total return to the shareholder during the financial year. It combines both movements in share prices and dividends paid (which are assumed to be reinvested).   During FY2018, TSR increased as a result of both the BHP share price and dividends paid, resulting in a 45.6 percentage change from FY2017. From 1 July 2013 to 30 June 2018, BHP underperformed the sector peer group by 18.9 per cent and underperformed the Index TSR by 76.9 per cent.   For more information on our approach to capital discipline, refer to section 1.4.3.

Credit ratings are forward-looking opinions on credit risk. Standard & Poor’s and Moody’s credit ratings express the opinion of each agency on the ability and willingness of BHP to meet its financial obligations in full and on time.   Standard & Poor’s credit rating of BHP remained at the A level throughout FY2018. It affirmed this rating on 21 November 2017. Moody’s maintained its credit rating of BHP at A3 with a positive outlook throughout FY2018.   For more information on liquidity and capital resources, refer to section 1.11.3.

Total recordable injury frequency (TRIF) performance increased by five per cent in FY2018 to 4.4 per million hours worked, compared to 4.2 in FY2017. This was due to an increase in low severity sprain and strain type injuries in Minerals Australia, which occurred primarily in Western Australia Iron Ore and Olympic Dam. These events were not injuries that had fatal or serious injury potential.   There were two fatalities at our operated assets in FY2018.

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Sustainability KPIs

This year we are also reporting on the rate of high potential injuries, which are injury events where there was the potential for a fatality. We are currently able to report data for the last three financial years. High potential injury trends remain a primary focus to assess progress against our most important safety objective: to eliminate fatalities. High potential injuries declined by eight per cent from FY2017 due to a significant reduction in high potential injuries in western Australia Iron Ore and further improvement in Petroleum.   For information on our approach to health and safety, and our performance, refer to section 1.9.2 and 1.9.3.

In FY2018, we began working towards a new five-year greenhouse gas (GHG) emissions reduction target. Our new target, which took effect from 1 July 2017, is to maintain our total operational emissions in FY2022 at or below FY2017 levels while we continue to grow our business(3). Our new target builds on our success in achieving our previous five-year target.   Our operational emissions (Scopes 1 and 2 combined)(4) in FY2018 totalled 16.5 million tonnes of carbon dioxide equivalent (CO2-e). This is a 1 per cent increase compared to the FY2017 baseline and is primarily due to an increase in Scope 2 emissions from our Minerals Americas business as a result of increased production at our Escondida and Pampa Norte copper assets in Chile, as well as the commissioning of the new Escondida desalination plant(5)   For more information on our GHG emissions, refer to section 1.9.8.

Our target is to invest not less than one per cent of our pre-tax profit(6) to contribute to improved quality of life in host communities and support achievement of the United Nations Sustainable Development Goals.   Our social investment performance in FY2018 saw BHP deliver projects with a continued focus on good governance, human capability and social inclusion and environment. The total investment of US$77.05 million includes US$7.16 million on community contributions at our non-operated joint ventures and US$1.54 million to facilitate the operation of the BHP Billiton Foundation.   For information on our voluntary social investment, refer to section 1.9.5.

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1.5.3    Our contribution in FY2018

In FY2018, our total direct economic contribution was US$33.9 billion, including payments to suppliers, wages and employee benefits, dividends, taxes and royalties, as well as voluntary social investment across our host communities. Of this, we paid US$7.8 billion globally in taxes, royalties and other payments to governments. Our global adjusted effective tax rate was 31.4 per cent⁽¹⁾. Including royalties, this increases to 39.9 per cent. This significant source of taxation revenue assists governments to provide essential services to their citizens and invest in their communities for the future.

During FY2018, we also decreased our gross debt by US$3.7 billion through the repayment of maturing debt, the bond repurchase program and fair value adjustments.

As well as our direct economic contribution, we invested US$6.8 billion into our business through the purchase of property, plant and equipment and expenditure on exploration. This investment typically has a multiplier effect by creating new jobs within our operations and also for the suppliers on whom they rely. For example, our US$3.06 billion investment in the South Flank iron ore project in Western Australia will provide a significant additional economic contribution to the local economy through opportunities for local suppliers – around 85 per cent of the construction budget will be spent in Australia, with 90 per cent of that in Western Australia. It will also create approximately 2,500 construction jobs and 600 ongoing operational roles.

Total economic contribution in FY2018

Figures are rounded to the nearest decimal point and include data for Continuing and Discontinued operations for the financial years being reported.

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1.6    Our operating environment

1.6.1    Market factors and trends

We produce raw materials that are essential to modern life. Our success is tied to the sustainable growth of both emerging and developed economies and, at the same time, the commodities we produce are integral to driving that growth.

As a result, our performance is influenced by a wide range of factors that drive a complex relationship between supply and demand. In line with our purpose of creating long-term shareholder value, we navigate those market factors by thinking and planning in decades. Our diverse portfolio of long-life, low-cost assets allows us to adapt to the changing needs of our customers and protect long-term shareholder value.

Key trends

Our long-term view for our markets remains positive. Population growth and rising living standards are expected to continue to generate demand for energy, metals and fertilisers for decades to come. New demand centres will emerge where the twin levers of industrialisation and urbanisation are still immature today. Technology continues to advance, creating both opportunities and threats. International responses to climate change will evolve.

Against that backdrop, we are confident we have the right assets in the right commodities, with demand diversified by end-use sector and geography. Our exploration and acquisition efforts are critical to maintaining that advantage, as they create a pipeline of products to meet future demand (see section 1.6.3). Exploration is inherently risky (see section 1.6.4), as the geoscience used for locating and accessing resources is complex and uncertain. Exploration and acquisition are also subject to political, infrastructure and other risks that can impact the accessibility of resources.

In the near term, challenges remain. There has been a marked rise in geopolitical uncertainty and protectionism, which have the potential to inhibit international trade, weigh on business confidence and restrain job creation and investment.

Short term

Political and policy uncertainty

Political uncertainty has continued during FY2018. The rise of US-China trade tensions and other protectionist measures, along with an increasingly unpredictable policy formation process in some major economies, serve to reduce consumer confidence and business certainty. By extension, this affects investment and jobs.

Modest economic growth

Protectionism and political uncertainty lower the achievable ceiling for global economic growth while they remain in place.

Balanced risks

Risks to prices in the overall portfolio appear roughly balanced, with mild upside risk in some markets offset by mild downside risk in others.

Prudently cautious

The operating environment is complex, with uncertainty and volatility expected to be high. However, we remain optimistic for the long term.

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Medium term

New supply

New supply, particularly of copper and petroleum, is expected to be required as demand grows and current resources are depleted.

Steeper cost curves

The marginal cost of producing some commodities is likely to rise, particularly for oil and copper, as existing resources deplete and new resources come from lower-quality deposits that are more costly to access.

Sustainable productivity rewarded

As industry wide costs rise, disciplined producers are likely to see margin benefits from accumulated investment in sustainable productivity gains.

Asian growth

China still offers rich opportunities due to its large scale, ongoing urbanisation and the Belt and Road initiative, despite its ongoing structural shift away from manufacturing towards services. India has significant potential for sustained high growth, as does populous southeast Asia.

Long term

Growth in population, wealth

Demand for metals, energy and fertiliser is expected to increase to meet the needs of the world’s growing population and rising living standards.

Urbanisation and new demand centres

New demand centres will emerge where the twin levers of industrialisation and urbanisation are still immature today. They include nations in South Asia, South East Asia, Africa and Latin America.

Decarbonisation

The move towards a low-carbon economy has the potential to drive significant change. Environmental and risk concerns will drive increasing diversification of national energy sources.

Technology

Technology can substantially alter the markets for, and uses of, our products, or create new markets. This can be disruptive in both the positive and negative sense. However, markets for essential products such as ours are typically slow to change. Our diversified portfolio provides some protection against negative disruption of demand caused by technological change. From the supply perspective, advanced mining methods should drive further efficiency, unlocking high-cost resources and offsetting grade decline.

Global long-term outlook

We anticipate ongoing increases in global living standards over the longer term, with urbanisation, industrialisation and trade expected to underpin commodity demand. The development of emerging economies in South and South East Asia should drive particular demand for industrial metals, energy and fertilisers.

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Key geographies

Our customers are geographically diverse. We have structured our business to meet changing demands as global market dynamics shift. Developments in a particular country can affect the demand for our products in that country and in any countries that supply goods for import to that country.

China

China is the largest consumer of our commodities, accounting for roughly half of our sales. As the largest manufacturer and exporter in the world and the second-largest importer, China’s performance is also a significant factor in the health of the global economic system.

China’s GDP growth in the short term is expected to remain steady. Growth is expected to slow modestly in CY2018 in line with the official GDP target range of around 6.5 per cent. We expect to see a cooling of growth rates in the housing and automobile markets, while machinery and infrastructure are expected to provide stability as overall growth slows.

China’s policymakers are likely to continue to seek a balance between pursuing reform and maintaining macroeconomic and financial stability. We expect a continuation of current efforts to reduce debt and deal with housing inflation.

In the long term, China’s economic growth is expected to slow progressively as the working age population falls and the capital stock matures, with productivity reforms offsetting these impacts to some degree.

China’s economic structure is expected to continue to move from industry to services and growth drivers shift from investment and exports towards consumption. This structural change is likely to produce a less volatile underlying growth rhythm in the long run.

United States

As both a major producer and consumer of our products, the United States is important to our performance. With most of our transactions denominated in US dollars, fluctuations in the dollar also influence our performance.

The US economy received a significant boost with the passing of the Tax Cuts and Jobs Act (signed on 22 December 2017). The most significant reforms include a reduction in the corporate tax rate from 35 per cent to 21 per cent and a reduction of marginal income tax rates for five out of seven tax brackets. The Joint Committee on Taxation estimated that these measures would increase the average level of output in the United States by about 0.7 per cent over the next 10 years, with changes front-loaded. However, the monetary policy response of the Federal Reserve, including the impact on the exchange rate, is likely to offset some of the impact of the tax package.

In addition, with the rise of US-China trade tensions, protectionist policies could hurt consumer purchasing power and productivity growth. Purchasing power is reduced through higher prices for imported goods and domestic goods with imported components. Reduced competition and the unintended consequences of restrictive migration policies on the free flow of world-class talent would dent productivity growth.

Japan

Japan’s demographics (ageing population and extremely low birth rate) and its public debt burden are constraints on long-term growth. Without population, immigration and microeconomic reform, growth is likely to stagnate.

Beyond the boost provided by the Tokyo Olympics, in the medium term, with monetary and fiscal policy proving ineffective at spurring domestic demand, any sustained lift in Japanese growth is likely to have to come from external sources.

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Eurozone

Europe’s short-term outlook has improved, with most countries in the region now experiencing growth in domestic demand. While financial fragilities remain, downside risks have been reduced.

Significant microeconomic reform is required in Europe’s southern regions to prevent longer run stagnation. In the more internationally competitive northern regions, lower savings rates would boost growth at home and help to rebalance demand within the common currency zone.

India

India’s short-term outlook seems positive, driven by consumer demand. Economic reform that boosts the supply of basic infrastructure is critical to India’s ability to take advantage of its demographic profile and successfully urbanise.

Progress on key reforms, including GST, real estate regulation, insolvency resolution and demonetisation of high denomination bills, has been encouraging.

We expect India’s GDP growth to average more than seven per cent annually over FY2016 to FY2020, with energy and metals demand rising at a similar pace.

Exchange rates

We are exposed to exchange rate transaction risk on foreign currency sales and purchases. Operating costs and costs of locally sourced equipment are influenced by fluctuations in local currencies, primarily the Australian dollar and Chilean peso. The majority of our sales are denominated in US dollars and we borrow and hold surplus cash predominately in US dollars. Those transactions and balances provide no foreign exchange exposure relative to the US dollar presentation currency of the Group.

The US dollar remained relatively stable during FY2018 against our main local currencies.

We are also exposed to exchange rate translation risk in relation to net monetary liabilities, being our foreign currency denominated monetary assets and liabilities, including certain debt and other long-term liabilities.

Interest rates

We are exposed to interest rate risk on our outstanding borrowings and investments. Our policy on interest rate exposure is to pay on a US dollar floating interest rate basis.

Our earnings are sensitive to changes in interest rates on the floating component of BHP’s borrowings. Our main exposure is to the three-month US LIBOR benchmark, which increased by 104 basis points from 1.3 per cent at 30 June 2017 to 2.34 per cent at 30 June 2018.

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1.6.2     Commodity performance overview

Commodity prices

The following table shows the prices for our most significant commodities for the years ended 30 June 2018, 2017 and 2016. These prices represent selected quoted prices from the relevant sources as indicated and will differ from the realised prices due to differences in quotation periods, quality of products, delivery terms and the range of quoted prices that are used for contracting sales in different markets. For information on realised prices, refer to section 1.12.

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Impact of changes to commodity prices

The prices we obtain for our products are a key driver of value for BHP. Fluctuations in these commodity prices affect our results, including cash flows and asset values. The estimated impact of changes in commodity prices in FY2018 on our key financial measures is set out below.

1.6.3     Exploration

Our exploration program is focused on conventional petroleum and copper. The purpose is to generate attractive, low cost, value accretive options by leveraging our competitive strengths.

Several years ago, we conducted a petroleum global endowment study that informed a new conventional petroleum exploration strategy. The results of that study are encouraging: we have made discoveries in four out of the six prospects tested over the past two years, across two key basins, secured more than 100 highly prospective blocks in the Gulf of Mexico and competitively acquired the Trion discovered resource in Mexico.

Our copper exploration program is at an earlier stage, where we continue to seek, secure and test concessions in regions such as Ecuador, Canada, southwestern United States, South Australia, Chile and Peru.

BHP exploration regions

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Exploration in FY2018

Conventional petroleum

Our petroleum exploration program is focused in regions with significant oil and gas resource potential that have stable and competitive fiscal terms and offer an attractive return on investment. We concentrate our efforts in areas that have the potential to generate high-quality assets: the Gulf of Mexico, the Caribbean and Western Australia.

In FY2018, we discovered oil in multiple horizons with the Wildling-2 well, located north of our operated Shenzi asset in the US Gulf of Mexico. These results follow oil discoveries at Shenzi North in FY2016 and the Caicos well in FY2017. We increased our equity interest in the Murphy operated Samurai prospect, the northern extension of the Wildling sub-basin, from 33.33 to 50 per cent. The Samurai-2 exploration well was spud on 16 April 2018 and encountered hydrocarbons in multiple horizons not previously observed by the Wildling-2 exploration well. The Scimitar prospect, to the north of the Neptune field, was drilled with no commercial hydrocarbons encountered.

In Trinidad and Tobago, following the gas discovery at LeClerc, we commenced Phase 2 of our deepwater exploration drilling campaign to further assess the commercial potential of the Magellan play. The Victoria-1 exploration well was spud on 12 June 2018 and encountered gas. Following completion of the Victoria-1 well, the Bongos-1 exploration well was spud on 20 July 2018 and experienced mechanical difficulty shortly after spud. The Bongos-2 exploration well was spud on 22 July 2018 and encountered hydrocarbons. Drilling is still in progress.

In Mexico, we progressed planning for exploration and appraisal wells at Trion. The exploration and appraisal plan was endorsed by Pemex and approval from Mexico’s National Hydrocarbon Commission was granted in February 2018. Drilling of the next appraisal well is planned for FY2019.

In Western Australia, processed 3D seismic data for the Exmouth sub-basin will be delivered during the September 2018 quarter and will inform the prospectivity in this area.

For more details on conventional petroleum exploration, refer to section 1.12.1.

Copper

Copper exploration is focused on identifying and gaining access to new search spaces while we maintain research and technology activities aligned with our exploration strategy. The field copper exploration activities are directed towards the discovery of large, high-quality copper deposits in Chile, Peru, Ecuador, North America and Australia. These activities encompass early stage reconnaissance work through to more advanced target definition and testing in every country where we have exploration concessions. In parallel, we continue to review other jurisdictions and opportunities to partner with third parties to counter the increasing exploration maturity of our existing geographies.

On 5 September 2018, we announced that we had acquired a 6.1 per cent interest in SolGold Plc, the majority owner and operator of the Cascabel porphyry copper-gold project in Ecuador.

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Exploration expenditure

Our brownfield minerals exploration expenditure decreased by seven per cent in FY2018 to US$112 million, while our greenfield expenditures increased to US$53 million. Expenditure on brownfield and greenfield minerals exploration over the last three financial years is set out below.

For more information on minerals exploration, refer to section 1.12.

Conventional petroleum exploration and appraisal

Petroleum exploration expenditure for FY2018 was US$709 million, of which US$516 million was expensed. Expenditure on petroleum exploration over the last three financial years is set out below.

Our petroleum exploration program had positive results in FY2018. We are pursuing high-quality plays in our three priority basins, and a US$750 million exploration program is planned for FY2019 as we progress testing of our future growth opportunities.

For more information on conventional petroleum exploration, refer to section 1.12.1.

Exploration expense

Exploration expense represents that portion of exploration expenditure that is not capitalised in accordance with our accounting policies, as set out in note 10 ‘Property, plant and equipment’ in section 5.

Exploration expense for each segment over the last three financial years is set out below.

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1.6.4    Principal risks

Robust risk assessment and viability statement

The Board has carried out a robust assessment of BHP’s principal risks, including those that could threaten the business model, future performance, solvency or liquidity.

The Directors have assessed the prospects of BHP over the next three years, taking into account our current position and principal risks.

The Directors believe a three-year viability assessment period is appropriate for the following reasons. BHP has a two-year budget, a five-year plan and a longer-term life-of-asset outlook. We have publicly stated our view that while commodity prices remain volatile, our short-term outlook is optimistic. Price and exchange rate volatility results in variability in plans and budgets. A three-year period strikes an appropriate balance between long-term and short-term influences on performance.

The viability assessment took into account, among other things, BHP’s commodity price protocols, including low-case prices; the latest funding and liquidity update; the long-dated maturity profile of BHP’s debt and the maximum debt maturing in any one year; the Group-level risk profile and the mitigating actions available should particular risks materialise; the regular Board strategy and portfolio discussions which address the range of outcomes under the Capital Allocation Framework; the flexibility in BHP’s capital and exploration expenditure programs under the Capital Allocation Framework; and the reserve life of BHP’s minerals assets and the reserves-to-production life of our oil and gas assets.

The Directors’ assessment also took account of additional stress-testing of the balance sheet against two hypothetical significant risk events: a well blow out in the Gulf of Mexico and a low-price environment. A further level of robustness is added given no debt issuance is required in the three-year period and BHP would still have access to US$6.0 billion of credit through its revolving credit facility. The Directors were also mindful of the assessment of our portfolio against scenarios as part of BHP’s corporate planning process to help identify key uncertainties facing the global natural resources sector.

In making this statement, the Directors considered the divestment of Onshore US. The Directors have also made certain assumptions regarding the alignment of production, capital expenditure and operating expenditure with five-year plan forecasts and the alignment of prices with the cyclical low-price case used in the control stress case for balance sheet testing.

Taking account of these matters, and BHP’s current position and principal risks, the Directors have a reasonable expectation that BHP will be able to continue in operation and meet its liabilities as they fall due.

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Risk factors

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1.6.5    Management of principal risks

The scope of our operations and the number of industries in which we operate and engage mean that a range of factors may impact our results. Principal risks that could negatively affect our results and performance are described in section 1.6.4. Our approach to managing these risks is outlined below.

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1.7    People

Everyone who works at BHP is required to hold themselves accountable for living BHP values as outlined in Our Charter; to put safety first; to make people a priority; to be functionally excellent; and to work with integrity.

1.7.1    Our leaders

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1.7.2    Our people

With a workforce of more than 62,000 employees and contractors working across 90 locations worldwide, BHP’s culture is shaped to support the creation of value from our portfolio. We are committed to investing in our workforce so that our people have the right skills and a healthy culture in which to thrive.

At BHP, we provide competitive remuneration to reward employees for their expertise and commitment to fulfilling our business strategy and contribution to our long-term success. Our remuneration frameworks and principles are designed to inspire our employees to embrace the core objectives and values that reflect our commitment to safety, culture and productivity. The primary focus areas for FY2018 included building a culture that promotes trustful relationships and care, increasing the capability of our leaders, and recruiting a diverse workforce. In particular, we work with our leaders to develop their capabilities, recognising the vital role they play in developing engaged employees and supporting ongoing improvements in safety and productivity.

For example, in FY2018, 40 General Managers from our operations around the globe (who are responsible for 75 per cent of BHP’s workforce) attended 10 days of face-to-face workshops and contributed to projects aimed at solving complex business problems. They received intensive technical and leadership training that formed part of a strategy to cultivate a diverse general manager cohort with the capability to run safe, effective and efficient operations. The leadership programs will be expanded in FY2019 to include more operational managers.

More than 90 per cent of maintenance managers from Minerals Australia attended our Maintenances Academies, a development initiative from our Maintenance Centre of Excellence. The sessions broadened leaders’ technical knowledge, leadership capability and collaboration with peers.

Outside of leadership capability, we are streamlining our systems, processes, tools and behaviours to improve operational capability.

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Inclusion and diversity

At BHP, we believe that all our people should have the opportunity to fulfil their potential and thrive in an inclusive and diverse workplace. Inclusion and diversity promote safety, productivity and wellbeing within BHP. We employ, develop and promote people based on merit and do not tolerate any form of unlawful discrimination, bullying or harassment. Our systems, processes and practices empower fair treatment.

For more information on Board diversity and our Board’s support for inclusion and diversity, refer to section 2.5.

Gender balance

We have an aspirational goal to achieve gender balance globally by CY2025. At the end of FY2018, there were 915 more women at BHP than at the same time in the previous year, contributing to an increase in the representation of women by 1.9 per cent up to 22.4 per cent. These results show we are making progress, although we did not achieve the three per cent annual growth to which we aspire.

The external hiring ratio of 39.8 per cent women and 60.2 per cent men remains the strongest contributor to improved female representation outcomes, and is a marked increase in female hiring compared to FY2015 (10.4 per cent). The turnover of women (9.7 per cent) is still higher than the rate for men (6.5 per cent). However, the take up of flexible working (a key lead indicator of improving the representation of women) has increased to 46 per cent in FY2018 from 41 per cent in FY2017.

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The focus areas of our strategy to achieve a more diverse and inclusive workplace include:

Flexible working

Flexible work promotes greater workforce diversity.

We have seen both long-distance commuters and residential employees at our operations implement flexible rosters, job share arrangements and take breaks from work. This has challenged the prevailing mindset that flexibility is only available to office-based employees. For example, in Western Australia Iron Ore, 28 (seven per cent) of our train drivers are now working flexibly via job sharing arrangements.

Working with suppliers

BHP’s Supply team continues to lead a comprehensive program of work to build inclusion and diversity incentives into contracts in Australia. We engage with mobile equipment manufacturers to design tools and equipment for use by a diverse workforce and encourage them to embrace diversity in their work teams. BHP has encouraged suppliers to support greater diversity through ergonomic design and product development.

Mitigating potential bias

A number of employees have been trained to recognise and mitigate potential bias through more inclusive behaviour towards all employees. Policies and systems have been changed to reduce potential bias. BHP has taken steps to reduce potential bias in recruitment and conducts an annual pay gap review, the results of which are reported to the Board’s Remuneration Committee. Together, these measures seek to address future pay disparities between men and women.

Employer brand

Inclusion and diversity continue to be a strong theme in our internal communications to our employees. To ensure BHP and our industry are attractive to a diverse range of people external to the business, we implemented a number of initiatives in FY2018. For example, we ran proactive media and online campaigns that highlighted our progress in flexible work and our broader inclusion and diversity agenda.

LGBT+ inclusion

At BHP, we want to provide a safe, inclusive and supportive workplace for all. It’s part of bringing your whole self to work. Jasper is BHP’s employee inclusion group for BHP’s lesbian, gay, bisexual, transgender and others (LGBT+) community and its allies. Formally endorsed by the Executive Leadership Team and Global Inclusion and Diversity Council, Jasper’s aim is to drive a safe and inclusive work environment for everyone by providing advice on ways to reduce bias and ensure LGBT+ people are respected and valued no matter their sexual or gender identity.

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Indigenous employment

We aim to provide employment opportunities in our host communities that contribute to sustainable social and economic benefits for Indigenous peoples. In Minerals Australia, Indigenous employment increased from 4.1 per cent to 4.4 per cent and 25 per cent of all apprentices and 7.2 per cent of graduates were Aboriginal and Torres Strait Islander peoples. In North America, we have focused on working with our contracting partners to support the employment of First Nations and Métis peoples, who comprise 6.2 per cent of our workforce at the Jansen Potash Project. The South American Indigenous Peoples Plan focuses on establishing targets and designing a pilot program to recruit and retain Indigenous peoples. For more information, refer to our Sustainability Report 2018.

Employee relations

In FY2018, BHP Mitsubishi Alliance Pty Ltd concluded a two-year negotiation of its primary enterprise agreement in Australia, with no lost time due to industrial action. Overall, BHP has achieved a year with only 24 hours of lost time due to industrial action in Minera Escondida Limitada. On 17 August 2018, Escondida successfully completed negotiations with Union N°1 and signed a new collective agreement, effective for 36 months from 1 August 2018.

1.7.3    Employees and contractors

The data in this section (consistent with previous years) are averages. We take the number of employees and contractors (where applicable) at the last day of each calendar month for a 10-month period to calculate an average for the year. This does not necessarily reflect the number of employees and contractors as at the end of FY2018. All the data in this section includes Continuing and Discontinued operations for the financial years being reported.

The diagram below shows the average number of employees and contractors over the last three financial years, and a breakdown of our average number of employees by geographic region over the last three financial years.

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The table below shows the gender composition of our employees, senior leaders and the Board over the last three financial years.

1.8    Samarco

The Fundão dam failure

On 5 November 2015, the Fundão tailings dam operated by Samarco Mineração S.A. (Samarco) failed. Samarco is a non-operated joint venture owned by BHP Billiton Brasil Limitada (BHP Billiton Brasil) and Vale S.A. (Vale), with each having a 50 per cent shareholding.

A significant volume of tailings (water and mud-like waste resulting from the iron ore beneficiation process) was released. Tragically, 19 people died – five community members and 14 people who were working on the dam when it failed. The communities of Bento Rodrigues, Gesteira and Paracatu were flooded. A number of other communities further downstream in the states of Minas Gerais and Espírito Santo were also affected by the tailings, as was the environment of the Rio Doce basin.

Our response and support for Fundação Renova

Over two years into the recovery process, we remain committed to doing the right thing for the people and the environment in the Rio Doce region, in a challenging and complex operating context.

In accordance with the Framework Agreement with the relevant Brazilian authorities that was signed in March 2016, work to restore the environment and re-establish communities is being undertaken by Fundação Renova. Fundação Renova is a not-for-profit, private foundation, established by BHP Billiton Brasil, Vale and Samarco. As well as remediating the impacts of the dam failure, Fundação Renova is implementing a range of compensatory actions aimed at leaving a lasting positive legacy for the people and environment of the Rio Doce.

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BHP is focused on supporting Fundação Renova’s operations through representation on the Board of Governors and Board Committees, making available secondees who work within the Foundation to provide their technical expertise on priority areas, and regular peer engagement on issues such as safety, risk management, human rights and compliance.

Fundação Renova

The activities of Fundação Renova are overseen by an Interfederative Committee comprising representatives from the Brazilian Federal and State Governments, local municipalities, environmental agencies, impacted communities and the Public Defense Office, who monitor, guide and assess the progress of actions agreed in the Framework Agreement.

Fundação Renova is governed by a Board of Governors, comprising representatives nominated by BHP Billiton Brasil, Vale, Samarco and the Interfederative Committee. The Board of Governors appoints an Executive Board, including the CEO, which is responsible for the operational management of the Foundation. Fundação Renova’s Chief Executive is Roberto Waack, a biologist with an extensive background in sustainability-related organisations, including World Wide Fund for Nature (WWF) Brazil, Global Reporting Initiative, Forest Stewardship Council, Ethos Institute and the Brazilian Biodiversity Fund.

Fundação Renova’s governance structure also comprises a Fiscal Council, Advisory Council, seven Board Committees, a technical sub-committee, a Compliance Manager and an Ombudsman. The Advisory Council includes representation from impacted communities and community development and education experts.

Fundação Renova’s staff of approximately 500 people is supported by around 5,000 contractors. Its CY2018 budget is R$2.19billion.

Due to the diversity, scale and complexity of the programs, Fundação Renova collaborates and engages broadly with affected communities, scientific and academic institutions, regulators and civil society.

An independent scientific technical and advisory panel, established by the International Union for Conservation of Nature (IUCN), is providing expert advice to Fundação Renova. Chaired by Yolanda Kakabadse, formerly Environment Minister for Ecuador and President of WWF International, the panel meets monthly. In addition, the panel has undertaken two field visits to the impacted areas in Brazil, incorporating extensive engagement with affected and interested parties. Guided by the principles of independence, transparency, accountability and engagement, the panel will publish short-term issues papers and longer-term thematic papers, with the first paper scheduled for release in the first quarter of FY2019. Other papers planned will cover topics such as the ecological processes to maintain coastal lakes, the impact of fishing bans and economic alternatives for the region.

Resettlement

One of Fundação Renova’s priority social programs is the livelihood restoration program to relocate and rebuild the communities of Bento Rodrigues, Paracatu and Gesteira. A key to the success of this program is the participation of affected community members, their technical advisers, State Prosecutors, municipal leaders, regulators and other interested parties.

The process involves the identification and acquisition of land, design and planning for the urban development, including all services and public buildings (schools, health centres, squares, covered sports grounds and religious buildings) and construction of new houses for the affected people. The resettlement also involves the employment of community members and provision of support services to help them resume their way of life.

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The resettlement of Bento Rodrigues is progressing, with active participation of community members, government agencies and local prosecutors. Following the selection of the preferred location for the new town in 2016, the land has been acquired. On 8 February 2018, the community members voted overwhelmingly in favour of the town plan they helped to design, and in May they commenced working with architects to design their new homes. Preparations for site works, including laydown areas and construction site facilities, are underway. On 5 July, the state environment regulator issued the licence in a public ceremony. The authorisations of the State Urban Planning Regulator and Municipality were issued on 1 August 2018, allowing the construction of the Bento community to commence.

The same process is being followed for Paracatu. The land has been selected and the urban plan is expected to be approved by the community in September 2018. Progress at Gesteira, the smallest of the three resettlements, has been delayed by a series of land access issues and discussions around the exact number of families to be included in the resettlement. Fundação Renova has worked hard to resolve these issues and is now working with the community and its technical advisers to determine a solution.

Based on current planning, it is expected that all resettlements will be completed in 2020.

Remediation

Through FY2018, Fundação Renova’s work included the continued monitoring and maintaining of the emergency vegetation established on the terrestrial areas impacted by the initial tailings flow along the rivers and tributaries, resulting in ongoing improvements to water quality. Negotiations commenced with regulators and landowners to determine the long-term remediation plans of these areas for biodiversity, agricultural and urban uses.

A pilot study was conducted to assess the methodology for evaluating alternative tailings remediation options. It concluded that the river was quickly re-establishing its geomorphological processes and that large-scale actions to try and remove tailings from the bed or banks of rivers would likely lead to greater environmental harm than allowing the normal river processes to naturally remediate the tailings material. The pilot study was submitted to the regulators in May 2018 for review and will be subject to further discussions as to how the methodology could be applied to other sections of the rivers.

Water quality in the Gualaxo do Norte River has achieved the turbidity target set in the Framework Agreement a year earlier than required. All immediate river and tributary remediation activities to limit further contribution of tailings have been completed. Longer-term remediation measures are in the process of being designed in consultation with regulators and other stakeholders.

Water quality, aquatic habitat and fish surveys continue to be conducted in the rivers and coastal zone to understand the impact of the tailings flow and the rate of recovery of the ecological systems. Results from these studies indicate that, while sediment in the river channels along the spill flow path upstream of Candonga continues to limit the re-establishment of habitats and aquatic fauna diversity and abundance, the natural sediment transport processes will ultimately restore suitable habitat. Methods to enhance the rate of habitat recovery are being investigated.

The studies clearly demonstrate that the fish are safe for human consumption in terms of metal concentrations. Fishing bans remain in place for native species in the Rio Doce and impacted tributaries in Minas Gerais and all species along a zone of the Espírito Santo coast. Regulators have required more studies to be undertaken along the river and coast by research institutions, with preliminary results scheduled for late CY2019. Given the significant impacts of the fishing bans on the livelihoods of commercial and subsistence fishermen and the social cohesion within their communities, BHP Billiton Brasil has been providing technical support to Fundação Renova to accelerate the collection of data to address the concerns of regulators and the community. This includes analysis of the safety of fish for human consumption and the status of fish populations to support lifting of the bans.

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Environmental compensation programs for the rehabilitation of 40,000 hectares are in the final stages of design, with 3,000 hectares scheduled to be completed in CY2019. More than 500 degraded natural springs have been revegetated as part of a Framework Agreement commitment to rehabilitate 5,000 springs over 10 years.

The retention structures to contain the tailings material remaining within the Fundão Valley continue to operate as designed and limit further contributions from this source to river turbidity.

Financial assistance and compensation

Fundação Renova has distributed around 9,500 financial assistance cards to those whose livelihoods were impacted by the dam failure, including registered and informal commercial fishermen who are unable to fish due to the imposition of fishing bans in the Rio Doce and along the coast of Espirito Santo. The payments are designed to ensure those impacted have the capacity to support themselves and their families pending the re-establishment of conditions that enable them to resume their economic activities.

During FY2018, assistance was expanded to include a number of new geographic areas and to cover subsistence fishermen who rely on fish for food security. The form of assistance is still being finalised.

A mediated compensation program is also being implemented throughout the impacted regions, which is intended to fairly compensate all individuals impacted by the dam failure. It comprises two key components:

Governance Agreement

On 25 June 2018, Samarco, Vale and BHP Billiton Brasil, the other parties to the Framework Agreement, the Public Prosecutors Office and the Public Defense Office agreed an arrangement (the Governance Agreement) which settles the R$20 billion (approximately US$5.2 billion) civil claim (R$20 billion Public Civil Claim), enhances community participation in decisions related to the remediation and compensation programs under the Framework Agreement (Programs) and establishes a process to renegotiate those Programs over two years and to progress settlement of the R$155 billion (approximately US$40 billion) civil claim (R$155 billion Federal Public Prosecution Office claim).

Legal claims

The Governance Agreement was ratified by the 12th Federal Court of Minas Gerais on 8 August 2018, settling the R$20 billion Public Civil Claim and suspending the R$155 billion Federal Public Prosecution Office claim for a period of two years from the date of ratification.

Renegotiation process

During the two-year period, the parties will work together to design a single process for the renegotiation of the Programs and progress settlement of the R$155 billion Federal Public Prosecution Office claim. The renegotiation process will take into account the principles and rules established under the Framework Agreement, and will be aimed at improvement of the Programs, with the involvement of the affected communities.

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The renegotiation of the Programs will be based on certain agreed principles, such as full reparation consistent with Brazilian law, the requirement for a technical basis for any proposed changes, consideration of findings from the socio-economic and socio-environmental experts appointed by Samarco, Vale and BHP Billiton Brasil, consideration of findings from experts appointed by the Prosecutors and consideration of the feedback from the impacted communities. During the renegotiation period and up until revisions to the Programs are agreed, the Fundação Renova will continue to implement the Programs in accordance with the terms of the Framework Agreement and the Governance Agreement.

Governance arrangements

A revised governance structure has been agreed, based on the Framework Agreement, that enhances community participation in the process.

Prior to the Governance Agreement, the Interfederative Committee comprised 12 members, with six being appointed by Samarco, Vale and BHP Billiton Brasil and one by the Interfederative Committee. The revised structure includes four additional members of the Interfederative Committee, with three being appointed by affected communities and one by the Public Defense Office. It also includes two additional members of the Renova Board who will be appointed by the affected communities.

A network of Local and Regional Commissions has also been established along the Rio Doce to secure community participation in the decision-making relating to the Programs.

Restart

Restart of Samarco’s operations remains a focus but is subject to separate negotiations with relevant parties and will occur only if it is safe, economically viable and has the support of the community. Resuming operations requires the granting of licences by state and federal authorities, community hearings and an appropriate restructure of Samarco’s debt.

Progress on our commitments

Following the investigation into the causes of the dam failure, BHP identified a number of actions that we would take in our management of tailings dams and non-operated joint venture arrangements to help to prevent a similar event from occurring.

Dam management

We committed to undertake dam safety reviews in accordance with the Canadian Dam Association’s process, assess technology options to enhance dam management and create a centralised dam management function.

Dam safety reviews: We have performed dam safety reviews following the procedures recommended by the Canadian Dam Association for significant active, inactive and closed tailings facilities across the Group. Implementation of the recommendations is currently in progress. No significant deficiencies that represent an immediate threat to the stability of the dams have been identified.

Technology: Monitoring systems at all significant tailings dams have been supplemented where necessary and continue to be improved as new instrumentation and methods become available. We are funding studies to develop early warning technologies and improve knowledge of the liquefaction phenomenon. We are also working with vendors on the testing and development of advanced tailings dewatering methods.

Dam management: A global tailings expert has been appointed to provide centralised governance and technical expertise.

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More information on our ongoing dams and tailings management is available in our Sustainability Report 2018 at bhp.com.

Working with non-operated joint ventures

We also undertook to centralise management of our interest in all major non-operated minerals joint ventures in the Minerals Americas operating group and to work to establish a new global standard for non-operated joint ventures (NOJVs).

We have created a centralised team that is a single point of accountability for NOJVs within BHP. That team has developed a global standard which defines the requirements for managing BHP’s interest in our NOJVs. The team has also set out a strategy for managing our interest in NOJVs, focused on supporting strong governance, managing risk and creating value from our investment, within the limits of our rights as joint venture partners. For more information on the team and its work, refer to section 1.10.

More information on health, safety and environment performance at our NOJVs is available in our Sustainability Report 2018 at bhp.com.

1.9    Sustainability

Full details of our sustainability approach and performance are set out in our Sustainability Report 2018 available at bhp.com.

BHP’s strategy of owning and operating long-life assets means that we think and plan in decades. We can create long-term value only if we safeguard the sustainability of our operations with the support of the communities in which we work. To do that, we must form and maintain deep, authentic and respectful relationships with all our stakeholders.

1.9.1    Our approach to sustainability

Sustainability is one of the core values set out in Our Charter. To us, sustainability means putting health and safety first, being environmentally responsible and supporting our communities. The wellbeing of our people, the community and the environment is considered in everything that we do.

The Board oversees our sustainability approach, with the Board’s Sustainability Committee assisting with governance and monitoring. The Sustainability Committee also oversees HSEC-related risks, legal and regulatory compliance and overall HSEC and other human rights performance. The Board’s Risk and Audit Committee assists with oversight of the Group’s systems of risk management.

We set clear targets to challenge ourselves, drive improvement and allow stakeholders to assess our performance in areas that matter most. To realise these targets, we embed sustainability performance measures throughout the Group, from Group-wide key performance indicators to balanced scorecards for individual employees.

All data in this section 1.9 includes Continuing and Discontinued operations for the financial years being reported.

Transparency and accountability

Transparency and accountability are fundamental to trust. It is trust that underpins the social contract, in which corporations, governments and communities agree to work together for our mutual best interest. Without transparency, there cannot be accountability for sharing the proceeds of wealth and fair distribution of taxes.

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Our commitment to transparency goes beyond complying with regulation. We need to demonstrate that we are playing our part in the social contract to maintain our licence to operate for the long term. Our approach is guided by our Transparency Principles of responsibility, openness, fairness and accountability. We were the first in our sector to disclose payments to governments on a project-by-project basis in 2015. This year, we have also disclosed our profit, number of employees and adjusted effective tax rates on a country-by-country basis.

Economic transparency is not our only focus. We have a strong record of supporting robust reporting on climate change issues. We were one of the first companies to report in accordance with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. In August 2018, we published a comprehensive report of our water risks and usage.

Our conduct

Wherever we operate, we strive to do so with integrity – doing what is right and doing what we say we will do. This is fundamental to building and maintaining the trust we need for long-term value creation.

Our Code of Conduct (Our Code) sets the standard for BHP’s commitment to working with integrity and respect. Our Code sets out standards of behaviour for our people in their dealings with governments and communities, third parties, and each other. Our Code guides us in our daily work and demonstrates how to practically apply the commitments and values set out in Our Charter. Acting in accordance with Our Code is a condition of employment for everyone who works for and on behalf of BHP and it is accessible to all our people and external stakeholders on our website (bhp.com). All our people are required to undertake annual training on Our Code.

BHP does not tolerate any form of retaliation against anyone who speaks up about potential misconduct or participates in an investigation.

Anti-corruption

Corruption misallocates resources, reinforces poverty, undermines the integrity of government and community decision-making and wastes opportunities that arise from resource development. We are committed to contributing to the global fight against corruption and working with business, government and civil society to support this effort.

Our commitment to anti-corruption compliance is embodied in Our Charter and Our Code. We also have a specific anti-corruption procedure, which sets out mandatory requirements to identify and manage the risk of anti-corruption laws being breached. We prohibit authorising, offering, giving or promising anything of value directly or indirectly to a government official to influence official action, or to anyone to encourage them to perform their work disloyally or otherwise improperly. We also require our people to take care that third parties acting on our behalf do not violate anti-corruption laws. A breach of these requirements can result in disciplinary action, including dismissal.

Our Ethics and Compliance function has a mandate to design and govern BHP’s compliance frameworks for key compliance risks, including anti-bribery and corruption. The function is independent of our assets and asset groups, and comprises teams that are co-located in our main global locations and a specialised Compliance Legal team. The Chief Compliance Officer reports twice a year to the Risk and Audit Committee, and separately to the Committee Chairman, also twice a year.

Our anti-corruption compliance program is designed to meet the requirements of the US Foreign Corrupt Practices Act, the UK Bribery Act, the Australian Criminal Code and applicable laws of all places where we do business. These laws are consistent with the standards of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. We regularly review our anti-corruption compliance program to make any changes required by regulatory developments.

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In addition to anti-corruption training as part of annual training on Our Code, additional risk-based anti-corruption training was completed by 7,406 employees in FY2018 and numerous employees of business partners and community partners.

1.9.2    Safety

Our highest priority is the safety of all those impacted by our operations, including our employees and contractors and the communities in which we operate. We achieve nothing if we do not do it safely.

BHP has a goal of zero fatalities. Tragically, two of our colleagues died in FY2018. Daniel Springer, a contractor from Independent Mining Services, suffered fatal injuries in August 2017 as a result of an incident while removing a curved wear plate from the back of an excavator bucket at Goonyella Riverside Mine. In November 2017, a sub-contractor from our Onshore US asset suffered fatal injuries when he was struck by a forklift during well-completion operations in the Permian Basin.

Following both events, teams were established to identify organisational improvements that could prevent similar events occurring again. The investigations were facilitated by an external expert and led by independent senior leaders.

In response to these incidents, Group-wide actions have been taken to review and improve our management processes and our minimum safety requirements for engaging and managing contractors.

We have also reviewed how we investigate incidents and found there were opportunities to improve process, leadership and culture so that we can more effectively embed the lessons from safety incidents across our business.

We successfully launched a Group-wide common approach to field leadership during FY2018. Since deployment, we have completed more than one million field leadership activities with our employees and contractors, which highlights how well this program has been embedded into our daily leadership routines.

Our safety performance

Total recordable injury frequency (TRIF) performance increased by five per cent during FY2018 to 4.4 per million hours worked, compared to 4.2 in FY2017. This was due to an increase in low severity sprain and strain type injuries in Minerals Australia, which occurred primarily in Western Australia Iron Ore and Olympic Dam. These events were not injuries that had fatal or serious potential. Through Field Leadership engagement and formal awareness programs, we are improving the identification and management of the hazards that cause sprain and strain injuries in task-based risk assessments done by the workforce every day. The increase in TRIF performance at Minerals Australia was offset by an 18 per cent reduction in TRIF performance in Minerals Americas to a level less than two.

Total recordable injury frequency (per million hours worked)

This year, we are also reporting on the rate of high potential injuries. We are currently able to report data for the last three years. High potential injury trends remain a primary focus to assess progress against our most important safety objective: to eliminate fatalities. High potential injuries declined by eight per cent from FY2017 due to a significant reduction in high potential injuries in Western Australia Iron Ore and further improvement in Petroleum.

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High potential injury events

1.9.3    Health

Recognising that our operations can impact the health of our people, we set clear requirements to manage and protect the health and wellbeing of our workforce, now and into the future. We set minimum mandatory controls to identify and manage health risks for both employees and contractors. Health risks at our workplaces include occupational exposure to diesel particulate matter (DPM), silica and coal mine dust, musculoskeletal stressors, noise and mental health impacts.

Occupational illnesses

The majority of our reported occupational illnesses are musculoskeletal illness and noise-induced hearing loss. We continue to work to minimise these risks through controls such as hearing protection and task redesign to reduce manual handling requirements.

The incidence of employee occupational illness in FY2018 was 4.18 per million hours worked, a decrease of 15 per cent compared with FY2017. The reported incidence of contractor occupational illness was 1.92 per million hours worked, an increase of 34 per cent compared with FY2017. The overall increase in contractor illnesses has been predominantly driven by an increase in predominantly musculoskeletal illness cases in Minerals Australia. This is recognised as an area of focus, with work planned in FY2019 to address the rise in cases.

We do not have full oversight of incidence of contractor noise-induced hearing loss in many parts of BHP due to regulatory regimes and limited access to data. We are working with our contractors to resolve these issues.

Periodic medical surveillance is conducted to detect signs of potential illness at an early stage, and assist our people in the recovery and management of illness that is a result of exposure at our workplace. In FY2019, we will review our medical testing programs to look for opportunities to improve the programs and further enhance our ability to detect potential issues.

Exposure to airborne contaminants

We manage exposures to DPM, silica, coal mine dust and other potentially harmful agents through the setting of internally specified occupational exposure limits (OELs). In setting those OELs for our most important exposures, we monitor and review scientific literature, engage with regulators and OEL-setting agencies, benchmark against peers, and seek independent advice. Our process for continuous monitoring and evaluation of our internal OELs is designed to ensure they remain in line with, or are more stringent than, applicable regulated health limits.

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For our most material exposures of DPM, silica and coal mine dust, we have committed to a five-year target to achieve a 50 per cent reduction in the number of workers potentially exposed⁽³⁾ as compared to our FY2017 baseline exposure profile (as of 30 June 2017⁽⁴⁾) by 30 June 2022. In FY2018, planned exposure reduction projects were implemented across the Group resulting in an overall reduction of 31 per cent compared to the FY2017 baseline. Planned growth projects across the Group may result in an increase in some potential exposures in the short term; however, commitments to achieve planned exposure reductions over the five-year target period remain.

Coal mine dust lung diseases

As at 30 June 2018, six cases of coal mine dust lung diseases (CMDLD⁽⁵⁾) among our current employees had been reported to the Queensland Department of Natural Resources, Mines and Energy. We continue to provide counselling, medical support and redeployment options (where relevant) for all six colleagues. Four of the six have been able to continue working.

During FY2018, an additional three former BHP workers had workers compensation claims accepted for CMDLD resulting in a total, as at 30 June 2018, of five former workers diagnosed with CMDLD since January 2016 (noting that no Australian coal mine worker had been diagnosed with CMDLD in the preceding two decades). Our Charter values guide our response and the support we offer, and we continue to review how this can be improved.

Through the combination of further reductions in coal mine dust and silica potential exposures across BHP sites (driven by our current five-year exposure reduction targets and planned reductions in our OELs) and the statutory health surveillance schemes in Queensland and New South Wales, we believe the necessary controls are in place to prevent serious disabling disease and fatalities in our workforce from existing workplace conditions.

Mental health

Consistent with our culture of care, the mental health of our people is a priority for BHP. We have made good progress with the implementation of our Group-wide Mental Health Framework. Our initial focus was on culture, aimed at reducing the stigma associated with mental illness and raising awareness of mental health conditions, as well as building capacity and confidence to recognise and support individuals experiencing mental health issues.

In FY2018, we expanded our program to include positive activities to support a healthy, thriving workforce. This included the development of a peer-led Resilience Program designed to improve personal and team ability to respond and adapt to changing life circumstances and to build longer-term wellbeing. In addition to the Resilience Program, we developed a centralised resource to help our people improve their mental health and support colleagues, friends and family: the Thrive mental health toolkit, and included a wellbeing category in our Engagement and Perception Survey, helping inform our mental health strategy and better equipping our leaders to support their people.

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1.9.4    Respecting human rights

Respecting human rights wherever we operate is critical to the sustainability of our business and is consistent with our commitment to operate in a manner consistent with the United Nations (UN) Declaration on Human Rights, the UN Guiding Principles on Business and Human Rights, the Voluntary Principles on Security and Human Rights and the 10 UN Global Compact principles.

Society increasingly expects businesses to respect human rights throughout the value chain and we continue to work closely with our stakeholders to understand opportunities to make a positive contribution towards human rights.

The most relevant human rights risks for BHP are rights related to occupational health and safety, security, labour conditions and the rights of Indigenous peoples and communities impacted by our operations. Human rights are integrated into BHP’s risk management system through the Our Requirements standards. We seek to identify and manage human rights risks and perform due diligence across all our activities. We engage regularly with communities, investors, civil society and industry associations on human rights-related issues and impacts of our operations on communities.

Our expectations of our people and contractors and suppliers (where under relevant contractual obligation) are set out in Our Code of Conduct and other relevant standards. Performance against those standards is overseen by our management and subject to internal audit.

We set minimum mandatory requirements for all our suppliers and relevant contractors, including zero tolerance in relation to child labour and forced or compulsory labour, freedom of association, living wage, non-discrimination and diversity, workplace health and safety, community interaction and treatment of employees. We acknowledge the challenges of respecting human rights throughout our value chain and are committed to working with our suppliers and business partners to adopt principles and standards similar to BHP’s.

FY2018 saw continued progress and implementation of good practice in respect of human rights across BHP. Key activities included:

UK Modern Slavery Act

In accordance with the Modern Slavery Act 2015 (UK), we publish an annual statement describing the steps we take to understand the potential for modern slavery and human trafficking risks across our operating and supplier jurisdictions. We are committed to building an ongoing dialogue with stakeholders, including suppliers and regulators, to improve our understanding of these risks.

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That statement, together with information on BHP’s systems and processes for meeting the UN Guiding Principles on Business and Human Rights, human rights governance and our zero tolerance requirements in relation to human rights in our supply chain, is available online at bhp.com/respectinghumanrights.

1.9.5    Supporting communities

We work respectfully with stakeholders to identify and address impacts from our operations, to understand their expectations and to identify opportunities to actively address social needs. We seek to build good relationships with our stakeholders based on mutual respect, open and ongoing communications and transparency over our activities. In particular, we respect the rights of Indigenous peoples and aim to contribute to their sustainable long-term economic empowerment, social development needs and cultural wellbeing.

Engaging with host communities

Our community practitioners use a range of tools tailored to the needs of our stakeholders. We plan, implement, evaluate and document stakeholder engagement activities, ensuring we include a range of culturally and socially inclusive engagement activities and update our plans annually. Tools include stakeholder mapping, complaints and grievance reporting procedures, perception surveys, social impact and opportunity assessments and human rights impact assessments. Through these, we gain valuable insights into what we do well and where we need to improve our performance.

We also regularly engage with shareholders, their representatives and non-governmental organisations at a Board and senior management level in order to understand their expectations and concerns. For more information, refer to section 2.3 Shareholder engagement.

Supporting local economic growth

We support local businesses by seeking to source products and services locally. All our assets are required to have local procurement plans that benefit local suppliers, create employment and build capacity through training of small business entrepreneurs.

During FY2018, 24 per cent of our external expenditure was with local suppliers. An additional 73 per cent of our supply expenditure was within the regions in which we operate. Of the US$16 billion paid to more than 10,000 suppliers across the globe, US$3.8 billion was paid to local suppliers in the communities in which we operate, supporting their further development.

Our expenditure with local suppliers in FY2018 was mostly in the United States (81 per cent), Trinidad and Tobago (47 per cent), Chile (20 per cent) and Australia (13 per cent).

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Voluntary social investment

Our target is to invest not less than one per cent of our pre-tax profit⁽¹⁾ to contribute to improved quality of life in host communities and support achievement of the United Nations Sustainable Development Goals.

Our social investment performance in FY2018 saw BHP deliver projects with a continued focus on good governance, human capability and social inclusion and environment. The total investment of US$77.05 million includes US$7.16 million on community contributions at our non-operated joint ventures, and US$1.54 million to facilitate the operation of the BHP Billiton Foundation.

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1.9.6    Indigenous peoples

Many of our operations are located on or near traditional lands. We respect the rights of Indigenous peoples and acknowledge their right to maintain their culture, identity, traditions and customs. We also seek to contribute to their sustainable long-term economic empowerment, social development needs and cultural wellbeing. Our approach to engaging and supporting Indigenous peoples is articulated in our Indigenous Peoples Statement, which is aligned with the ICMM Indigenous Peoples Policy Statement.

We have a five-year target to implement our Indigenous Peoples Strategy across all our assets through the development of Regional Indigenous Peoples Plans. The Strategy focuses on four priority areas: governance; economic empowerment; social and cultural support; and public engagement. In FY2018, all regions (Australia, the United States, Chile and Canada) had regional Indigenous Peoples plans established to progress the Strategy. Further details on our Indigenous Peoples Policy Statement and Strategy are available in our Sustainability Report 2018 and online at bhp.com.

1.9.7    Protecting the environment

Pressure on land and water resources is growing, amplified by climate change. Maintaining the right to access these resources relies on our ability to demonstrate responsible management and contribute to a resilient environment. BHP has comprehensive governance, risk management, policies and processes to help reduce the potential impact of our operations.

Our approach to environmental management is set out in the Our Requirements for Environment and Climate Change and Our Requirements for Planning, Risk Management standards. These standards and our processes of audit and assurance have been designed taking account of the ISO management system requirements, such as ISO14001 for Environmental Management. The Our Requirements standards also include specific minimum performance standards in a number of areas.

Compliance with the Our Requirements standards is checked by our internal audit processes, which are designed to cover all operating sites on a two year rotation.

Supporting biodiversity

We have a five-year target to improve marine and terrestrial biodiversity outcomes by developing a framework to evaluate and verify the benefits of our actions, in collaboration with others. In FY2018, we commenced development of that framework through collaboration with Conservation International and also with Proteus, a voluntary partnership between UN Environment World Conservation Monitoring Centre (UNEP-WCMC) and 12 extractives industry companies. The framework will be used to measure BHP’s achievement of our longer-term biodiversity goal: ‘in line with United Nations Sustainable Development Goals (UN SDGs) 14 and 15, BHP will, by FY2030, have made a measurable contribution to the conservation, restoration and sustainable use of marine and terrestrial ecosystems in all regions where we operate.’

BHP also looks for opportunities to improve the conservation, restoration and sustainable use of marine and terrestrial ecosystems in all regions in which we operate, both through our own activities and in collaboration with others. In FY2018, our Petroleum business partnered with Pemex to develop the Trion discovery in the Gulf of Mexico. As the first foreign company to partner with Mexico in developing their significant petroleum resources, BHP has been working with the Mexican Government as it develops its offshore petroleum regulatory framework, by sharing leading practice environmental guidance from networks such as IPIECA (the global oil and gas industry association for environmental and social issues) and the International Association of Oil & Gas Producers.

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Rehabilitation and closure

Closure of part or all of an operation brings with it potentially significant financial, environmental and social impacts. Recognising this, in FY2017, BHP developed a new Our Requirements standard for closure. The new standard will apply to exploration, projects and operational or closure activities for all our sites, including both our operated assets and non-operated assets (where commercial terms allow). The standard will also apply to our investment or divestment decisions.

Our standards also require us to minimise the potential of adverse environmental impacts following closure. Our closed sites are required to have closure management plans, with long-term monitoring to verify that controls are effective and performance standards are maintained.

Towards water stewardship

The need for water creates complex, region-wide interrelationships between communities, government, business and the environment. This means we all must work more cooperatively to effectively balance multiple needs and safeguard water supplies for future generations.

Transparency through appropriate disclosure of water use, performance and interactions across all sectors is critical to effective water governance. In August 2018, we published our inaugural Water Report. This Report is our first step towards more accessible and transparent reporting of our interactions with water – from extraction to use and discharge – and of our water-related performance and risks.

The water stewardship priority supports our longer-term goal for water: ‘in line with SDG 6, BHP will collaborate to enable integrated water resource management in all catchments where we operate by FY2030.’ We also have a five-year target to reduce FY2022 freshwater withdrawal by 15 per cent from FY2017 levels. The most significant contributor towards this goal in FY2018 was the completion and inauguration of the expanded desalination plant at our Escondida asset in Chile. The FY2018 result represents a two per cent decrease from FY2017 levels and progress towards our target.

For more information on BHP and water, read our BHP Water Report 2018 at bhp.com/water.

1.9.8     Climate change

Our climate change strategy focuses on reducing our operational GHG emissions, investing in low emissions technologies, promoting product stewardship, managing climate-related risk and opportunity and working with others to enhance the global policy and market response.

More information on each element of our strategy is available online at bhp.com/climate.

Climate change governance

Responding to climate change is a priority governance and strategic issue for BHP. Our Board is actively engaged in the governance of climate change issues, supported by the Sustainability Committee. Management has primary responsibility for the design and implementation of our climate change strategy.

Reducing our operational emissions is a key performance indicator for our business and our performance against our targets (outlined in this section) is reflected in senior executive and leadership remuneration.

All data in this section includes Continuing and Discontinued operations for the financial years being reported.

Stakeholder engagement

Our climate change strategy is supported by active engagement with our stakeholders, including investors, policy makers, peer companies and non-governmental organisations.

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We periodically hold one-on-one and group meetings with investors and their advisers. In FY2018, our climate-related investor engagement included meetings held in Australia, the United Kingdom, the United States and South Africa.

We also seek input and insight from external experts, such as the BHP Forum on Corporate Responsibility (FCR). The FCR, which is composed of civil society leaders and BHP executives, has played a critical role in the development of our position on climate change. During FY2018, the FCR met twice, with both meetings including discussion of the delivery of our climate change strategy, including our emissions reduction targets.

Informed by this engagement, we regularly review our approach to climate change in response to emerging scientific knowledge, changes in global climate policy and regulation, developments in low emissions technologies and evolving stakeholder expectations.

For information on our program of engagement, refer to section 2.3.

Climate-related financial disclosures

Our climate-related disclosures in this Report are aligned with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). We believe the TCFD recommendations represent an important step towards establishing a widely accepted framework for climate-related financial risk disclosure and we have been a firm supporter of this work. Our Vice President of Sustainability and Climate Change, Dr Fiona Wild, is a member of the Task Force.

We are committed to continuing to work with the TCFD and our peers in the resources sector to support the wider adoption of the TCFD recommendations and the development of more effective disclosure practices within the sector.

As responding to climate change is an integral part of our strategy and operations, our TCFD-aligned disclosures can be found throughout this Report. The table below shows how our disclosures in this Report align to the TCFD recommendations and where the relevant information can be found.

Location of TCFD-aligned disclosures

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Managing our operational emissions

As a major energy consumer, BHP considers energy use management, energy security and GHG emissions reduction at our operations as key components of our climate change strategy.

Delivering against our emissions reduction targets

In FY2018, we began working towards a new five-year GHG emissions reduction target. Our new target, which took effect from 1 July 2017, is to maintain our total operational emissions in FY2022 at or below FY2017 levels ⁶ while we continue to grow our business. Our new target builds on our success in achieving our previous five-year target.

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Our operational emissions (Scopes 1 and 2 combined) in FY2018 totalled 16.5 million tonnes of carbon dioxide equivalent (CO₂-e). This is a 1 per cent increase compared to the FY2017 baseline, and is primarily due to an increase in Scope 2 emissions from our Minerals Americas business as a result of increased production at our Escondida and Pampa Norte copper assets in Chile, as well as the commissioning of the new Escondida desalination plant. ⁷

Our five-year target and our longer-term emissions reduction goal underpin our strategy and are an important driver of internal performance. In FY2019, we will continue to focus on the delivery of our five-year target and on defining a pathway to net-zero emissions over the coming decades.

Scope 1 and 2 GHG emissions (million tonnes CO₂-e) ⁸

Our FY2018 GHG intensity was 2.3 tonnes of CO₂-e per tonne of copper equivalent production (FY2017: 2.2 tonnes of CO₂-e). Our FY2018 energy intensity was 21 gigajoules per tonne of copper equivalent production. ¹¹

More information on our GHG metrics and targets, including a breakdown of our emissions by source, additional historical data, details of our performance against our current and previous target, and information on our approach to target setting is available online at bhp.com/climate.

Investing in low emissions technologies

Defining a pathway to net-zero emissions for our long-life assets requires planning for the long term and a deep understanding of the development pathway for low emissions technologies. Our strategy is to develop emerging, and deploy existing, technologies that make step-change reductions in GHG emissions, both from our own operations and from the downstream processing and use of our products (as described below).

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We have a suite of initiatives currently underway aimed at achieving reductions across our major operational emissions sources:

Zero-carbon electricity supply: emissions from electricity use make up 46 per cent of our operational emissions. This includes both the power we generate ourselves and the power we buy from grids around the world.¹² Our strategy seeks to accelerate the transition to lower carbon sources of electricity while balancing cost, reliability and emissions reductions.

Zero-carbon material movement: emissions from fuel and distillate make up 35 per cent of our operational emissions, primarily from the consumption of diesel in the course of material movement (for example haul trucks). Our strategy is to accelerate and de-risk technologies and innovations that can transition operations over time to alternate fuels and greater electrification of mining equipment and mining methods.

Fugitive emissions: fugitive methane emissions from our petroleum and coal assets make up 18 per cent of our operational emissions. Our strategy is to pursue innovation in mitigation technologies for these emissions, which are among the most technically and economically challenging to reduce.

In evaluating low emissions technology investment opportunities, we consider technologies with the potential to deliver results across a range of time horizons; emphasise investments that can deliver material GHG savings; consider the ability of projects and technologies to leverage our global Operating Model (replicability, scale and market breadth); and evaluate the potential for building capacity, capability and internal awareness across our business.

Case studies on our low emissions technology investments are available online at bhp.com/climate.

Promoting product stewardship

Emissions from our value chain (Scope 3¹³ emissions) are significantly higher than those from our own operations. We recognise that we have a stewardship role in working with our customers, suppliers and other value chain participants to seek to influence emissions reductions across the full lifecycle of our products.

Managing our value chain emissions

In FY2018, Scope 3 emissions in our value chain were 596 million tonnes of CO₂-e. The most significant contributors to this total were emissions from the downstream processing and use of our products, which accounted for around 97 per cent of total Scope 3 emissions. In particular, Scope 3 emissions emanating from the steelmaking process (the processing and use of our iron ore and metallurgical coal) accounted for over 65 per cent of the total.¹⁴

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Scope 3 GHG emissions (million tonnes CO₂-e)¹⁵

More information on Scope 3 emissions associated with our business and the methodologies used to calculate them is available online at bhp.com/climate.

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Accelerating the development of carbon capture and storage

We are working in partnership with others across our value chain to accelerate the development of technologies with the potential to reduce emissions from the processing and use of our products. Carbon capture and storage (CCS) is a key low emissions technology with the potential to play a pivotal role in reducing emissions from industrial processes such as steel production as well as emissions from the power sector and from oil and gas production.

While we recognise that progress is required in developing policy frameworks to support the wider deployment of this technology, our CCS investments and partnerships focus on mechanisms to reduce costs and accelerate development timeframes. Our investments include activities aimed at knowledge sharing from commercial-scale projects, development of sectoral deployment roadmaps and funding for research and development at leading universities and research institutes.

Case studies on our CCS investments and partnerships are available online at bhp.com/climate.

Managing risk and opportunity

We recognise the physical and non-physical impacts of climate change may affect our assets, productivity, the markets in which we sell our products and the communities in which we operate. Risks related to the physical impacts of climate change include acute risks resulting from increased severity of extreme weather events and chronic risks resulting from longer-term changes in climate patterns. Non-physical risks arise from a variety of policy, legal, technological and market responses to the challenges posed by climate change and the transition to a lower carbon economy.

A broader discussion of our climate-related risk factors and risk management approach is provided as part of our TCFD-aligned disclosures located throughout this Report, as described above.

Adapting to the physical impacts of climate change

We take a robust, risk-based approach to adapting to the physical impacts of climate change. We work with globally recognised agencies to obtain regional analyses of climate science to inform resilience planning at an asset level and improve our understanding of the potential climate vulnerabilities of our operations and host communities.

Our operations are required to build climate resilience into their activities through compliance with the Our Requirements for Environment and Climate Change standard. We also require new investments to assess and manage risks associated with the forecast physical impacts of climate change. As well as this ongoing business resilience planning, we continue to look at ways we can contribute to community and ecosystem resilience.

Case studies on our adaptation activities are available online at bhp.com/climate.

Evaluating the resilience of our portfolio

We consider the impacts of climate change in our strategy process. We recognise the world could respond in a number of different ways to address climate change. We use a broad range of scenarios to consider how divergent policy, technology, market and societal outcomes could impact our portfolio, including low plausibility, extreme shock events. We also continually monitor the macro environment for climate change related developments that would serve as a call to action for us to reassess the resilience of our portfolio.

Our investment evaluation process includes an assessment of non-quantifiable risks such as those that could impact the people and the environment that underpin our licence to operate. The process has also incorporated market and sector based carbon prices for more than a decade.

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Our Climate Change: Portfolio Analysis (2015) and Climate Change: Portfolio Analysis – Views after Paris (2016) reports, which are available online at bhp.com/climate, describe in more detail how we have used scenario analysis to evaluate the resilience of our portfolio to both an orderly and a more rapid transition to a 2°C world.

We are committed to keeping our stakeholders informed of the potential impact of climate change on our business, and continue to review and consider developing best practice and evolving stakeholder expectations.

Contributing to the global response

Climate change is a global challenge that requires collaboration. We prioritise working with others to enhance the global policy and market response.

Supporting the development of effective climate and energy policy

Industry has a key role to play in supporting policy development. We engage with governments and other stakeholders to contribute to the development of an effective, long-term policy framework that can deliver a measured transition to a lower carbon economy.

We believe an effective policy framework should include a complementary set of measures, including a price on carbon, support for low emissions technology and measures to build resilience. We are a signatory to the World Bank’s ‘Putting a Price on Carbon’ statement and a partner in the Carbon Pricing Leadership Coalition, a global initiative that brings together leaders from industry, government, academia and civil society with the goal of putting in place effective carbon pricing policies.

We also advocate for a framework of policy settings that will accelerate the deployment of CCS. We are a member of the Global CCS Institute and, in FY2018, we joined the UK Government’s newly formed Council on Carbon Capture Usage and Storage (CCUS).

We contribute to policy reviews throughout our global operating regions. Our climate and energy policy submissions are available online at bhp.com/climate.

Industry association membership

We believe industry associations have the capacity to play a key role in advancing the development of standards, best practice and constructive policy that are of benefit to members, the economy and society. We also recognise there is increasing stakeholder interest in the nature and role of industry associations and the extent to which the positions of industry associations on key issues are aligned with those of member companies.

During FY2018, we completed a review of our membership of those industry associations that hold an active position on climate and energy policy. Our Industry association review report, published in December 2017, sets out a list of the material differences between the positions we hold on climate and energy policy, and the advocacy positions on climate and energy policy taken by industry associations to which we belong. It also describes the outcomes of the review of our membership of those industry associations. In light of the material difference identified by the review and the narrow range of activities of benefit to BHP from membership, we determined to cease membership of the World Coal Association (WCA).

More information on our approach to industry associations, including the Industry association review report, is available online at bhp.com.

Promoting market mechanisms to reduce global emissions

In addition to measures to reduce our own emissions, we support the development of market mechanisms that reduce global GHG emissions through projects that generate carbon credits.

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Our climate change strategy includes a focus on reducing emissions from deforestation through support for REDD+, the UN program for reducing emissions from deforestation and forest degradation. For example, in partnership with the International Finance Corporation (IFC) and Conservation International (CI) we developed a first-of-its-kind US$152 million Forests Bond, issued by the IFC in 2016. BHP provides a price-support mechanism for the bond, which supports the Kasigau Corridor REDD+ project in Kenya. During FY2018, we purchased additional carbon credits from the Kasigau Corridor project and continued our support of the Alto Mayo REDD+ project in Peru.

In partnership with CI and Baker McKenzie, in FY2018, we launched the Finance for Forests (F4F) initiative, which aims to share our experiences to help encourage replication of these investments and the exploration of other innovative private finance tools to conserve forests and further advance REDD+. We co-hosted (along with CI and Baker McKenzie) F4F roundtables in the United States and the United Kingdom, which were attended by representatives of the public, private and philanthropic sectors.

More information on our approach to REDD+ is available online at bhp.com/climate.

1.10    Our businesses

The maps in this section should be read in conjunction with the information on mining operations table in section 6.1.

1.10.1    Minerals Australia

The Minerals Australia asset group includes operated assets in Western Australia, Queensland, New South Wales and South Australia.

Copper asset

Olympic Dam

Overview

Located 560 kilometres north of Adelaide, Olympic Dam is one of the world’s most significant deposits of copper, gold, silver and uranium.

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Olympic Dam is made up of underground and surface operations and operates a fully integrated processing facility from ore to metal. The underground mine is made up of more than 450 kilometres of underground roads and tunnels. Ore mined underground is hauled by an automated train system to crushing, storage and ore hoisting facilities.

The processing plant consists of two grinding circuits in which high-quality copper concentrate is extracted from sulphide ore through a flotation extraction process. Olympic Dam has a fully integrated metallurgical complex with a grinding and concentrating circuit, a hydrometallurgical plant incorporating solvent extraction circuits for copper and uranium, a copper smelter, a copper refinery and a recovery circuit for precious metals.

Key developments during FY2018

The major smelter maintenance upgrade in August 2017 was the largest planned shutdown ever undertaken at Olympic Dam and ran for more than 100 days. Other major upgrade work was carried out on the refinery, concentrator and site technology to ensure the ongoing reliability and safety of the Olympic Dam operation.

Guidance for Olympic Dam was reduced to approximately 135 kilotonnes (kt) following a slower than planned ramp-up after completion of the major smelter maintenance campaign. However, Olympic Dam slightly exceeded the revised guidance for the full FY2018 at 137 kt.

First ore from the higher-grade Southern Mine Area was extracted in early FY2018 with development continuing.

Looking ahead

Following the key infrastructure upgrade in FY2018, Olympic Dam will see a gradual increase in copper production with continued development into the Southern Mine Area.

There are other expansion plans for Olympic Dam, such as the Brownfield Expansion Project, which is expected to be considered by the Board in CY2020, and could see production grow to approximately 330 kilotonnes per annum (ktpa).

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Iron ore asset

Western Australia Iron Ore

Overview

Western Australia Iron Ore (WAIO) is an integrated system of four processing hubs and five mines connected by more than 1,000 kilometres of rail infrastructure and port facilities in the Pilbara region of northern Western Australia.

WAIO’s Pilbara reserve base is relatively concentrated, allowing development to be planned around integrated mining hubs which are connected to the mines and satellite orebodies by conveyors or spur lines. This approach enables the value of installed infrastructure to be maximised by using the same processing plant and rail infrastructure for a number of orebodies.

At each processing hub – Newman, Yandi, Mining Area C and Jimblebar – the ore is crushed, beneficiated (where necessary) and blended to create high-grade hematite lump and fines products. Iron ore products are then transported along the Port Hedland – Newman Rail Line to the Finucane Island and Nelson Point port facilities at Port Hedland.

There are four main WAIO joint ventures (JVs): Mt Newman, Yandi, Mt Goldsworthy and Jimblebar. BHP’s interest in each of the joint ventures is 85 per cent, with Mitsui and ITOCHU owning the remaining 15 per cent. The joint ventures are unincorporated, except Jimblebar.

BHP, Mitsui and ITOCHU have also entered into separate joint venture agreements with some customers that involve the sublease of parts of WAIO’s existing mineral leases at Wheelarra and POSMAC. The Wheelarra JV sublease expired in March 2018 and the Wheelarra JV is now in the process of being wound up. As such, control of the sublease area reverted to the Jimblebar JV in March 2018.

The ore from the Wheelarra and POSMAC JVs is sold to the main joint ventures. BHP is entitled to 85 per cent of this production.

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All ore is transported by rail on the Mt Newman JV and Mt Goldsworthy JV rail lines to the port facilities. WAIO’s port facilities at Nelson Point are owned by the Mt Newman JV and Finucane Island is owned by the Mt Goldsworthy JV.

Key developments during FY2018

WAIO achieved record production in FY2018, supported by record production at Jimblebar and Mining Area C, and improved rail reliability. WAIO has also recorded ongoing productivity improvements, such as the development of a rail-scheduling tool that continually learns and applies new algorithms to optimise rail movements. WAIO has adopted a manufacturing mindset to lower operational costs through improved truck availability and fuel consumption, increased equipment reliability and extended equipment life.

The Jimblebar truck fleet became fully autonomous in November 2017. The autonomous fleet reduces people exposure to hazardous environments, saves time and allows for greater accuracy.

In February 2018, BHP received approval to amend its environmental licence to increase capacity at its Port Hedland operations to 290 million tonnes per annum (Mtpa).

On 14 June 2018, the BHP Board approved US$2.9 billion in capital expenditure for the development of the new South Flank project. This is in addition to BHP’s pre-commitment funding of US$184 million, which was approved in June 2017. South Flank will fully replace production from the 80 Mtpa (100 per cent basis) Yandi Mine, with first ore targeted in the CY2021. It will contribute to an increase in WAIO’s average iron grade from 61 per cent to 62 per cent, and the overall proportion of lump from 25 per cent to approximately 35 per cent.

Looking ahead

We will continue to focus on productivity improvements through standardised work processes, simplification and further cost reduction, coupled with supply chain debottlenecking initiatives at the port and rail to improve stability and reliability of the network and increase production to 290 Mtpa. A program of work to optimise maintenance schedules across our supply chain and improve port reliability and performance is planned for the September 2018 quarter, with a corresponding impact expected on production and unit costs.

Coal assets

Our coal assets in Australia consist of open-cut and underground mines. At our open-cut mines, overburden is removed after blasting, using either draglines or truck and shovel. Coal is then extracted using excavators or loaders and loaded onto trucks to be taken to stockpiles or directly to a beneficiation facility.

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At our underground mine, coal is extracted by either longwall or continuous miner. The coal is then transported to stockpiles on the surface by conveyor. Coal from stockpiles is crushed and, for a number of the operations, washed and processed through a coal preparation plant. Domestic coal is transported to nearby customers via conveyor or rail, while export coal is transported to ports on trains. As part of the coal supply chain, both single and multi-user rail and port infrastructure is used.

Queensland Coal

Overview

Queensland Coal comprises the BHP Billiton Mitsubishi Alliance (BMA) and BHP Billiton Mitsui Coal (BMC) assets in the Bowen Basin in Central Queensland, Australia.

The Bowen Basin’s high-quality metallurgical coals are ideally suited to efficient blast furnace operations. The region’s proximity to Asian customers means it is well positioned to competitively supply the seaborne market.

Queensland Coal has access to key infrastructure in the Bowen Basin, including a modern, multi-user rail network and its own coal-loading terminal at Hay Point, located near the city of Mackay. Queensland Coal also has contracted capacity at three other multi-user port facilities: the Port of Gladstone (RG Tanna Coal Terminal), Dalrymple Bay Coal Terminal and Abbot Point Coal Terminal.

BHP Billiton Mitsubishi Alliance (BMA)

BMA is Australia’s largest coal producer and supplier of seaborne metallurgical coal. It is owned 50:50 by BHP and Mitsubishi Development.

BMA operates seven Bowen Basin mines (Goonyella Riverside, Broadmeadow, Daunia, Peak Downs, Saraji, Blackwater and Caval Ridge) and owns and operates the Hay Point Coal Terminal near Mackay. With the exception of the Broadmeadow underground longwall operation, BMA’s mines are open-cut, using draglines and truck and shovel fleets for overburden removal.

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BHP Billiton Mitsui Coal (BMC)

BMC owns and operates two open-cut metallurgical coal mines in the Bowen Basin – South Walker Creek Mine and Poitrel Mine. BMC is owned by BHP (80 per cent) and Mitsui and Co (20 per cent).

South Walker Creek Mine is located on the eastern flank of the Bowen Basin, 35 kilometres west of the town of Nebo and 132 kilometres west of the Hay Point port facilities. Poitrel Mine is situated southeast of the town of Moranbah and began open-cut operations in October 2006.

Key developments during FY2018

Queensland Coal production was impacted in late 2017 and early 2018 by challenging roof conditions at Broadmeadow underground mine and geotechnical issues triggered by wet weather at Blackwater open-cut mine. This was partially offset by record production at five mines, underpinned by improved stripping and truck performance, higher wash-plant throughput from debottlenecking activities and utilisation of latent dragline capacity at Caval Ridge Mine. Mining operations at Blackwater stabilised during the March 2018 quarter and returned to full capacity during the June 2018 quarter as inventory levels were rebuilt. At Broadmeadow, progression through the fault zone was completed during the June 2018 quarter.

For BMA, construction has advanced on the US$204 million (100 per cent basis) Caval Ridge Southern Circuit (CRSC) project in the Bowen Basin, which was approved by BHP in March 2017. The CRSC project includes an 11-kilometre overland conveyor system that will transport coal from Peak Downs Mine to the coal handling preparation plant at the nearby Caval Ridge Mine. The project is creating up to 400 new construction jobs and will lock in around 200 ongoing operational roles to operate the expanded contract mining fleet and to perform maintenance on the new infrastructure. It will also enable full utilisation of the 11.5 Mtpa wash plant with ramp-up early in FY2019.

On 30 May 2018, the BMA joint venture partners entered into an agreement to sell the Gregory Crinum Mine to Sojitz Corporation for A$100 million (100 per cent basis). Gregory Crinum is a hard coking coal mine located 60 kilometres northeast of Emerald in the Bowen Basin. It consists of the Crinum underground mine, Gregory open-cut mine, undeveloped coal resources and on-site infrastructure, including a coal handling and preparation plant, maintenance workshops and administration facilities. Gregory Crinum Mine’s capacity was 6 million tonnes (Mt) of hard coking coal per annum when production ceased and it was placed into care and maintenance in January 2016. In addition to the sale of the mine to Sojitz, BMA will provide appropriate funding for rehabilitation of existing areas of disturbance at the site. Completion of the sale is subject to the fulfilment of conditions precedent, including customary regulatory approvals.

On 6 February 2018, BMC completed the transaction with Peabody Energy to secure full ownership of the Red Mountain Joint Venture (RMJV) assets, which was announced in August 2017. The RMJV assets, which include a coal handling and preparation plant and rail loadout loop, will continue to service BMC’s Poitrel Mine and Peabody’s Millennium Mine, as well as providing train load out services for BMA Daunia Mine. Peabody will continue to use the infrastructure under a tolling arrangement with BMC. BMA will also continue to use the train load out.

Looking ahead

Construction of the CRSC project commenced in April 2017 and is scheduled to be completed by the end of CY2018. The first coal on conveyor is expected in October 2018.

In addition to the new conveyor and associated tie-ins, the project will fund a new stockpile pad and run-of-mine station at Peak Downs. It includes an upgrade of the existing coal handling preparation plant and stockyard at Caval Ridge. BMA also intends to invest in new mining fleet, including excavators and trucks.

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Potential future opportunities also include an expansion of the Caval Ridge wash plant that would unlock a further 5.7 Mtpa (100 per cent basis).

New South Wales Energy Coal

Overview

New South Wales Energy Coal (NSWEC) consists of the Mt Arthur Coal open-cut energy coal mine in the Hunter Valley region of New South Wales, Australia. The site produces coal for domestic and international customers in the energy sector.

Key developments during FY2018

We are continuing to optimise the mine design by re-opening the Ayredale pit to gain earlier access to a higher margin resource over the next decade and constructed multiple elevated roadways to reduce haulage cycle times and increase productivity.

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Nickel West

Overview

Nickel West is a fully integrated mine-to-market nickel business. All nickel operations (mines, concentrators, a smelter and refinery) are located in Western Australia. The integrated business adds value throughout our nickel supply chain, with the majority of Nickel West’s current production sold as powder and briquettes.

Low-grade disseminated sulphide ore is mined from Mt Keith, a large open-pit operation. The ore is crushed and processed on-site to produce nickel concentrate. High-grade nickel sulphide ore is mined at Cliffs and Leinster underground mines and Rocky’s Reward open-pit mine. The ore is processed through a concentrator and dryer at Leinster. Nickel West’s concentrator plant in Kambalda processes ore and concentrate purchased from third parties.

The three streams of nickel concentrate come together at the Nickel West Kalgoorlie smelter, a vital part of our integrated business. The smelter uses a flash furnace to smelt concentrate to produce nickel matte. Nickel West Kwinana then refines granulated nickel matte from the Kalgoorlie smelter into premium-grade nickel powder and briquettes containing 99.8 per cent nickel. Nickel matte and metal are exported to overseas markets via the Port of Fremantle.

Key developments in FY2018

In FY2018, Nickel West began its transition to become a global supplier to the battery materials market, approving funding and beginning preparatory works for the first phase of a nickel sulphate plant which will be located at the Kwinana Nickel Refinery. Stage 1 is expected to produce 100 ktpa of nickel sulphate. A mini-plant has been constructed to deliver samples of nickel sulphate product to customers.

In FY2018, we continued to progress regulatory environmental approvals and consulted with Traditional Owners regarding a satellite pit at the Mt Keith operation, which will supply ore to the Mt Keith concentrator.

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The Venus project has been approved for execution at the Leinster Nickel operation, with definitional drilling and development having commenced. A study reviewed the resource beneath the Perseverance Sub-Level Cave and recommended the installation of a small Block Cave. Pre-commitment funding to start the development on 1 July 2018 was approved.

Looking ahead

First production from the nickel sulphate plant at the Kwinana Nickel Refinery is expected at the end of the FY2019. We continue to explore options for a Stage 2, 200 kt nickel sulphate facility.

We will continue test work on a cobalt sulphate circuit plant at the Kwinana Nickel Refinery, which would produce a cobalt sulphate product.

At Mt Keith, we will commence mining at the Mt Keith Satellite Project, subject to regulatory approvals.

At Leinster, we anticipate declaring reserves for Venus and commencing production by the end of FY2019. We will potentially start developing the Leinster Block Cave and begin an extensive exploration program utilising the underground platform created by the Venus drives.

1.10.2    Minerals Americas

The Minerals Americas asset group includes projects, operated assets and non-operated joint ventures in Canada, Chile, Peru, the United States, Colombia and Brazil. These produce copper, zinc, iron ore and coal.

Operated assets

Copper

Our operated copper assets in the Americas, Escondida and Pampa Norte, are open-cut mines. At these mines, overburden is removed after blasting, using a truck and shovel. Ore is then extracted and further processed into high-quality copper concentrate or cathode. Copper concentrate is obtained through a grinding and flotation process, while copper cathode is produced from a leaching, solvent extraction and electrowinning process. Copper concentrate is transported to ports via pipeline, while cathode is transported by either rail or road. From the port, it is exported to our customers around the world.

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Escondida (Chile)

Overview

We operate and own 57.5 per cent of the Escondida mine, which is a leading producer of copper concentrate and cathodes. Escondida, located in the Atacama Desert in northern Chile, is a copper porphyry deposit. Following the commissioning of the Escondida Water Supply project and ramp-up of the Los Colorados Concentrator in the September 2017 quarter, Escondida´s two open-cut mines feed three concentrator plants (which use grinding and flotation technologies to produce copper concentrate), as well as two leaching operations (oxide and sulphide).

Key developments during FY2018

Escondida copper production in FY2018 increased by 57 per cent to 1,213 kt, reflecting a full year of production following the industrial action in the previous year and supported by the start-up of the Los Colorados Extension project on 10 September 2017. The addition of the third concentrator helps offset grade decline over the next decade and adds incremental annual copper production. Production attributed to the Los Colorados concentrator in FY2018 was 208.9kt.

The Escondida Water Supply Expansion (EWSE) project was sanctioned by the joint venture parties in March 2018 and will deliver its first water in FY2020. EWSE comprises the expansion of the Escondida Water Supply (EWS) conveyance system by 1,300 litres per second and desalination plant system by 800 litres per second. This project, in conjunction with the existing desalination installed capacity, will reduce reliance on ground water sources and enable Escondida to achieve its production plans. At the end of FY2018, the proportion of desalinated water in use at Escondida was 38 per cent.

The next step in Escondida’s transition to desalinated water is the sustainable reduction of ground water usage with the goal of eliminating ground water usage entirely by 2030, in line with BHP’s commitment to changing the balance of its water supply sources. The strategy focuses on increasing the use of desalinated water, recovering more water from operational processes and gradually reducing the use of water from aquifers.

In October 2017, Escondida and Union N°2 of Supervisors and Staff signed a new collective bargaining agreement valid until 30 September 2020.

The agreement with Workers Union N°1 expired on 1 August 2018. On 17 August 2018, Escondida successfully completed negotiations with Union N°1 and signed a new collective agreement, effective for 36 months from 1 August 2018.

Looking ahead

Production of between 1,120 and 1,180 kt is forecast in FY2019, as higher expected throughput is offset by a significant decrease in average concentrator head grade consistent with the mine plan.

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As well as continuing to expand the capacity of the existing desalination plant to reduce ground water usage, we will also realise further latent capacity by debottlenecking the concentrators and maximising concentrator throughput, implementing leaching process improvements to sustain cathodes production and increase fleet run time by optimising maintenance.

Pampa Norte (Chile)

Overview

Pampa Norte consists of two wholly owned assets in the Atacama Desert in northern Chile – Spence and Cerro Colorado. Spence and Cerro Colorado produce high-quality copper cathode, using oxide and sulphide ore treatment through leaching, solvent extraction and electrowinning processes.

Key developments during FY2018

Pampa Norte copper production for FY2018 increased by four per cent to 264 kt, supported by record copper cathode production of 200 kt at Spence for the full-year driven by higher throughput in the dry area through better maintenance and production practices, and the Spence Recovery Optimisation project implemented in December 2016, enabling higher recoveries.

In August 2017, the BHP Board approved an investment of US$2.5 billion for the development of the Spence Growth Option (SGO). The project involves the design, engineering and construction of a 95 kilotonnes per day (ktpd) concentrator and the outsourcing of a 1,000 litre per second desalination plant, creating up to 5,000 jobs during the construction phase. SGO will extend the life of the mine by more than 50 years and is expected to increase copper production capacity by approximately 185 ktpa, with first production expected in FY2021. The current copper cathode stream will continue until FY2025.

Since the approval date, SGO has achieved key operational milestones, starting execution phase earlier than planned. Earthwork and foundations for the concentrator area have started and camp construction plan is on track, delivering 2,000 beds as of 30 June 2018. Furthermore, the desalination Build Own Operate Transfer (BOOT) contract has been awarded.

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During FY2018, Spence reached an agreement with the Supervisors’ Union and signed a new contract effective for three years from 1 April 2018. On 12 June 2018, the company completed negotiations with the Workers’ Union that resulted in a new collective bargaining contract for three years, effective from 1 June 2018.

On 13 July 2018, Compañía Minera Cerro Colorado and its Supervisors and Staff Union signed a new collective bargaining agreement for three years effective from 1 July 2018.

BHP has entered into an agreement to sell Cerro Colorado to private equity manager EMR Capital. The sale is subject to financing and customary closing conditions, and is expected to be completed during the December 2018 quarter.

Looking ahead

Production at Spence is expected to be between 185 and 200 kt in FY2019, with volumes weighted to the second half as planned maintenance in May and June 2018 contributed to a lower stacking rate.

In line with operational initiatives under evaluation, Spence will continue evaluating materials handling and fleet replenishment options, with a view to fully leverage the use of technology at the mine site. This includes considering a redesign of the mine’s operational philosophy, with a crushing and conveying ore system complemented by autonomous trucks. The timing and sequencing of these options is pertinent to reducing health and safety risks and operating costs, with technology enabled solutions potentially significantly reducing risks associated with crash, collision and rollover, silica exposure, dust and greenhouse gas emissions.

The existing agreement between Cerro Colorado and the Operators and Maintainers Union expired on 31 August 2018. Cerro Colorado is currently in negotiations with the Union to sign a new agreement.

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Potash

Overview

Potash is a potassium-rich salt mainly used in fertiliser to improve the quality and yield of agricultural production. As an essential nutrient for plant growth, potash is a vital link in the global food supply chain. The demands on that supply chain are intensifying; there will be more people to feed in future, as well as rising calorific intake comprising more varied diets. The strains this will place on finite land supply mean sustainable increases in crop yields will be crucial and potash fertilisers will be critical in replenishing our soils.

Jansen Potash Project

BHP holds exploration permits and mining leases covering approximately 9,600 square kilometers in the province of Saskatchewan, Canada. The Jansen Potash Project is located approximately 140 kilometers east of Saskatoon. We currently own 100 per cent of this Project.

Jansen’s large resource endowment provides the opportunity to develop it in stages, with anticipated initial capacity of 4 Mtpa.

Key developments during FY2018

Over the year, our focus was on the safe excavation and preliminary lining of two 7.3-metre diameter shafts. Excavation of both the service shaft and the production shaft was completed by the end of August 2018, at a depth of 1,005 metres and 975 metres respectively. Both shafts reached potash in the Upper and Lower Patience Lake formations during FY2018. Jansen is intended to mine the Lower Patience Lake formation, which lies between 935 metres and 940 metres.

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In June 2018, the Board approved further funding to cover support services at the site as work continues on completion of the shafts, updating the approved investment for the current scope of work on the Jansen Potash Project to US$2.7 billion.

Looking ahead

Future work will include installing watertight composite concrete and steel final liners in both shafts. We continue to assess how to reduce risk and unlock value as we complete the shafts. At the end of FY2018, the current scope of work was 79 per cent complete. In the meantime, we are considering multiple options to maximise the value of Jansen, including further improvements to capital efficiency, optimisation of design and diluting our interest by bringing in a partner. As with all decisions relating to the deployment of capital, next steps with the Project will be assessed by reference to our Capital Allocation Framework.

Non-operated minerals joint ventures

BHP holds interests in companies and joint ventures that we do not operate. Our non-operated minerals joint ventures (NOJVs) include Antamina (33.75 per cent ownership), Resolution (45 per cent ownership), Cerrejón (33.33 per cent ownership), Samarco (50 per cent ownership) and Nimba (43 per cent ownership) (NOJVs).

We engage with our non-operated minerals joint venture partners and operator companies through our Non-Operated Joint Ventures team, which seeks to sustainably maximise returns and manage risks of our investment in NOJVs. While NOJVs have their own operating and management standards, we seek to influence operator companies to adopt appropriate governance and risk management standards (within the limits of the relevant joint venture agreements).

The team engages with our NOJV partners and companies and other relevant internal and external stakeholders and provides a single point of accountability for all NOJVs within BHP. The team also looks for opportunities to contribute to an improvement in joint venture governance across the mining sector. In the year since the team was established, we have built up the capabilities that we need to influence our NOJV partners and defined a strategy based on three pillars:

More information on health, safety and environment performance at our NOJVs is available in our Sustainability Report 2018, available online at bhp.com.

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Non-operated minerals joint ventures

Copper

Antamina (Peru)

Overview

We own 33.75 per cent of Antamina, a large, low-cost copper and zinc mine in north central Peru. Antamina is a joint venture between BHP (33.75 per cent), Glencore (33.75 per cent), Teck Resources (22.5 per cent) and Mitsubishi Corporation (10 per cent) and is operated by Compañía Minera Antamina S.A. Antamina by-products include molybdenum and silver.

Key developments during FY2018

Copper production for FY2018 increased by four per cent to 140 kt, with zinc increasing by 37 per cent to 120 kt. Throughout FY2018, Antamina continued to study options to debottleneck the operation and increase throughput, with strong focus on evaluating new technologies.

Looking ahead

Antamina remains focused on improving productivity and reducing unit cash costs. Copper production is expected to remain at similar levels in FY2019 at approximately 135 kt, while zinc production is expected to be approximately 85 kt, consistent with the mine plan. The three-year Antamina Union Agreement expired on 31 July 2018. Antamina is currently in negotiations with the Union to sign a new agreement.

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Resolution Copper (United States)

Overview

We hold a 45 per cent interest in the Resolution Copper project in the US state of Arizona, which is operated by Rio Tinto (55 per cent interest). Resolution Copper is one of the largest undeveloped copper projects in the world and has the potential to become the largest copper producer in North America. The Resolution Copper deposit lies more than 1,600 metres beneath the surface. Resolution Copper is working with regulators and the community to plan the development of the resource and obtain the necessary permits.

Key developments during FY2018

Restoration of the historic No. 9 shaft, originally constructed in 1971, has continued. The initial phase of the project is to rehabilitate the shaft down to its current depth at 1,460 metres below the surface. Eventually, the shaft will be extended down to approximately 2,086 metres and will link with the existing No. 10 shaft.

Studies to identify the best development pathway for the project progressed in FY2018. The multi-year National Environmental Policy Act permitting process and community engagement are progressing positively. Our share of the project expenditure for FY2018 was US$57 million.

Looking ahead

We remain focused on optimising the Resolution Copper project and working with the operator, Rio Tinto, to develop the project in a manner that creates sustainable benefits for all stakeholders. Next key milestones for the project are in December 2018 when rehabilitation of Shaft 9 is due to be completed and CY2019 when a draft version of the environmental impact study is expected to be made public. A single preferred investment alternative has not yet been selected for the final investment decision.

Coal

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Cerrejón (Colombia)

Overview

We have a one-third interest in Cerrejón, which owns, operates and markets one of the world’s largest open-cut export energy coal mines, located in the La Guajira province of Colombia. Cerrejón also owns and operates integrated rail and port facilities through which the majority of production is exported to European, Asian, North and South American customers.

Cerrejón’s coal assets consist of an open-cut mine. Overburden is removed after blasting, using either draglines or truck and shovel. Coal is then extracted using excavators or loaders and loaded onto trucks to be taken to stockpiles or directly to our beneficiation facility.

Coal from stockpiles is crushed, of which a certain portion is washed and processed through the coal preparation plant. Domestic coal is transported to nearby customers via conveyor. Export coal is transported to the port via trains.

Cerrejón production declined three per cent to 10,616 kt in FY2018, due to unfavourable weather impacts on mine sequencing, equipment availability and higher strip ratio areas being mined.

Looking ahead

Cerrejón is focused on stability of throughput with current installed capacity and securing the necessary permits to access ore reserves.

Iron ore

Samarco (Brazil)

BHP Billiton Brasil Limitada and Vale S.A. each holds a 50 per cent shareholding in Samarco Mineração S.A. (Samarco), the owner of the Samarco iron ore mine in Brazil.

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Overview

As a result of the tragic dam failure at Samarco in November 2015, operations at Samarco remain suspended. For more information on the Samarco dam failure, refer to section 1.8.

Samarco comprises a mine and three concentrators located in the state of Minas Gerais, and four pellet plants and a port located in Anchieta in the state of Espírito Santo. Three 400-kilometre pipelines connect the mine site to the pelletising facilities.

Samarco’s main product is iron ore pellets. Prior to the suspension of operations, the extraction and beneficiation of iron ore were conducted at the Germano facilities in the municipalities of Mariana and Ouro Preto. Front end loaders were used to extract the ore and convey it from the mines. Ore beneficiation then occurred in concentrators, where crushing, milling, desliming and flotation processes produced iron concentrate. The concentrate leaves the concentrators as slurry and is pumped through the slurry pipelines from the Germano facilities to the pellet plants in Ubu, Anchieta, where the slurry is processed into pellets. The iron ore pellets are then heat treated. The pellet output is stored in a stockpile yard before being shipped out of the Samarco-owned Port of Ubu in Anchieta.

Key developments during FY2018

For information on the progress made on remediation, resettlement and compensation in response to the Fundão dam failure, refer to section 1.8.

Looking ahead

Restart of Samarco’s operations remains a focus, but is subject to separate negotiations with relevant parties and will occur only if it is safe, economically viable and has the support of the community. Resuming operations requires the granting of licences by state and federal authorities, community hearings and an appropriate restructure of Samarco’s debt.

1.10.3     Petroleum

Conventional petroleum

BHP has owned oil and gas assets since the 1960s. We have high-margin conventional assets located in the US Gulf of Mexico, Australia, Trinidad and Tobago, Algeria and the United Kingdom, as well as prospects in Mexico and Barbados. Our conventional petroleum business includes exploration, appraisal, development and production activities. We produce crude oil and condensate, gas and natural gas liquids (NGLs) that are sold on the international spot market or delivered domestically under contracts with varying terms, depending on the location of the asset.

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United States

Gulf of Mexico

Overview

We operate two fields in the US waters of Gulf of Mexico – Shenzi (44 per cent interest) and Neptune (35 per cent interest).

We hold non-operating interests in two other fields – Atlantis (44 per cent interest) and Mad Dog (23.9 per cent interest).

All our producing fields are located between 155 and 210 kilometres offshore from the US state of Louisiana. We also own 25 per cent and 22 per cent, respectively, of the companies that own and operate the Caesar oil pipeline and the Cleopatra gas pipeline. These pipelines transport oil and gas from the Green Canyon area, where our US Gulf of Mexico fields are located, to connecting pipelines that transport product onshore.

Key developments during FY2018

Mad Dog Phase 2, located in the Green Canyon area in the Deepwater Gulf of Mexico, is an extension of the existing Mad Dog field. The Mad Dog Phase 2 project is in response to the successful Mad Dog South appraisal well, which confirmed significant hydrocarbons in the southern portion of this field.

The project cost has more than halved since 2013, with a revised field development concept leading to significant cost reductions. It is now estimated to be US$9 billion on a 100 per cent basis (US$2.2 billion BHP share). The Mad Dog Phase 2 project was sanctioned by BP (the operator) in December 2016, and was approved by the BHP Board in February 2017. The project includes a new floating production facility with the capacity to produce up to 140,000 gross barrels of crude oil per day from up to 14 production wells. Production is expected to begin in FY2022.

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Australia

Overview

Bass Strait

We have produced oil and gas from Bass Strait (50 per cent interest) for close to 50 years. Our operations are located between 25 and 80 kilometres off the southeastern coast of Australia. The Gippsland Basin Joint Venture, operated by Esso Australia (a subsidiary of ExxonMobil), participated in the original discovery and development of hydrocarbons in the field. More recently, the Kipper gas field under the Kipper Unit Joint Venture (also operated by Esso Australia) has brought online additional gas and liquids production that are processed via the existing Gippsland Basin Joint Venture facilities.

We sell the majority of our Bass Strait crude oil and condensate production to local refineries in Australia. Gas is piped onshore to the joint venture’s Longford processing facility, from where we sell our share of production to domestic retailers and end users. Liquefied petroleum gas (LPG) is dispatched via pipeline, road tanker or sea tanker. Ethane is dispatched via pipeline to a petrochemical plant in western Melbourne.

North West Shelf

We are a joint venture participant in the North West Shelf Project (12.5–16.67 per cent interest), located approximately 125 kilometres northwest of Dampier in Western Australia. The North West Shelf Project supplies gas to the Western Australian domestic market and liquefied natural gas (LNG) to buyers primarily in Japan, South Korea and China.

North West Shelf gas is piped from offshore fields to the onshore Karratha Gas Plant for processing. LPG, condensate and LNG are transported to market by ship, while domestic gas is transported by the Dampier-to-Bunbury and Pilbara Energy pipelines to buyers.

We are also a joint venture partner in four nearby oil fields – Cossack, Wanaea, Lambert and Hermes. All North West Shelf gas and oil joint ventures are operated by Woodside.

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Pyrenees

We operate six oil fields in Pyrenees, which are located offshore around 23 kilometres northwest of Northwest Cape, Western Australia. We had an effective 62 per cent interest in the fields as at 30 June 2018 based on inception-to-date production from two permits in which we have interests of 71.43 per cent and 40 per cent, respectively. The development uses a floating, production, storage and off-take (FPSO) facility.

Macedon

We are the operator of Macedon (71.43 per cent interest), an offshore gas field located around 75 kilometres west of Onslow, Western Australia and an onshore gas processing facility, located around 17 kilometres southwest of Onslow.

The operation consists of four subsea wells, with gas piped onshore to the processing plant. After processing, the gas is delivered into a pipeline and sold to the West Australian domestic market.

Minerva

We are the operator of the Minerva Joint Venture (90 per cent interest), a gas field located 11 kilometres south-southwest of Port Campbell in western Victoria. The operation consists of two subsea wells, with gas piped onshore to a processing plant. After processing, the gas is delivered into a pipeline and sold domestically.

On 1 May 2018, BHP entered into an agreement for the sale of its interests in the onshore gas plant with subsidiaries of Cooper Energy and Mitsui E&P Australia Pty Ltd. The agreement, which is conditional on completion of regulatory approvals and assignments, provides for the transfer of the plant and associated land after the cessation of current operations processing gas from the Minerva gas field. Following Minerva end-of-field life, the wells will be plugged and abandoned.

Key developments during FY2018

North West Shelf Other: Greater Western Flank–B

The Greater Western Flank ‘2’ project was sanctioned by the Board in December 2015 and represents the second phase of development of the core Greater Western Flank fields, behind the GWF-A development. It is located to the southwest of the existing Goodwyn A platform. The development comprises six fields and eight subsea wells. Execution activities are in progress, with first production expected in CY2019. Our share of development costs is around US$216 million.

Scarborough

Development planning for the large Scarborough gas field (located offshore from Western Australia) is in progress. Further work to optimise a preferred development option is ongoing. On 14 November 2016, we completed the divestment of 50 per cent of our interest in the undeveloped Scarborough area gas fields to Woodside Energy Limited (Woodside).

The transaction included half of BHP’s interests in WA-1-R, WA-62-R, WA-61-R and WA-63-R, for an initial cash consideration of US$250 million and a further US$150 million payable at the time a final investment decision is made for the development of the Scarborough gas field. Following the transaction, BHP holds a 25 per cent non-operated interest in WA-1-R and a 50 per cent non-operated interest in WA-61-R, WA-62-R and WA-63-R. Woodside became the operator of the WA-1-R lease in March 2018 following its acquisition of Esso’s working interest in the title. BHP has an option to acquire a further 10 per cent interest in WA-1-R from Woodside on equivalent terms to its Esso transaction. This option may be exercised at any time prior to the earlier of 31 December 2019 and the date approval is given to commence the front-end engineering and design phase of the development of the Scarborough gas field.

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Other conventional petroleum assets

Overview

Trinidad and Tobago

We operate the Greater Angostura field (45 per cent interest in the production sharing contract), an integrated oil and gas development located offshore 40 kilometres east of Trinidad. The crude oil is sold on a spot basis to international markets, while the gas is sold domestically under term contracts.

Algeria

Our Algerian asset comprises an effective 29.3 per cent interest in the ROD Integrated Development, which consists of six satellite oil fields that pump oil back to a dedicated processing train. The oil is sold on a spot basis to international markets. ROD is jointly operated by Sonatrach and ENI.

United Kingdom

We hold 16 per cent non-operating interest in the Bruce oil and gas field in the North Sea and a 31.83 per cent non-operating interest in the Keith oil and gas field, a subsea tie-back. Operatorship of the Keith field was transferred to BP on 31 July 2015. Oil and gas from both fields are processed via the Bruce platform facilities.

For more information, refer to section 1.12.1.

Unconventional petroleum

Onshore US

On 27 July 2018, BHP announced that we had entered into agreements for the sale of our entire interest in the Eagle Ford, Permian, Haynesville and Fayetteville Onshore US oil and gas assets for a combined base consideration of US$10.8 billion payable in cash (less customary completion adjustments). Both sales are subject to the satisfaction of customary regulatory approvals and conditions precedent. We expect completion to occur by the end of October 2018. The effective date at which the right to economic profits transfers is 1 July 2018.

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Eagle Ford

The Eagle Ford area (approximately 236,000 net acres) consists of Black Hawk and Hawkville fields, with production operations located primarily in the southern Texas counties of DeWitt, Karnes, McMullen and LaSalle. We produce condensate, gas and NGLs from the two fields. The condensate and gas produced are sold domestically in the United States via connections to intrastate and interstate pipelines, and internationally through the export of processed condensate. Our average net working interest is around 62 per cent. We act as joint venture operator for approximately 34 per cent of our gross wells. In DeWitt county, we are operators for the drilling and completion phases of the majority of wells. The Eagle Ford gathering system consists of around 1,436 kilometres of pipelines in both Black Hawk and Hawkville fields that deliver volumes to multiple central delivery points, from which volumes are treated and transported to market. We operate the gathering system and own 75 per cent of it, while the remaining 25 per cent is held by Kinder Morgan.

Permian

The Permian production operation is located primarily in the western Texas county of Reeves and consists of approximately 83,000 net acres. We produce oil, gas and NGLs. The oil and gas are sold domestically in the United States via connections to intrastate and interstate pipelines. Our average net working interest is approximately 84 per cent. We acted as joint venture operator for around 83 per cent of our gross wells. Permian has approximately 162 kilometres of water pipelines and a gathering system that consists of approximately 211 kilometres of gas pipelines that deliver volumes to third party processing plants, from where processed volumes are transported to market.

Haynesville

The Haynesville production operation is located primarily in northern Louisiana and consists of approximately 193,000 net acres. We produce gas that is sold domestically in the United States via connections to intrastate and interstate pipelines. Our average net working interest (operated and non-operated) is approximately 37 per cent. We acted as joint venture operator for around 38 per cent of our gross wells.

Fayetteville

The Fayetteville production operation is located in north central Arkansas and consists of approximately 258,000 net acres. We produce gas that is sold domestically in the United States via connections to intrastate and interstate pipelines. Our average net working interest (operated and non-operated) is approximately 21 per cent. We acted as joint venture operator for around 19 per cent of our gross wells. The Fayetteville gathering system consists of around 770 kilometres of pipelines that deliver volumes to multiple compressor stations where processed volumes are transported to market.

1.10.4    Marketing and Supply

Marketing and Supply are separate core businesses of BHP, connected under the Commercial function. They are the link between BHP’s global operations, our customers and our local and global suppliers, and are aligned to our assets.

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Marketing

Marketing focuses on optimising realised prices and sales outcomes, presenting a single face to markets and customers across multiple assets. This allows our assets to focus on safety, volume and cost. Marketing secures sales of BHP products through building long-term, sustainable relationships with our customers and manages the associated risks of getting our resources to market. Marketing provides governance of credit, manages market and price risks and supports strategic and commercial decision-making by analysing commodity markets and providing short- and long-term insights.

Supply

Supply is our global procurement division, which purchases goods and services that are used by our assets and functions. Supply works with our assets to optimise equipment performance, reduce operating cost and improve working capital. Supply manages supply chain risk and develops sustainable relationships with both global suppliers and local businesses in our communities.

Our commercial value chain

By connecting all our commercial activities under a single function and locating them close to our key markets, we have a single strategic view of our entire value chain. This allows us to operate on both sides of the commercial coin. It helps us create effective partnerships with our communities through local procurement and deepen our relationships with our customers and suppliers globally. It expands our view of how our markets might evolve, so that we can adapt our strategy to take action in a changing market, including optimising our supply chains. The combined function allows us to rapidly replicate good practice and share market insights across teams. It ensures effective governance and risk management, while driving productivity through a centralised freight business that procures safe, sustainable procurement solutions.

Ensuring long-term sustainability of our value chain

Marketing and Supply’s outlook on the global economy, the resource industry and each of the commodities in our portfolio supports asset and portfolio investment decisions, strategic planning, valuations and capital management. The Commercial teams also inform broader organisational priorities such as our position on climate change. This includes setting global standards for a sustainable and ethical supply chain that takes into account human rights and environmental risks.

Marketing and Supply: Strategically located close to our key markets

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1.11    Summary of financial performance

1.11.1    Group overview

We prepare our Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. We publish our Consolidated Financial Statements in US dollars. All Consolidated Income Statement, Consolidated Balance Sheet and Consolidated Cash Flow Statement information below has been derived from audited financial statements. For more information, refer to section 5.

Unless otherwise stated, comparative financial information for FY2017, FY2016, FY2015 and FY2014 has been restated to reflect the announcement of the sale of the Onshore US assets on 27 July 2018 and the demerger of South32 in FY2015, as required by IFRS 5/AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. Consolidated Balance Sheet information for these periods has not been restated as accounting standards do not require it.

Information in this section has been presented on a Continuing operations basis to exclude the contribution from Onshore US assets and assets that were demerged with South32 in FY2015, unless otherwise noted. Details of the contribution of the Onshore US assets to the Group’s results are disclosed in note 26 ‘Discontinued operations’ in section 5.