BHP Group Ltd (BHP1) Risk Analysis
Risk Overview Q2, 2022
Risk Change Over Time
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- Corporate Activity and Growth - Risk 1Risks associated with our ability to position our asset portfolio to generate returns and value for shareholders, including through acquisitions, mergers and divestments.
Why is this important to BHP? We make decisions and take actions in pursuit of our strategy to optimise our asset portfolio and to secure and create growth options in future facing commodities (such as copper, nickel and potash). These may include active portfolio changes (such as divestment of our interests in BMC and Cerrejón, and merger of our Petroleum business with Woodside), as well as maturing organic growth options across our existing portfolio. A strategy that does not support BHP’s objectives and/or ill-timed execution of our strategy (including as a result of not having sector-leading talent and capabilities) or other circumstances may lead to a loss of value that impacts our ability to deliver returns to shareholders and fund our investment and expansion opportunities. It may also result in our asset portfolio being less resilient to movements in commodity prices, which are determined by or linked to prices in world markets. In the short term, this may reduce our cash flow, ability to access capital and our dividends. A failure to optimise our asset portfolio for structural movements in commodity prices over the long term may result in asset impairments and could adversely affect the results of our operations, financial performance and returns to investors. Examples of potential threats • ?Failure to optimise our portfolio through effective and efficient acquisitions, exploration, large project delivery, mergers, divestments or expansion of existing assets (including due to sub-optimal capital prioritisation) may adversely impact returns to investors. For example, a scarcity of growth options that align with our strategy could require us to mine deeper, lower-grade deposits, which may lead to higher operating and capital costs. • ?Failure to identify potential changes in commodity attractiveness and missed entry or commodity exit opportunities may result in decreased return on capital spend for, or overpayment to acquire or invest in, new assets or projects, stranded assets or reduced divestment proceeds. • ?Failure to achieve expected commercial objectives from assets or investments, such as cost savings, sales revenues or operational performance (including as a result of inaccurate commodity price assumptions or resources and reserves estimates), may result in returns that are lower than anticipated and loss of value. Impacts could be exacerbated by effects of the COVID-19 pandemic and Ukraine conflict, including supply chain disruptions (for example, disruption in the energy sector impacting our end-user markets), labour shortages, inflationary pressures on raw materials and unfavourable exchange rates, creating operational headwinds and challenging on-time and on-budget project delivery. • ?Renegotiation or nullification of permits, inability to secure new permits or approvals, increased royalties, expropriation or nationalisation of our assets, or other legal, regulatory, political, judicial or fiscal or monetary policy instability or changes (for example, legislation, regulations or government policies implemented in Australia by the new federal government, which may include new rules governing the pay of contractors) may increase our costs or adversely impact our ability to achieve expected commercial objectives from assets or investments, access reserves, develop, maintain or operate our assets, enter new jurisdictions, or otherwise optimise our portfolio. • ?Inability to predict long-term trends in the supply, demand and price of commodities and optimise our asset portfolio accordingly may restrict our ability to generate long-term returns from the portfolio. For example, slowing economic growth in China due to factors such as the COVID-19 pandemic, political and trade tensions or the market volatility and uncertainty resulting from the Ukraine conflict may result in lower demand and prices for our products, which would adversely impact our portfolio returns. • ?Commodity prices have historically been and may continue to be subject to significant volatility, including due to global economic and geopolitical factors, industrial activity, commodity supply and demand (including inventory levels), technological change, product substitution, tariffs, interest rate movements and exchange rate fluctuations. Our usual policy and practice is to sell our products at prevailing market prices and, as such, movements in commodity prices may affect our financial performance. Long-term price volatility or sustained low prices may adversely impact our financial performance as we do not generally have the ability to offset costs through price increases.
Risk Highlights Q2, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 8
- Economy & Political Environment - Risk 1Risks associated with the transition to a low-carbon economy.
Why is this important to BHP? Transition risks arise from policy, regulatory, legal, technological, market and other societal responses to the challenges posed by climate change and the transition to a low-carbon economy. As a world-leading resources company, BHP is exposed to a range of transition risks that could affect the execution of our strategy or our operational efficiency, asset values and growth options, resulting in a material adverse impact on our financial performance, share price or reputation, including litigation. The complex and pervasive nature of climate change means transition risks are interconnected with and may amplify our other risk factors. Additionally, the inherent uncertainty of potential societal responses to climate change may create a systemic risk to the global economy. Examples of potential threats • ?Introduction or improvement of low-carbon technologies or changes in customer preference for products that support the transition to a low-carbon economy may decrease demand for some of our products (which may be abrupt or unanticipated), increase our costs or decrease the availability of key inputs to production. For example: • ?‘Green steel’ technologies may reduce demand for our metallurgical coal or iron ore. • ?Increased scrap-based steel production may reduce demand for our metallurgical coal and iron ore by limiting production that is required globally. • ?New battery technologies that use less nickel could enter the market and reduce demand for our nickel products. • ?Failure to address investor concerns on the potential impact of climate change on and from BHP’s portfolio and operations may result in reduced investor confidence. • ?Social concerns around climate change may result in investors divesting our securities or pressure on financial institutions not to provide financing for our fossil fuel assets, which could limit our ability to access capital markets and potentially result in reduced access to financing or increased financing costs, or otherwise adversely impact our ability to optimise our portfolio. • ?Perceived or actual misalignment of BHP’s climate actions (goals, targets and performance) with societal and investor expectations, or a failure to deliver our climate actions, may result in damage to our reputation, climate-related litigation (including class actions) or give rise to other adverse regulatory, legal or market responses. • ?Sub-optimal selection, implementation or effectiveness of technology that is intended to contribute towards the delivery of our climate targets, goals and strategies, or unavailability of that technology (including due to a failure of external equipment manufacturers to deliver on schedule or competition for limited supply) could delay or increase costs in achieving our plans for operational decarbonisation. • ?Changes in laws, regulations, policies, obligations, government actions and our ability to anticipate and respond to such changes, including GHG emission targets, restrictive licencing, carbon taxes, carbon offset regulations, border adjustments or the addition or removal of subsidies, may give rise to adverse regulatory, legal or market responses. For example, the implementation of regulations intended to reduce GHG emissions in the steel industry in China could adversely impact demand for our metallurgical coal and/or iron ore.
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