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Energy and Mines Australia Summit
Christian ClaveríaEnergy Manager, BHP Minerals AmericasPerth, 27 June 2018
Disclaimer
Forward-looking statements This presentation contains forward looking statements, which may include statements regarding plans, strategies and objectives of management, future performance and future opportunities. 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 presentation. BHP’s Annual Report on Form 20-F filed with the US Securities and Exchange Commission identifies, under the heading Risk Factors, specific factors that may cause actual results to differ from the forward-looking statements in this presentation. BHP does not undertake any obligation to update or review any forward-looking statements.
No offer of securities
Nothing in this presentation should be construed as either an offer to sell or a solicitation of an offer to buy or sell BHP securities in any jurisdiction, or be treated or relied upon as a recommendation or advice by BHP.
Energy and Mines Australia Summit227 June 2018
About BHP
We are a leading global resources company • Our purpose is to create long-term shareholder value through the
discovery, acquisition, development and marketing of natural resources.
• Our strategy is to own and operate large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market.
• At BHP, we have a unique perspective on the extraordinary potential of natural resources and the role our products contribute to advance the essential building blocks of progress.
• We are among the world’s top producers of major commodities, including iron ore, metallurgical coal and copper. We also have substantial interests in oil, gas and energy coal.
• We have a global footprint with 11 core operated assets.
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Leading diversified global mining company
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Operated Non-operated Non-core
Petr
oleu
m
Onshore USShenzi PyreneesMacedon Angostura Mad DogAtlantis Bass Strait North West Shelf
Min
eral
s A
mer
icas
SamarcoJansenEscondida Pampa Norte Antamina Cerrejón
Min
eral
s A
ustr
alia
Nickel WestWestern Australia IO
Olympic Dam
Queensland Coal
NSW Energy Coal
BHP Minerals Americas
Escondida is the largest copper open-cut pit in the world
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1. Notes:Antamina: 33,75% BHP Share.Samarco: 50% BHP Share.Cerrejón: 33,3% BHP Share.
Chilean assets – power consumption
70486%
11614%
Peak Demand 820 MW
Escondida Pampa Norte
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34090
364
26
Escondida Pampa Norte
Power Purchase Agreements (MW)
Angamos (Coal) Tamakaya (Gas + Spot)
18%6%
Of Chilean Cu Production 2017
Of World’s Cu Production 2017
7%
Of Chilean Power Consumption 2017
Angamos: PPA based in a coal-fired generation.
Tamakaya (100% owned by BHP): PPA based in a gas-fired generation and Spot.
Sour
ce:
Woo
d M
acke
nzie
0.0
5.0
10.0
15.0
20.0
25.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2030
2035
Cu
Mt
Years
World’s Copper Production
Rest of the World BHP Chilean Assets
27 June 2018
The largest non-regulated client of the Chilean market
BHP transmission facilities
A strategic asset to enable renewable power sources
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³220 kV <220 kV Total (km)
BHP Assets 1,179 353 1,532
Escondida 905 292 1,197
Pampa Norte 67 61 128
Kelti (*) 207 - 207(*) Transmission company 100% owned by Escondida.
Chilean grid overview
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Fuel15%
Coal21%
Gas19%
Hydro30%
Solar9% Wind
6%
SEN (SIC + SING) Installed Capacity
Thermal, solar and wind
Thermal, small-medium hydro, biomass and wind
Peak demand• 10 GWAnnual consumption• 72 TWh
Potential large and small hydro developments
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One national electrical system
Power market overview
The Chilean power market is deregulatedThe market considers three segments• Generation: open and competitive. New capacity mainly is driven
by long term contracts with discos or big users.• Transmission: natural regulated monopoly. New capacity defined
by the regulator periodically. New projects get auctioned by the regulator and remunerated by the demand as a result of it.
• Distribution: natural monopoly. Regulated tariffs.Wholesale power market for generators only• Generators dispatch is performed centrally coordinated by the
system operator (Coordinador Eléctrico Nacional – former CDEC), in order of merit with the goal of minimising the system total cost.
• The marginal cost of the system or the spot price, is equal to the variable cost of the last unit required to provide one additional kWh of electricity to the system.
• The capacity is remunerated to generators at a regulated price. Capacity charge paid by users is equivalent to ~8.3 US$/kW-month.
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Run-ofriver
Solar+Wind
Biomass Coal
Diesel Turbinesand Motors
Natural Gas
Fuel Oil/Diesel
Reservoir
Generation SupplyDemand
Available Capacity [MW]
Varia
ble
Cost
[USD
/MW
h]
Demand Variations
Energy DemandMarketEnergy Supply
GenerationCompanies
New projects
Existingcapacity
Private contracts
Public auctions Residential Consumers
Industrial & MiningCompanies
> 500kW
Supply and demand curves
Law to promote NCRE
Initial regulation was not enough to trigger massivedevelopments2004 – Tolling exemption• Power plant < 20 MW have exempted to pay partial or total trunk
transmission tolls.
• Initially focused on run-of-river hydro generation. Today used by small PV solar generation.
2005 – Distribution auction new rules• Annual blocks pre-defined (24 hours supply), the term of the
contract: 15 years, maximum price.
2008 and 2013 – % of consumption supplied by NCRE• An annual percentage of energy sales must be produced by
Renewable Energy sources like small hydropower, Geothermal, Solar, Biomass or Wind.
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0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2012 2016 2020 2024
% of final consumption supplied by NCRE
Law 20.257 Law 20/25
Law to promote NCRE
Main changes occurred after Distribution Auctionsopened hourly blocks to bid2014 – Modifications to distribution auctions:• Extend the term of the contracts to 20 years.
• Adapt contract conditions to allow Project Financing.
• Design hourly blocks to compete in technologies:− Block A: 23:00 – 07:59 hours;− Block B: 08:00 - 17:59 hours;− Block C: 18:00 – 22:59 hours.
2014 – Emission taxes• Charge emission of CO2 and PM, SO2 and NOx in emitter plants
over 50 MW thermal.
• 5 US$/ton of CO2 emission.
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0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Energy plus Capacity component in (US$/MWh)
Argentinian NG Diesel Coal/LNG Renewables
Market prices evolution 2000-2017
Price driven by the development technology
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Since 2016-2018
Since 2021
Since 2024
NG outages• Energy component represents ~50% of end power cost.
• Other 50% of power cost is composed of:
− Capacity charge, tolls, ancillary services, emission taxes.
Distribution companies auctions
Electrical grid require to become in a more flexible grid
The system will face a challenge due to accelerating renewable capacity coming to the gridIncreasing flexible capacity appears as a key issue due to:• Plants ramp-up and ramp-down overstress.
• Reduce unsteadiness of the system.
• Deal with system costs increases such as overruns.
• Ancillary services needs are increasing, e.g. regulation of voltage and frequency, rotation reserve, etc.
• Storage systems must be studied à batteries and pumping/reservoir are required.
Addition of new products appears as a solution:• Flexible ramping to the real-time energy market.
• Ensure that resources are available and can rapidly change their output to respond to changes in forecasted net load.
• Ramping capability to meet the forecasted net load ramp (forecasted movement).
• An additional amount of ramping capability to cover uncertainty in forecasted net load (uncertainty requirement).
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124 128 367572
1305
1908
2674
3728
0
500
1000
1500
2000
2500
3000
3500
4000
2010 2011 2012 2013 2014 2015 2016 2017
NCRE Capacity Growth (MW)
Solar + Wind + Biomass + Mini Hydro
Kelar/Tamakaya business model
Providing flexibility to purchase power and reliability to the gridTamakaya: a generation company 100% owned by BHP• Kelar is a Combined Cycle Gas Turbine with 517 MW located in
Mejillones.
• Kelar provides a price cap for BHP Assets, allowing to have a higher exposure to the wholesale market through Tamakaya.
• Kelar provides flexibility and reliability to the grid reducing power supply interruptions to the operations.
• Tamakaya participates in the wholesale market selling and purchasing power at marginal cost of system production.
• Tamakaya has visibility of all charges that are part of the final power bill, as ancillary services, tolls, public services charges.
• Through the BOOM contract with Kelar, Tamakaya buys power and capacity to supply BHP assets.
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12 MW/min
Kelar daily operation
Kelar operation results in GHG emissions reduction
Choosing gas over coal saves ~57% of GHG emissions per generated unit• Kelar measured CO2 emission rate has resulted in 0.40
tCO2/MWh since the start of the operation.
• In comparison with Kelar ’s original alternative that was coal, the emissions in 2017 were 554 kton CO2 fewer (considering coal emissions rate of 1 tCO2/MWh).
• This represents ~ MUS$ 2,8 per year less of emission taxes cost.
• The above calculation does not include the CO2 equivalent emissions that have been avoided as a result of the higher renewable penetration due to Kelar operation.
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1.00.5
Coal Gas
GHG emissions[tCO2/MWh]
554 kton
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Enabling higher renewable penetration
Kelar provides higher flexibility to the system operationBefore Kelar• In CY12 the Coordinator estimated a range between 150-750 MW
as the penetration limit of intermittent renewable.
With Kelar• In CY15 the same Coordinator estimated the range of renewable
penetration would be up to 900-1,500 MW as Kelar entered into operation. So far this penetration has reached 888 MW.
• SING-SIC link evacuates northern SIC renewable surplus into the SING (currently up to 300 MW).
• Total penetration of renewable in the SING is expected to reach ~1,400 MW by the end of first semester CY18.
• Higher renewable penetration will result in much lower spot prices and less CO2 emissions.
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2015 2017 2018 2019Conventional 3,859 4,995 5,318 5,318Renewable 230 888 1,102 1,212
Total 4,090 5,888 6,421 6,531Renewable/Total 6% 18% 21% 23%
Northern grid installed capacity (MW)
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Solar penetration impacts on grid reliabilityKelar has greatly contributed to mitigate increased system cycling effects
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Higher solar penetration
• Renewable penetration has increased dramatically over the last two years and is expected to continue increasing.
• Kelar flexibility has been helping its fast growth.
Drives increased cycling operation by conventional plants
• Current daily ramp-down and ramp-up needs are ~800 MW.
• By the end of CY18 is expected it will go up to ~1,400 MW.
• Kelar contributes to the system stability with one of the faster thermal ramp.
Drives increased failure rate of conventional plants
• The number of coal-fired powerplant failures has increased in lasttwo years.
• One of the maincauses of Kelaroperation is thecoal-fired powerplant failures.
Results in increased power costs and outage rate
• Out of merit costs decreased due to Kelar.
• The number of MEL power outages in CY17 have been reduced.
• Kelar has replaced diesel generation and contributed to reduce outages by frequency.
Solar effect on conventional generation COAL power capacity interruptions [MW]
Tamakaya model allows purchase of renewable energy
• Tamakaya purchase ~ 53% of BHP Chile power consumption from the spot market.
• ~18% of Tamakaya power purchases come from renewable power sources.
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35%
47%
18%
Tamakaya sources50% of total Assets power consumption
Spot Other Conventional Kelar (gas) Spot Renewable
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~ 10% of BHP Chilean assets consumption comes from renewable sources
11%16%
19%
28%
32%
49%
44%45%
0%
10%
20%
30%
40%
50%
60%
0
20
40
60
80
100
120
140
160
180
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
[GW
h]
MONTH
2017 Tamakaya spot purchases
(A) TMKY renewable spot purchases (B) TMKY spot purchases (A) / (B)
18%
38%13%
31%
BHP GHG emissions FY17
Petroleum and Potash Copper Iron Ore Coal
GHG BHP future goals
Long term goals GHG• Maintain FY22 GHG emissions at or below FY17 levels.
• BHP aims to achieve net-zero operational GHG emissions in the second half of this century.
• Levers:
1. cleaner power sources (PPAs);2. fuel replacement;3. energy efficiency, and 4. offsets.
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FY1716.3 Mt CO2-e
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Electricity represents > 70% of total Minerals Americas GHG emissions and are the key focus in the short term to reduce that total footprint
Cost of new-build capacity
Renewables are already cost competitiveWind and solar are the cheapest sources of new power – new coal plants have a high risk premium
• The cost advantage of renewables will be further increased through any implementation of a low-carbon mechanism such as a Clean Energy Target.
• Current market conditions indicate that an actual levelised cost are already higher than renewables and above A$80/MWh. Assuming that the coal plant will run less than expected – at 60% capacity factor – in order to accommodate renewables.
• Equipping coal or gas plants with CCS, either through a new plant or via retrofitting, pushes the levelised cost above $100/MWh – making them unlikely without much tighter carbon regulations (even then, they may be outcompeted by batteries or other energy storage).
• Development of batteries seems to be the most likely solution to complement renewables intermittency.
• In the meantime, flexible power plants like Kelar are required to increase the renewable generation maintaining system reliability/security.
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Cross-learnings: Chile and Australia
Power Supply Strategy for Minerals Australia• Address ‘trilemma’ of cost, emissions and
reliability/security.
• Renewables are now the cheapest form of new power generation.
• Growth in solar will depress daytime prices but leave ‘shoulder’ prices higher – this could make firming solar more expensive in the future.
• As in Chile, the role of gas in the electricity market important and changing.
• Purchasing renewable energy could have a material impact on GHG emissions, however much more is required to meet our targets.
Learning from Chile for Australia• Demonstrated experience in the role of gas in stabilizing
the grid and allowing greater renewables penetration.
• The importance of business model decisions to ensure price competitiveness and emissions reductions.
• How a grid-connected mining company can accelerate a decarbonizing grid.
• How fast the market landscape can change.
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