BHP GROUP: NAVIGATING THE COMMODITY SUPERCYCLE

The 2030 Report | CEO Memo | June 2030

FROM: Macro Intelligence Unit TO: Executive Leadership, Board of Directors RE: Strategic Positioning During the 2029-2032 AI Commodity Boom DATE: June 2030 CLASSIFICATION: Confidential - C-Suite

EXECUTIVE SUMMARY FOR LEADERSHIP

BHP enters H2 2030 in a position that senior management has not experienced in over a decade: genuine optionality in capital allocation, commodity tailwinds that are structural rather than cyclical, and a technology moat (autonomous mining) that is increasingly durable.

The challenge ahead is not growth—it is disciplined capital allocation and stakeholder management during a period when constituencies (investors, employees, governments, communities) will have competing demands.

This memo outlines the strategic imperatives for the next 18-24 months.

THE INTERNAL REALITY: 2029-2030 INFLECTION

During the 2019-2022 bear market and the subsequent "slow recovery" of 2023-2028, BHP pursued a cautious strategy: maintain cost leadership, invest selectively in autonomy, keep leverage moderate, and avoid heroic production growth targets.

This conservatism looks prescient in mid-2030. Peers who expanded capex aggressively (Glencore, Vale) in 2026-2028 find themselves with stranded assets and higher unit costs. BHP's discipline is now yielding a competitive advantage worth 200-300 basis points in EBITDA margins.

The internal cultural reality, however, is complex:

Operational Teams: Energized. Autonomous mining systems are delivering promised cost reductions and uptime improvements. Morale in operating divisions is high—execution is working.

Capital Allocation Team: Stressed. Cash generation ($45-50B FCF run rate by Q2 2030) is exceeding historical planning scenarios. Deployment options (organic capex, M&A, returns to shareholders) are constrained by strategic discipline and fiduciary duty.

External Affairs: Under pressure. Communities, unions, and politicians in Australia are demanding either: (a) higher production (to boost tax revenue), or (b) higher wages (to attract workers amid labor shortage). BHP's balanced approach satisfies neither constituency fully.

Investor Relations: Satisfied but impatient. The investment community wants confirmation that this cycle will endure for 7-10 years, not 3-4. Credible conviction is being built, but requires consistent messaging.

STRATEGIC IMPERATIVE 1: DEFEND THE AUTONOMY MOAT

BHP's 18-24 month lead in autonomous mining maturity is genuine but fragile. Competitors are investing heavily.

What's happening in the market: - Rio Tinto announced $8.2B autonomous mining capex plan in Q4 2029; now completing commissioning on Phase 1 - Vale is bringing online its own autonomous truck fleet at Carajás; targeting 85% utilization by Q1 2031 - Glencore is struggling but is also investing in autonomy to lower unit costs

The Risk: By 2032-2033, all major competitors will have broadly equivalent autonomous mining capabilities. BHP's current 14% cost advantage vs. Rio Tinto could narrow to 6-8%.

Strategic Actions for Leadership (Next 18 Months):

1. Talent Lock-Down: The AI engineers and robotics specialists who built BHP's autonomous systems are now highly sought-after. Implement strategic retention bonuses and create internal "centers of excellence" where these teams have real power and autonomy. Loss of 20-30% of core autonomy talent would be catastrophic.

2. Patent Portfolio Hardening: BHP's IP around autonomous drilling, predictive maintenance algorithms, and fleet optimization is valuable. Ensure aggressive patent filing and consider strategic licensing relationships that lock competitors into paid arrangements.

3. Software Moat Deepening: Shift from "hardware autonomy" to "software moat." The real advantage will be proprietary AI algorithms for ore body optimization, fleet scheduling, and predictive maintenance—not the trucks themselves. Invest heavily in machine learning and data science.

4. Third-Party Ecosystem: Consider selective partnerships with equipment vendors (Caterpillar, Komatsu) to embed BHP's software into their hardware. This creates switching costs and extends the moat beyond BHP's asset base.

STRATEGIC IMPERATIVE 2: CAPITAL ALLOCATION CLARITY

By end of FY2030, BHP will have accumulated $8-12B in incremental net cash relative to FY2029 levels. Board and investor expectations for deployment are high.

The Options:

Our Recommendation to Leadership:

Adopt a sequenced capital allocation approach rather than a "one big bet":

Phase 1 (H2 2030 - H1 2031): Defend & Consolidate - Execute modest special dividend ($1.25/share) to signal cycle conviction - Begin $4-5B buyback program at $55-60 AUD (below intrinsic value) - Maintain organic capex at $6-7B (replacement + selective greenfield expansion in coking coal) - Preserve $3-4B cash for optionality and M&A

Phase 2 (H2 2031 - H1 2032): Expand - If commodity prices remain above $110/tonne (iron) and $14,000/tonne (copper), escalate organic capex to $8-9B - Consider strategic M&A on mid-tier assets (targeting $5-8B transactions) - Expand autonomous mining to all core assets (capex: $1-2B)

Phase 3 (H2 2032+): Normalize - Return to long-cycle dividend policy (60% of FCF) - Wind down special returns as cycle matures

This approach balances: - Shareholder returns (maintaining investor confidence) - Competitive positioning (organic investment) - Financial flexibility (maintaining dry powder) - Cycle management (avoiding peak-of-cycle mistakes)

STRATEGIC IMPERATIVE 3: STAKEHOLDER MANAGEMENT

BHP's success in H2 2030 depends on maintaining aligned interests with five key constituencies. Currently, tensions are rising.

Constituency 1: Australian Government & Communities

Current tension: Western Australia and other state governments are pushing for production increases to boost tax revenue. Aboriginal communities are demanding greater benefit-sharing from mining leases.

Strategic response: - Commit to production growth targets (5-7% CAGR 2030-2032) that are achievable but require moderate capex - Work closely with WA government on infrastructure partnerships (ports, power) that create shared upside - Establish Community Benefit Agreements with explicit revenue-sharing formulas; this converts opposition into partnership - Emphasize job creation from autonomous mining (higher-skill, higher-wage positions)

Constituency 2: Workforce & Unions

Current tension: Autonomous mining is eliminating traditional mining jobs. Unions are demanding wage increases and job guarantees. Younger workers in regional areas feel threatened.

Strategic response: - Reskilling program: Commit $200M+ to autonomous mining technician certification and training - Wage increases: Use strong cash generation to grant 6-8% annual wage increases (vs. 2% CPI), positioning BHP as a premium employer - Regional investment: Partner with regional universities on STEM programs - Internal mobility: Create career paths from operations to AI/robotics roles, reducing layoff anxiety

Constituency 3: Environmental/Climate Activists

Current tension: Expansion of mining is at odds with climate commitments. Scope 3 emissions are increasing with expanded production.

Strategic response: - Accelerate renewable energy procurement to 60% by 2032 (vs. 50% current target) - Commit to net-zero Scope 1 & 2 by 2040 (credible, defensible timeline) - Offset Scope 3 emissions through carbon capture partnerships with other industries - Highlight that BHP copper and iron ore are essential for electrification—framing as enabler of climate transition

Constituency 4: Investors

Current tension: Market is oscillating between "supercycle that will last 10 years" and "this is just a temporary bounce." Guidance discipline is critical.

Strategic response: - Provide scenario-based guidance (base, upside, downside) with explicit commodity price assumptions - Quarterly communication of capacity utilization, cost trajectories, and technology deployment - Transparent capital allocation framework (as outlined above) - Consider quarterly or bi-annual investor webinars from CEO with senior management panel

Constituency 5: Customers (Steelmakers, Manufacturers)

Current tension: Customers face margin pressure from high commodity prices. Some are demanding long-term fixed-price contracts.

Strategic response: - Selective long-term offtake agreements at moderate price premiums (avoids customer anger, locks in volumes) - Strategic pricing: Price iron ore to steelmakers in $115-125/tonne range (vs. spot prices of $125-135), ensuring customers can be profitable - Partner with customers on electrification (embedded copper products, efficiency improvements)

STRATEGIC IMPERATIVE 4: TECHNOLOGY ROADMAP CLARITY

Beyond autonomous mining, BHP should be positioning itself for the next wave of mining technology disruption.

Opportunity 1: AI-Driven Ore Body Optimization Current mining operates with ~70% recovery rates on ore bodies. AI-powered geological modeling could improve recovery to 82-85%, adding 8-12% production from existing assets without incremental mining. Capex required: $400-500M. Timeline: 2030-2033. ROI: 18-22% IRR.

Recommendation: Commit $150M to pilot programs across 2-3 major assets in 2030-2031.

Opportunity 2: In-Situ Processing Instead of mining ore then processing it, extract and process ore in-place. Technology is immature but could cut capital intensity by 35-40%. Capex required: $2-3B for pilot facilities. Timeline: 2032-2036. ROI: TBD (high risk, high reward).

Recommendation: Allocate $50M to research partnerships with mining technology firms.

Opportunity 3: Direct Lithium Extraction (DLE) As lithium demand explodes (EV batteries), in-situ lithium extraction from brine deposits becomes economically viable. BHP's South American portfolio (Spence in Chile) could benefit.

Recommendation: Evaluate DLE opportunities within existing copper operations; target 2031-2033 for pilot deployment.

COMPETITIVE POSITIONING: WHO WINS & LOSES

By 2032, we expect significant divergence in peer performance:

Winners: - BHP: Cost leadership + autonomy moat = sustained 28-30% EBITDA margins - Rio Tinto: Autonomy adoption successful; margins compress to 24-26% but still profitable - Fortescue: Smaller, nimble, AI/automation-focused; could gain market share from larger competitors

Losers: - Vale: Decentralized structure makes technology adoption difficult; margins fall to 15-18%; potential strategic acquisition target - Glencore: Commodity exposure creates volatility; margins compress; could face distress

BHP's role: Position as consolidator, not consolidatee. In a commodity downturn (2033+), BHP may acquire distressed competitors at 3-4x EBITDA multiples—a powerful optionality.

RISK MANAGEMENT: THE UNSPOKEN CONVERSATION

Internally, senior management should discuss the following low-probability, high-impact risks:

Risk 1: Chinese Economic Crisis (Probability: 8-12%) If Chinese growth drops below 3% and fab expansion slows dramatically, iron ore demand falls 30-40%. BHP EBITDA falls to $45-55B. Stock falls to $30-35. Mitigation: Maintain cost discipline; build relationships with US customers; consider strategic shifts toward copper/nickel exposure.

Risk 2: Technology Commoditization (Probability: 15-18%) If autonomous mining technology is rapidly commoditized (all competitors at parity by 2031), margin advantage disappears. Mitigation: Accelerate software moat development; invest in next-gen technologies (AI, direct lithium extraction); build switching costs.

Risk 3: Regulatory Backlash (Probability: 10-15%) Australian government could impose export taxes on iron ore (following successful 2020 wheat/wine precedent with China). Would reduce BHP's effective realization by 8-12%. Mitigation: Build political relationships; support government objectives on reshoring; emphasize job creation.

Risk 4: Geopolitical Fracture (Probability: 12-15%) If US-China tensions escalate (Taiwan, South China Sea), supply chain disruption could reduce commodity demand. Mitigation: Diversify customer base; maintain flexibility to shift exports geographically.

RECOMMENDATION: STRATEGIC POSTURE FOR H2 2030

The Meta-Strategy: Position BHP as the "Amazon of mining"—relentlessly efficient, technology-driven, customer-obsessed, and willing to sacrifice short-term margins for long-term market dominance.

This requires: 1. Talent: Attract AI, robotics, and software talent aggressively (pay 20-30% above market) 2. Capex: Invest 8-10% of revenue in technology and automation (vs. 6-7% historically) 3. Culture: Shift from "mining company" to "mining + technology" identity 4. Communication: Every earnings call, investor event, and media appearance emphasizes technology leadership 5. Capital Allocation: Use free cash flow to fund both shareholder returns AND technology investment—not an either/or

The 2029-2032 commodity cycle is a window. The company that uses this cash to lock in a durable technology and cost advantage will dominate the next 10-20 years.

BHP has the opportunity to be that company.

The 2030 Report — Macro Intelligence "Strategic Insight for Demanding Leaders"