B

The Broken Hill Proprietary Company Limited

The Directors present their report together with the consolidated financial statements for the half year ended 30 November 1999 and the auditors' review report thereon.

The operating profit after income tax excluding abnormal items attributable to BHP shareholders for the half year ended 30 November 1999 was $809 million, an increase of $373 million or 85.6% compared with the corresponding period.

Including abnormal items, the profit was $1 081 million, an increase of $645 million compared with the corresponding period. The result included a net abnormal profit of $272 million, comprising:

• a tax benefit of $160 million arising from the restatement of deferred tax balances as a consequence of the Australian company income tax rate change to 34% applicable from 1 July 2000, and then to 30% applicable from 1 July 2001; and

• a tax benefit of $112 million arising from finalisation of funding arrangements in August 1999 related to the Beenup mineral sands project.

For details of abnormal items by segment, refer to page 17. There were no abnormal items in the corresponding period.

Basic earnings per share were 46.0 cents excluding abnormal items and 61.5 cents including abnormal items. Comparative earnings per share for the half year ended 30 November 1998 were 25.3 cents.

An unfranked dividend of 25 cents per share was declared and paid during the half year, the same amount as the dividend in the corresponding period. The Dividend Investment Plan was suspended following payment of the half yearly dividend on 24 November 1999. Since the dividend was unfranked, the Bonus Share Plan (BSP) was suspended in accordance with the Company's Constitution and Rule 8 of the BSP on 17 September 1999.

Directors announced that the financial year end for the BHP Group would change from 31 May to 30 June with effect from 30 June 2000. The Company will report results for the 13 months to 30 June 2000 and release to the Australian Stock Exchange (ASX) on 27 July 2000. The Company's profit report for the period ending 31 March 2000 will be released to the ASX on 4 May 2000.

The following major factors affected operating profit after tax, excluding abnormal items, attributable to BHP shareholders:

Lower costs of approximately $430 million ($275 million after tax) were achieved during the half year compared with the corresponding period. Benefits from cost reduction initiatives continue to be reflected in lower production and overhead costs throughout BHP, with significant reductions being achieved within the Minerals and Steel businesses. In addition, lower borrowing costs resulted from a reduction in funding levels.

Compared with the corresponding period, foreign currency fluctuations net of hedging had a favourable effect of approximately $90 million.

Exploration expenditure charged to profit decreased by approximately $70 million compared with the corresponding period mainly reflecting a reduction in the Minerals worldwide exploration program.

Decisions to close or cease operations including the Hartley platinum mine (Zimbabwe), Beenup mineral sands operation (Western Australia) and North America copper had a favourable effect on results of approximately $105 million compared with the corresponding period. This was partly offset by profits of approximately $50 million in the corresponding period from manganese operations and other assets sold.

Profits from diamond sales at the EKATI (TM) diamond mine were approximately $80 million for the half year. This was partly offset by operating losses in the current half year of approximately $60 million following the start up of the HBI operation (Western Australia).

Higher sales volumes have increased profit by approximately $10 million compared with the corresponding period. This reflects the return to normal operating conditions at Bass Strait (Victoria) following the Longford incident in September 1998.

Most of BHP's major products (including coal, steel and iron ore) continued to be affected by lower commodity prices, which has reduced profit by approximately $295 million compared with the corresponding period. These reductions were partly offset by higher average realised oil prices after commodity hedging which increased the result by approximately $150 million compared with the corresponding period.

Profits from sale of assets were approximately $20 million lower than in the corresponding period.

Minerals' result for the half year was a profit of $533 million, a decrease of $36 million or 6.3% compared with the corresponding period.

Including an abnormal tax benefit relating to the restatement of deferred tax balances following the change in the Australian company tax rate, the result for the half year was a profit of $582 million. There were no abnormal items in the corresponding period.

Major factors which contributed to the result were:

• significantly lower average US dollar coal prices for Bowen Basin (Queensland), Illawarra (New South Wales) and Kalimantan (Indonesia);

• lower average US dollar iron ore prices and volumes;

• unfavourable effect of the higher A$/US$ exchange rate;

• operating losses resulting from start up of the HBI operation which was commissioned in January 1999;

• lower operating profits due to the sale of principal manganese assets in December 1998; and

• lower profit from the sale of assets.

These were partly offset by:

• losses in the corresponding period from ceased operations including the Hartley platinum mine, North America copper and the Beenup mineral sands operation;

• lower unit costs at coal operations in Queensland and the Cannington silver-lead-zinc mine (Queensland);

• profits from diamond sales at the EKATI (TM) diamond mine which commenced sales in January 1999;

• lower exploration expenditure charged to profit;

• tax benefiting of certain prior year exploration expenditure; and

• inclusion of equity accounted profits from BHP's investment in the Samarco iron ore operations (Brazil), following adoption of the revised accounting standard AASB 1016: Accounting for Investments in Associates.

Sales revenue was $4 036 million, 16.2% lower than in the corresponding period, mainly due to lower prices for iron ore, coal and copper, lower iron ore volumes and lower copper volumes following the closure of North America copper operations.

The average price booked for copper shipments, after hedging and finalisation adjustments, for the half year was US$0.76 per pound (1998 - US$0.78). Finalisation adjustments after tax, representing adjustments on prior period shipments settled in the November 1999 half year were $32 million favourable (1998 - $9 million unfavourable).

Unhedged copper shipments not finalised at 30 November 1999 have been brought to account at US$0.80 per pound. The LME copper spot price on Tuesday 30 November 1999 was US$0.79 per pound.

As at 30 November 1999, for the three months ending 28 February 2000 anticipated shipments are 22% covered by forward contracts at an average price of US$0.77 per pound, 1.0% covered by call options at an average price of US$0.84 per pound, and 15% covered by collar options with a minimum price of US$0.74 per pound and maximum price of US$0.90 per pound. For the three months ending 31 May 2000 anticipated shipments are 6% covered by forward contracts at an average price of US$0.81 per pound and 15% covered by collar options with a minimum price of US$0.74 per pound and maximum price of US$0.90 per pound.

Exploration expenditure was $30 million for the half year (1998 - $115 million) and the charge against profit was $25 million (1998 - $97 million), reflecting a reduction in the worldwide exploration program.

Significant developments during the half year included:

• closure of North America copper operations on 25 June 1999, with the exception of the Solvent Extraction and Electro Winning plants, and the San Manuel Rod Plant which was operated to complete fulfilment of contractual obligations. The San Manuel Rod Plant ceased operations on October 25 1999;

• suspended operations at the Hartley platinum mine pending conditional sale;

• very encouraging market acceptance of EKATI (TM) diamonds traded through our new Antwerp (Belgium) office;

• sale of the Moura (Queensland) coal mine on 20 August 1999; and

• scientific reports were released by Ok Tedi Mining Limited (OTML), confirming that the environmental impact of the Ok Tedi mine and the area of land affected would be significantly greater than indicated by previous studies. The reports show that none of the options considered by OTML offers a clear solution to these environmental impacts. BHP has embarked upon open consultation with all stakeholders of the operation - the PNG Government, the Provincial Government, the communities surrounding the mine and along the Ok Tedi and Fly River as well as shareholders. The PNG Government has requested that the World Bank evaluate the current situation. BHP has agreed with a request from the PNG Government to provide pertinent information and assist the World Bank with any matters. The World Bank study is expected to be completed by June 2000.

Steel's result for the half year was a profit of $169 million, a decrease of $35 million or 17.2% compared with the corresponding period.

Including an abnormal tax benefit relating to the restatement of deferred tax balances following the change in the Australian company tax rate, the result for the half year was a profit of $232 million. There were no abnormal items in the corresponding period.

Major factors which contributed to the result were:

• a decline of approximately 8% in US dollar prices for major export products;

• lower prices for products from operations in the USA and Asia;

• lower domestic prices; and

• lower sales volumes from Long Products operations.

These were partly offset by:

• improved cost and operating performance from overseas coating operations and North Star BHP Steel (USA); and

• lower raw material costs.

Total steel despatches from all operations were 4.042 million tonnes, 1.8% below the corresponding period:

Significant developments during the half year included:

• the release of the Steel Strategic Plan, organising the Steel portfolio into core and non-core businesses. The Company is in the process of pursuing the divestment of its non-core steel businesses;

• closure of primary steelmaking operations at Newcastle (New South Wales); and

• improvements in global market conditions for steel products have led to steady increases in export steel prices which are beginning to impact financial results.

Petroleum's result for the half year was a profit of $410 million, an increase of $209 million or 104.0% compared with the corresponding period.

Including an abnormal tax benefit relating to the restatement of deferred tax balances following the change in the Australian company tax rate, the result for the half year was a profit of $459 million. There were no abnormal items in the corresponding period.

Major factors which contributed to the result were:

• higher average realised oil prices before commodity hedging of A$32.99 per barrel (1998 - A$21.77 per barrel), reflecting higher US dollar prices (1999 - US$21.41 per barrel; 1998 - US$13.20 per barrel), partly offset by the effect of the higher A$/US$ exchange rate;

• higher sales volumes in Bass Strait reflecting the return to normal operating conditions following the Longford incident in September 1998;

• higher profits from the sale of assets. The current period included a $31 million profit (after tax) following finalisation of the sale of exploration and producing assets in the UK Southern North Sea. The corresponding period included a $13 million profit (no tax effect) on sale of the Timor Sea (North West Australia) producing facilities of Jabiru and Challis and the abandoned Skua field; and

• lower discretionary and overhead costs, including business development activities, following the implementation of cost review programs in Australia and the UK.

These were partly offset by:

• A net loss of $79 million (after tax) resulting from commodity hedging activities compared with a net gain of $2 million on significantly lower volumes in the corresponding period. The average realised oil price after commodity hedging was US$19.16 per barrel (1998 - US$13.25 per barrel).

As at 30 November 1999, for the three months ending 29 February 2000, 2.0 million barrels of estimated oil and condensate sales (after third party entitlements) have been hedged at an average price of US$21.15 per barrel, and 7.8 million barrels are covered by zero cost collar options with a downside average of US$15.97 per barrel and an upside average of US$21.78 per barrel. For the three months ending 31 May 2000, 3.3 million barrels of estimated oil and condensate sales (after third party entitlements) have been hedged at an average price of US$20.82 per barrel, and 5.1 million barrels are covered by zero cost collar options with a downside average of US$17.23 per barrel and an upside average of US$23.55 per barrel.

Oil and condensate production was 9% higher than the corresponding period due to higher production at Bass Strait, the recently commissioned Laminaria/Corallina fields (North West Australia), and higher gas nominations at Bruce (UK). These were partly offset by lower production following the sale of producing assets in the Timor Sea (North West Australia) and the sale of Elang/Kakatua/Kakatua North producing fields, lower production from Griffin (Western Australia) reflecting natural field decline, and lower Liverpool Bay (UK) production due to repairs and maintenance. Natural gas production was 4% lower mainly due to the sale of the UK Southern North Sea assets, lower Victorian demand for Bass Strait gas and lower Griffin production. This has been partly offset by higher gas production from the offshore US producing properties due to increased facility capacity.

Exploration expenditure for the half year was $100 million (1998 - $140 million). Exploration expenditure charged to profit was $79 million (1998 - $79 million).

Significant developments during the half year included:

• finalisation of the sale of all exploration and producing assets in the UK Southern North Sea;

• agreement was reached with PowerGen UK plc on a further re-negotiation of gas price contractual arrangements for Liverpool Bay effective 1 June 1999 which resulted in the payment of $220 million to BHP in November 1999. This payment represents full value for gas revenues foregone resulting from a reduced base price for gas sold under the agreement and will be amortised on a units of production basis over the five year agreement period. This transaction follows a similar re-negotiation in December 1998;

• settlement with the State of Hawaii which will result in BHP's dismissal from the antitrust lawsuit brought against a number of oil companies (Hawaii Antitrust Claim). The settlement is subject to approval in the US District Court in Hawaii; and

• initial oil production commenced from the Laminaria and Corallina oilfields via the floating production storage and offloading facility 'Northern Endeavour' on 7 November 1999.

Services' result for the half year was a profit of $40 million, a decrease of $42 million or 51.2% compared with the corresponding period.

Including an abnormal tax benefit relating to the restatement of deferred tax balances following the change in the Australian company tax rate, the result for the half year was a profit of $45 million. There were no abnormal items in the corresponding period.

The major factor which contributed to the variation was a $46 million profit (no tax effect) on the partial sale of BHP's investment in Orbital Engine Corporation Limited in the corresponding period.

Significant developments during the current half year included:

• sale of BHP Engineering;

• sale of the bulk carrier Iron Newcastle;

• investment in the Belgian shipping company Cobam N.V.; and

• completion of the sale of Hunter Towage Services Pty Ltd.

Net Unallocated Interest expense was $252 million for the half year compared with $232 million for the corresponding period. This increase was mainly due to lower capitalised interest in the current half year for HBI, Escondida and EKATI (TM), lower interest income, an over provision for income tax in the corresponding period and higher interest rates in the US and Australia, largely offset by lower funding levels.

Including an abnormal tax expense relating to the restatement of deferred tax balances following the change in the Australian company tax rate, Net Unallocated Interest expense for the half year was $256 million. There were no abnormal items in the corresponding period.

A significant development during the current half year was the Federal Court ruling in BHP's favour regarding a dispute concerning the deductibility of financing costs paid to General Electric Company in connection with the acquisition of the Utah Group in the early 1980's. The Australian Taxation Office has subsequently appealed the decision. No adjustments will be made to the Group accounts pending conclusion of this matter.

Group and unallocated items

The result for Group and unallocated items was a loss of $110 million for the half year compared with a loss of $373 million for the corresponding period. The improvement was mainly due to lower losses of $80 million (after tax) from external foreign currency hedging compared with losses of $249 million in the corresponding period.

Including abnormal items the result was nil for the half year. The abnormal items comprised:

• a tax benefit of $112 million arising from finalisation of funding arrangements in August 1999 related to the Beenup mineral sands project; and

• a tax expense of $2 million relating to the restatement of deferred tax balances following the change in the Australian company tax rate.

There were no abnormal items in the corresponding period.

Outside equity interests' share of operating profit decreased mainly due to adjustments attributable to minority shareholders of the Moura coal mine following completion of the sale in August 1999, and a lower result at Ok Tedi during the current half year.

Sales revenue of $9 527 million decreased by $427 million or 4.3% compared with the corresponding period, mainly due to lower prices for coal, steel and iron ore, and lower copper volumes reflecting the closure of North America copper operations. Other revenue, including interest income, decreased by $4 million. Total operating revenue decreased by $431 million to $10 137 million.

Depreciation and amortisation charges decreased by $113 million to $962 million. The decrease relates mainly to depreciation in the corresponding period on businesses now closed, ceased operating or sold, the favourable effect of exchange rate variations and lower depreciation following the write-down of certain assets at 31 May 1999. These decreases were partly offset by higher depreciation following commissioning of the EKATI (TM) diamond mine, and the Escondida oxide plant and phase 3.5 expansion project, and higher Petroleum production.

Borrowing costs decreased by $35 million to $355 million, mainly due to lower funding levels partly offset by lower capitalised interest and higher interest rates in the US and Australia.

Excluding abnormal items, income tax expense of $424 million was $38 million higher than for the corresponding period. The charge for the half year represented an effective tax rate of 34.9% (1998 - 46.1%) which is lower than the nominal Australian tax rate of 36% primarily due to partial recognition of tax benefits mainly in respect of prior year overseas exploration expenditure which have been recognised due to increased income from North American operations, in addition to prior year over provisions. These factors were partly offset by non-deductible interest expense on preference shares, non-deductible accounting depreciation and amortisation, and overseas exploration expenditure for which no deduction is presently available.

At 30 November 1999 BHP's gearing ratio was 50.4% compared to 54.2% at May 1999.

Based on earnings before interest paid and tax (EBIT) excluding abnormal items interest cover for the half year was 4.2 times compared with 1.8 times for the May 1999 year and 2.4 times for the corresponding period. Based on earnings before interest paid, tax and depreciation (EBITDA) excluding abnormal items interest cover for the half year was 6.8 times compared with 4.2 times for the May 1999 year and 4.5 times for the corresponding period.

The following matters or circumstances have arisen since the end of the half year that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Company in subsequent accounting periods:

• Sale of oil and gas interests in Papua New Guinea to Orogen Minerals Ltd on 10 December 1999. Proceeds of approximately $200 million and an abnormal profit of approximately $70 million will be included in the March 2000 results; and
• industrial action has occurred at a number of BHP sites since 30 November 1999, as a protest against BHP Iron Ore offering individual contracts (WA workplace agreements) to employees in the Pilbara. The impact on BHP's result for the 13 month period ending 30 June 2000 will depend on the extent of future industrial action.

The Directors of the Company in office during or since the end of the half year are:

B C ALBERTS - a Director since January 2000;

P M ANDERSON - Managing Director and Chief Executive Officer since December 1998;

D R ARGUS - Chairman since June 1999;

W F BLOUNT - a Director since March 1999;

M A CHANEY - a Director since May 1995;

J C CONDE - a Director since March 1995;

D A CRAWFORD - a Director since May 1994;

M A JACKSON - a Director since January 1994;

G W McGREGOR - a Director until September 1999;

R J McNEILLY - Executive Director since July 1991; and

J T RALPH - a Director since November 1997.

Refer pages 1 - 8.

The Company is a company of a kind referred to in Class Order No. 98/0100 dated 10 July 1998 issued by the Australian Securities and Investments Commission. Amounts in this report, unless otherwise indicated, have been rounded in accordance with that Class Order to the nearest million dollars.

Signed in accordance with a resolution of the Board.

D R Argus

Dated in Melbourne this 8th day of February 2000

Financial Statements

for the half year ended 30 November 1999

These statements are general purpose half year consolidated financial statements that have been prepared in accordance with the requirements of the Corporations Law, Australian Stock Exchange Listing Rules, Australian Accounting Standard AASB 1029: Half Year Accounts and Consolidated Accounts and Urgent Issues Group Consensus Views, and give a true and fair view of the matters disclosed. These half year financial statements and reports should be read in conjunction with the annual financial statements and reports for the year ended 31 May 1999 and any public announcements made by The Broken Hill Proprietary Company Limited and its controlled entities during the half year in accordance with continuous disclosure obligations arising under the Corporations Law and Australian Stock Exchange Listing Rules.

Accounting policies have been consistently applied by all entities in the BHP Group and are consistent with those of the previous financial year, except for adoption of new accounting standards:

• Revised Australian Accounting Standard AASB 1004: Revenue has been adopted for the half year ended 30 November 1999. There was no material effect on profits; and

• Revised Australian Accounting Standard AASB 1016: Accounting for Investments in Associates has been adopted for the half year ended 30 November 1999, resulting in the application of the equity method of accounting for investments in associates. Previously the cost method was used. Refer note 16 for details of investments in associated entities.

Australian deferred tax balances at 30 November 1999 were restated as a consequence of the Australian company income tax rate change to 34% applicable from 1 July 2000, and then to 30% applicable from 1 July 2001. The effect of this restatement has been brought to account as an abnormal item (refer note 5).