BHP Group plc (LON:BHP) has announced its operational review for the quarter ended 30th September 2021.
· We safely delivered reliable operational performance during the quarter as we executed a series of planned major maintenance activities across our assets.
· All production and unit cost guidance(1) remains unchanged for the 2022 financial year.
· Our major projects under development are tracking to plan, with two new projects, the Jansen Stage 1 potash project and the Shenzi North development project in the US Gulf of Mexico, approved during the September 2021 quarter. The Jansen shaft project is 96% complete, and the Trion oil project in Mexico moved into the Front End Engineering Design (FEED) phase and is expected to progress to a Final Investment Decision from mid-calendar year 2022.
· The announced agreement to pursue a proposed merger of our Petroleum business with Woodside to create a global top 10 independent energy company is progressing to plan, with full form transaction documents expected in November 2021.
· We announced our intention to unify our corporate structure under BHP’s existing Australian parent company subject to final Board and other approvals. Unification would create a simplified structure and enhance strategic flexibility. If approved, unification is expected to occur in March 2022 quarter.
· In Petroleum, the Calypso appraisal well Bongos-3 in Trinidad and Tobago spud on 27 July 2021 and encountered hydrocarbons. A side track is currently being drilled to complete the appraisal.
· In Copper exploration, BHP exercised its option to form an exploration joint venture with Red Tiger Resources for the Intercept Hill copper project, which borders BHP’s Oak Dam site in South Australia.
| Production | Sep Q21 (vs Sep Q20) | Sep Q21 (vs Jun Q21) | Sep Q21 vs Jun Q21 commentary |
| Petroleum (MMboe) | 27.5 3% | 27.5 2% | Higher volumes due to increased production from Ruby and higher seasonal gas demand at Bass Strait, partially offset by lower production at North West Shelf and natural field decline. |
| Copper (kt) | 376.5 (9%) | 376.5 (7%) | Lower volumes at Olympic Dam due to the commencement of the planned smelter maintenance campaign, albeit approximately one month delayed due to COVID-19 related border restrictions. |
| Iron ore (Mt) | 63.3 (4%) | 63.3 (3%) | Lower volumes reflects planned major maintenance including car dumper one and the impacts of temporary rail labour shortages due to COVID-19 related border restrictions, which have improved during September 2021. |
| Metallurgical coal (Mt) | 8.9 (9%) | 8.9 (25%) | Lower volumes due to planned maintenance at BMA, a planned longwall move at Broadmeadow and mining in higher strip ratio areas at BMC. This was partially offset by record stripping at BMC reflecting a step up in underlying truck productivity at South Walker Creek. |
| Energy coal (Mt) | 4.2 17% | 4.2 (6%) | Lower volumes at NSWEC due to mining in higher strip ratio areas, partially offset by increased stripping enabled by continued improvement in underlying truck productivity. |
| Nickel (kt) | 17.8 (20%) | 17.8 (21%) | Lower volumes due to planned maintenance across the supply chain. |
Group copper equivalent production decreased by 5% in the September 2021 quarter following lower minerals volumes largely a result of planned maintenance.
Operational performance
Production and guidance are summarised below.
Note: All guidance is subject to further potential impacts from COVID-19 during the 2022 financial year.
| Production | Sep Q21 | Sep Q21 vs Sep Q20 | Sep Q21 vs Jun Q21 | Current FY22 guidance | |
| Petroleum (MMboe) | 27.5 | 3% | 2% | 99 – 106 | Unchanged |
| Copper (kt) | 376.5 | (9%) | (7%) | 1,590 – 1,760 | |
| Escondida (kt) | 243.7 | (14%) | (1%) | 1,000 – 1,080 | Unchanged |
| Pampa Norte (kt) | 67.5 | 59% | (3%) | 330 – 370 | Unchanged |
| Olympic Dam (kt) | 29.5 | (43%) | (42%) | 140 – 170 | Unchanged |
| Antamina (kt) | 35.8 | 3% | (1%) | 120 – 140 | Unchanged |
| Iron ore (Mt) | 63.3 | (4%) | (3%) | 249 – 259 | |
| WAIO (Mt) | 62.3 | (6%) | (3%) | 246 – 255 | Unchanged |
| WAIO (100% basis) (Mt) | 70.6 | (5%) | (3%) | 278 – 288 | Unchanged |
| Samarco (Mt) | 1.0 | 100% | 2% | 3 – 4 | Unchanged |
| Metallurgical coal (Mt) | 8.9 | (9%) | (25%) | 39 – 44 | |
| Queensland Coal (100% basis) (Mt) | 15.6 | (9%) | (26%) | 70 – 78 | Unchanged |
| Energy coal (Mt)(i) | 4.2 | 17% | (6%) | 13 – 15 | |
| NSWEC (Mt) | 4.2 | 17% | (6%) | 13 – 15 | Unchanged |
| Nickel (kt) | 17.8 | (20%) | (21%) | 85 – 95 | Unchanged |
| Assets held for sale | |||||
| Energy coal – Cerrejón (Mt)(i) | 2.1 | 98% | 15% | n/a |
(i) Cerrejón production guidance has ceased reflecting the announced divestment of our interest in June 2021 and volumes will be reported separately from 1 July 2021 until transaction completion.
Major development projects
During the September 2021 quarter, the BHP Board approved an investment of US$5.7 billion (C$7.5 billion) for the Jansen Stage 1 project in Canada and US$544 million for the Shenzi North development project in the US Gulf of Mexico.
At the end of the September 2021 quarter, BHP had four major projects under development, in petroleum (Mad Dog Phase 2 and Shenzi North development) and potash (Jansen mine shafts and Jansen Stage 1), with a combined budget of US$11.42 billion over the life of the projects.
Corporate update
In August 2021, we announced a merger proposal to combine our Petroleum business with Woodside Petroleum Ltd by an all-stock merger, subject to confirmatory due diligence, negotiation and execution of full form transaction documents and satisfaction of conditions precedent including required approvals. The proposed merger would create a global top 10 independent energy company by production and be the largest energy company on the Australian Stock Exchange. Execution of a Share Sale Agreement and Integration and Transition Services Agreement is expected to take place in November 2021. Following receipt of all approvals, the merger is expected to be completed in the second quarter of the 2022 calendar year with an effective date of 1 July 2021. An integration team with representatives from both companies has been established and is progressing integration planning activities, which includes developing a path to unlock estimated synergies of more than US$400 million per annum.
In August 2021, we also announced that we intend to unify our dual listed company (DLC) structure, subject to final Board approval, third party consents, regulatory, shareholder and court approvals. Unification would result in a corporate structure that is simpler, more efficient and improves portfolio flexibility to maximise value for shareholders over the long-term, including facilitating a simpler separation of Petroleum. Constructive engagement with regulators and third parties continues and the process remains on track. If all approvals are received, unification is expected to occur in the March 2022 quarter.
On 14 September 2021, BHP released its Climate Transition Action Plan 2021 (CTAP). The CTAP builds on the Climate Change Report we released in September last year and has been designed with reference to the structure of the Climate Action 100+ Net Zero Company Benchmark, which was established in late 2020. It provides an update on BHP’s performance in a format that responds to evolving investor assessment and disclosure frameworks, announces our enhanced position on Scope 3, and continues BHP’s demonstrated and long-term commitment to engagement and transparency on our approach to climate change.
In October 2021, we entered into renewable energy supply agreements that will see Olympic Dam reduce its operational emissions to zero for 50 per cent of its electricity consumption by 2025, based on current forecast demand. Iberdrola Renewable Energy Park near Port Augusta in South Australia will supply the renewable energy under the agreement and, once in operation in July 2022, will be Australia’s largest solar-wind hybrid plant. This announcement follows BHP’s entry into renewable energy agreements for BHP’s operations in Western Australia, Queensland and Chile.
In October 2021, we also signed a Memorandum of Understanding (MoU) with South Korea’s POSCO, one of the world’s largest steelmakers to jointly explore greenhouse gas emissions reduction technologies in the integrated steelmaking value chain.
Our Support Agreement with Noront Resources (Noront) to make an all-cash takeover offer for Noront remains in place. Noront owns an extensive land package that includes the Eagle’s Nest nickel and copper deposit in the James Bay Lowlands, Ontario, in an emerging metals area known as the Ring of Fire.
Samarco’s Judicial Reorganisation process is continuing in the Commercial Courts of Belo Horizonte, State of Minas Gerais. The Judicial Reorganisation is a means for Samarco to restructure its financial debts in order to establish a sustainable independent financial position as Samarco continues to rebuild its operations safely and meet its Renova Foundation obligations.
In addition, negotiations are ongoing with State and Federal Prosecutors and certain other Brazilian public authorities in relation to the review of the Framework Agreement. The Framework Agreement was entered into between Samarco, Vale and BHP Brasil and the relevant Brazilian authorities in March 2016 and established Foundation Renova to develop and implement environmental and socio-economic programs to remediate and provide compensation for damage caused by the Samarco dam failure. The suspended R$155 billion (approximately US$30 billion) Federal Public Prosecution Office claim is under discussion as part of these negotiations, which were provided for in the Governance Agreement signed between the parties in 2018.
Summary
BHP Group Chief Executive Officer, Mike Henry:
“BHP’s operations delivered reliably during the first quarter and we completed planned major maintenance activities across a number of our assets. We continue to skilfully navigate the ongoing challenges of COVID-19.
We progressed the ramp-up of production of high quality iron ore at South Flank and copper from the Spence Growth Option, and we delivered first nickel sulphate from our new plant at Kwinana.
We sanctioned the Jansen Stage 1 potash project in Canada, and made a series of targeted investments in copper and nickel exploration in Australia and Canada. These are aligned with our efforts to increase our exposure to future facing commodities and to position the portfolio to continue to deliver attractive returns and long-term value to shareholders.”
