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BHPBill - operational review
BHPBill released their operational review for the half year ended 31 December 2016. Highlights include:
- Record production for the half year was achieved at Western Australia Iron Ore (WAIO).
- Full year production guidance maintained for Petroleum, Iron Ore and Coal.
- Production guidance for Copper reduced to approximately 1.62 Mt, two per cent below prior guidance, reflecting lower volumes now expected at Olympic Dam.
- In Petroleum, following the successful bid for Trion in Mexico and positive drilling results at LeClerc and Caicos, an USD820 million exploration program is now planned for the current financial year.
- All major projects under development are tracking to plan. The Bass Strait Longford Gas Conditioning Plant project achieved initial gas sales in the December 2016 quarter. Mechanical completion was achieved at the Escondida Water Supply project with first water expected in the March 2017 quarter.
- Underlying attributable profit in the December 2016 half year is expected to include gains related to asset divestments in a range of approximately USD150 million to USD200 million.
Major development projects
During the December 2016 quarter, the Bass Strait Longford Gas Conditioning Plant project achieved initial gas sales, under budget, and production is ramping up to full rate. In December 2016, mechanical completion was achieved at the Escondida Water Supply project with first water expected to be delivered in the March 2017 quarter, on schedule and budget. These two projects will not be reported in future Operational Reviews. BHPBill has two major projects under development in Petroleum and Potash, with a combined budget of USD2.9 billion over the life of the projects. Both projects remain on time and on budget.
Corporate update
BHPBill expects Underlying attributable profit(1) in the December 2016 half year to include gains related to asset divestments in a range of approximately USD150 million to USD200 million (Underlying EBITDA impact of USD175 million to USD225 million). In addition, the Group expects to record an exceptional item of USD164 million (USD115 million post-tax) related to the cancellation of the Caroona exploration licence and subsequent reimbursement received during the December 2016 half year.
On 20 December 2016, Samarco, Vale and BHPBill Brasil agreed a non-binding term sheet outlining the general terms and conditions for the use of Vale’s Timbopeba pit by Samarco to deposit its tailings, should Samarco restart. A definitive agreement remains subject to a successful commercial negotiation, due diligence and relevant government approvals. These processes are likely to occur during the 2017 calendar year. On 18 January 2017, Samarco, Vale and BHPBill Brasil have also entered into a preliminary agreement with the Federal Prosecutors’ Office in Brazil in relation to the Fundão tailings dam failure on 5 November 2015 (Preliminary Agreement). The Preliminary Agreement outlines the process and timeline for negotiation of a settlement of the BRL 155 billion (approximately USD47.5 billion) Civil Claim relating to the dam failure.
For the December 2016 half year, we are not yet in a position to provide an update to the ongoing potential financial impacts on BHPBill Brasil of the Samarco dam failure. Any financial impacts will continue to be classified as an exceptional item. The above guidance will be updated should material information or events arise as the Group finalises its financial statements.
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BHPBill - Samarco update
Samarco Mineração S.A. (Samarco) and its shareholders, Vale S.A. (Vale) and BHP Billiton Brasil Ltda (BHP Billiton Brasil) have entered into a preliminary agreement with the Federal Prosecutors’ Office in Brazil (Federal Prosecutors) in relation to the Fundão tailings dam failure on 5 November 2015 (Preliminary Agreement). On 2 March 2016, Samarco, Vale, BHP Billiton Brasil and the Brazilian Authorities (as described in the Note below) entered into a Framework Agreement (described in the Note below) for the remediation and compensation of the impacts of the dam failure. The Federal Prosecutors are not a party to the Framework Agreement.
The Preliminary Agreement outlines the process and timeline for negotiation of a settlement of the BRL155 billion (approximately USD47.5 billion) Civil Claim relating to the dam failure. The Preliminary Agreement provides for the appointment of experts to advise the Federal Prosecutors in relation to the social and environmental impacts of the dam failure, any revisions to the social and environmental remediation programs under the Framework Agreement (Programs) and for the ongoing assessment and monitoring of the Programs. Samarco, Vale and BHP Billiton Brasil will provide existing studies and research to the expert advisors.
The expert advisors’ conclusions will be considered in the negotiations of a final settlement arrangement with the Federal Prosecutors, which is expected to occur by 30 June 2017 under the timeframe established in the Preliminary Agreement.
Under the Preliminary Agreement, Samarco, Vale and BHP Billiton Brasil will provide, subject to Court approval, total security of BRL2.2 billion (approximately USD675 million, 100 per cent basis) to support the payments for the Programs (Interim Security). The Interim Security comprises a charge over Samarco’s assets of BRL 800 million (approximately USD245 million), insurance bonds of BRL1.3 billion (approximately USD400 million), and liquid assets of BRL100 million (approximately USD30 million).
The Preliminary Agreement also requires Samarco, Vale and BHP Billiton Brasil to advance BRL 200 million (approximately USD60 million, 100 per cent basis) of the funding obligations under the Framework Agreement to Programs for the municipalities of Barra Longa, Rio Doce, Santa Cruz do Escalvado and Ponte Nova. The funds are to be advanced within 90 days after signing of the Preliminary Agreement.
During the period that the Interim Security is in place, it will, subject to Court approval, replace the BRL 1.2 billion injunction (approximately USD370 million) issued in the BRL 20 billion Civil Claim. In addition, the applications by the Federal Prosecutors for the BRL 7.7 billion injunction (approximately USD2.4 billion) in the BRL 155 billion Civil Claim and the BRL 20 billion asset freezing order (approximately USD6 billion) in the criminal proceedings commenced by the Federal Prosecutors in Brazil against Samarco, Vale, BHP Billiton Brasil and others will be suspended.
The parties have agreed that the Interim Security will remain in place until the earlier of 30 June 2017 and the date that a final settlement arrangement is agreed between the Federal Prosecutors, and Samarco, Vale and BHP Billiton Brasil. If a final settlement arrangement is not agreed by 30 June 2017, the Federal Prosecutors may request reinstatement by the Court of the BRL 1.2 billion (approximately USD370 million) injunction.
Any restart of operations at Samarco is subject to a separate set of negotiations with relevant parties and will occur only if it is safe, economically viable and has the support of the community. Resuming operations would require government approvals, the granting of licenses by state authorities, the restructure of Samarco’s debt, and the completion of commercial arrangements with Vale regarding the use of its infrastructure.
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