THIS ANNOUNCEMENT CONTAINS INSIDE
INFORMATION
FOR
IMMEDIATE RELEASE
BHP
Exchange release
15
February
2024
Half Year 2024 Exceptional Items Update
BHP announces two items which will
be recognised as exceptional items in BHP's financial results for
the half year ended 31 December 2023 (HY24 Results).
These items relate to an impairment
of the carrying value of
the Nickel West operations and West Musgrave
project (Western Australia
Nickel) and an increase to the provision for the Samarco dam
failure.
The HY24 Results remain subject to
review by BHP's external auditor and final review and approval by
the BHP Board.
The HY24 Results will be released on
20 February 2024.
BHP Chief Executive Officer, Mike
Henry, said "This is an uncertain time for the Western Australia
nickel industry and we are taking action to address the current
market conditions. We are reducing operating costs at Western
Australia Nickel and reviewing our capital plans for Nickel West
and West Musgrave.
BHP Brasil along with Samarco and
Vale continue to progress negotiations towards a settlement of the
Federal Public Prosecutor Office Claim and Framework Agreement
obligations in Brazil. The Renova Foundation has made good progress
on reparation and compensation programs and over 84% of the
community resettlement cases have been completed."
Impairment of Western Australia Nickel
During the period,
BHP integrated the West
Musgrave project (acquired from OZ Minerals) with the Nickel West
operations to create the Western Australia Nickel business unit. Western
Australia Nickel will be reported in the Group and Unallocated
segment.
BHP will recognise a non-cash
impairment charge of approximately US$2.5 billion (post tax)
(approximately US$3.5 billion pre-tax) against the carrying value
of Western Australia Nickel.
Developments for HY24
As disclosed in the January
2024 Operational Review, the nickel industry is facing challenges and there has been
a sharp fall in nickel prices.
During CY2023, London Metals
Exchange benchmark nickel prices fell considerably as both the
supply of nickel from Indonesia significantly increased and the
London Metals Exchange began accepting Indonesian-origin nickel
products as part of its efforts to respond to evolving industry
dynamics. These unfavourable operating conditions are expected to
endure for a considerable time.
Due to the deterioration in the
short-term and medium-term outlook for nickel, BHP has
lowered its nickel
price assumptions.
In addition, capital costs for Western Australia Nickel have
increased due to inflation. BHP has undertaken a carrying value
assessment of Western Australia Nickel having regard to these
factors and will recognise an impairment as at 31 December
2023.
The impairment reduces the carrying value of Western Australia
Nickel's net operating assets to negative US$0.3 billion, including
closure and rehabilitation provisions of approximately US$0.9
billion. BHP will also record Underlying EBITDA of approximately negative US$0.2
billion at Western Australia Nickel in the HY24 Results.
As noted in the January 2024
Operational Review, operations at Nickel West are being optimised,
and options are being evaluated to mitigate the impacts of the
current low realised prices. Nickel West has responded by
reducing discretionary expenditure and reviewing
capital plans.
Nickel West's Kambalda concentrator
will be placed into care and maintenance in June 2024 following
Wyloo's decision to suspend its Cassini and Northern Operations
mines from 31 May 2024. The Cassini and Northern Operations mines
provide the majority of ore feed into the Kambalda concentrator and
it will be no longer viable for Nickel West to continue operating
the milling circuit after those mines cease operating.
BHP is also reviewing the
development plans for Western Australia Nickel with a focus on
preserving cash, which includes the potential to place Nickel West
into a period of care and maintenance. The West Musgrave project,
which BHP acquired as part of the OZ Minerals acquisition, is in
execution and is 21% complete. BHP is currently assessing phasing and capital spend
for the development of the West Musgrave project as part of this review.
Samarco dam failure provision
BHP will also recognise an income
statement charge of US$3.2 billion (post
tax) (approximately US$3.1 billion pre-tax) in relation to the Samarco dam failure. BHP Brasil's provision
for the Samarco dam failure will be US$6.5 billion as at 31
December 2023.
As disclosed in BHP's 2023 Annual
Report, BHP Brasil's provision for the Samarco dam failure as at 30
June 2023 was US$3.7 billion, of which US$0.3 billion was utilised
in the period to 31 December 2023.
The exceptional item
to be recognised in BHP's HY24 Results
predominantly reflects the assessment of the
estimated costs to resolve all aspects of the Federal Public
Prosecution Office Claim and the Framework Agreement
obligations.
For further information on the
Framework Agreement, the Federal Public Prosecution Office Claim
and the Samarco dam failure, refer to BHP's
FY23 Financial Statements, note 4 'Significant events - Samarco dam
failure' on page 144 of the 2023 Annual Report.
Developments for
HY24
The Federal Public Prosecution
Office Claim is a claim brought against Samarco Mineração S.A. (Samarco), BHP Billiton Brasil Ltda
(BHP Brasil) (a subsidiary
of BHP Group Limited) and Vale S.A. (Vale) by the
Brazilian Federal Public Prosecution Office on 3 May 2016, seeking
R$155 billion (approximately US$32 billion) for reparation,
compensation and moral damages in relation to the Samarco dam
failure (Federal Public Prosecution Office
Claim).
As at 30 June 2023, the provision
for the Samarco dam failure only reflected the future cost
estimates associated with the delivery of the programs under the
Framework Agreement to provide reparation and compensation. In the
2023 Annual Report, BHP also disclosed a contingent liability in
relation to the Federal Public Prosecution Office Claim given that
it was not possible to reliably estimate the potential outcomes of
the claim beyond the estimated costs of completing the programs
under the Framework Agreement.
Since 30 June 2023:
· Samarco, Vale and BHP Brasil have been engaging in
negotiations with the Brazilian State and Federal Government and
other public entities to seek a settlement of obligations under the
Framework Agreement, the Federal Public Prosecution Office Claim,
and other claims by government entities relating to the Samarco dam
failure; and
· as
previously disclosed, on 25 January 2024, the Federal Court of
Brazil issued a decision in relation to the Federal Public
Prosecution Office Claim quantifying collective moral damages
arising from the Samarco dam failure. The decision found that
Samarco, Vale and BHP Brasil are jointly and severally liable to
pay collective moral damages in the amount of R$47.6 billion
(US$9.75 billion) (to be adjusted for interest and inflation) when
any and all appeals are finally determined. On 1 February
2024, Samarco, Vale and BHP Brasil filed a clarification motion
with the Federal Court of Brazil in respect of certain factual
inaccuracies in the decision, including the calculation of damages.
A decision remains pending. BHP Brasil also intends to appeal the
decision, challenging the merits and amount of damages. The appeal
process is estimated to take approximately two to five
years.
In preparing the HY24 Results, BHP
has considered the additional information available from the status
of settlement negotiations, the judicial decision regarding
collective moral damages, updates to the estimated costs of
executing the Framework Agreement programs, and the extent to which
Samarco may be in a position to fund any future
outflows.
As a result, the Group will
recognise an income statement charge of US$3.2 billion
(post tax), reflecting the
change in BHP Brasil's assessment of potential outflows to resolve
all aspects of the Federal Public Prosecution Office Claim and
Framework Agreement obligations, covering reparation, compensation
and moral damages. The dam failure provision at 31 December 2023
will increase to US$6.5 billion. The Federal Public Prosecution
Office Claim will be reflected in the measurement of the provision
in the HY24 Results and will no longer be disclosed as a contingent
liability.
Uncertainties
Significant uncertainty remains
around the resolution of the Federal Public Prosecution Office
Claim and the Framework Agreement obligations, and there is a risk
that outcomes may be materially higher or lower than amounts
reflected in BHP Brasil's provision for the Samarco dam
failure.
Key areas of uncertainty
include:
· the
scope and cost of completing the programs under the Framework
Agreement, including as a result of ongoing legal actions in
relation to the number of people eligible for compensation and the
amount of damages to which they are entitled;
· the
outcomes of appeals relating to the judicial decision regarding
collective moral damages, including any appeals that may be lodged
by the Brazilian Federal Public Prosecution Office;
· the
terms of any potential future settlement agreement in respect of
the Federal Public Prosecution Office Claim, including amounts
payable, obligations of the parties to perform ongoing programs of
work in relation to reparation and compensation, and the period of
time over which any settlement amounts may be payable;
and
· the
extent to which Samarco is able to directly fund any future
obligations relating to reparation, compensation or moral damages.
Samarco's long-term cash flow generation remains highly sensitive
to factors including its ability to return to full production
capacity, commodity prices and foreign exchange rates.
Other claims and proceedings related
to the Samarco dam failure are reflected as contingent liabilities
in BHP's 2023 Annual Report. The outcomes
of these claims and proceedings remain uncertain and are expected
to continue to be reflected as contingent liabilities in the HY24
Results. An update on their status will be provided in the notes to
the financial statements in the HY24 Results.
Samarco and Renova Foundation
BHP Brasil remains fully committed
to supporting the extensive ongoing remediation and compensation
efforts in Brazil through the Renova Foundation. The Renova
Foundation has spent R$34.8 billion (approximately US$7.2 billion)
on comprehensive reparation and compensation programs to 31
December 2023. This includes approximately R$16.6 billion (over
US$3.4 billion) paid in indemnities and emergency financial
assistance to approximately 430,000 people. In addition,
approximately 84% of the resettlement cases for the communities
impacted by the Samarco dam failure have been completed.
Authorised for release by Stefanie
Wilkinson, Group Company Secretary.
Contacts
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Media
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Investor Relations
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Australia and
Asia
Gabrielle Notley
+61 411 071 715
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Australia and
Asia
John-Paul Santamaria
+61 499 006 018
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Europe, Middle East and Africa
Neil Burrows
+44 7786 661 683
|
Europe, Middle East and Africa
James Bell
+44 7961 636 432
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Americas
Renata Fernandaz
+56 9 8229 5357
|
Americas
Monica Nettleton
+1 (416) 518-6293
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