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annual report 2008

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for several years now asian economies have been driven by a fundamental shift in the rate of industrialisation and urbanisation of their massive populations these economies have accounted for more global growth than has the united states this growth will drive the course of the world economy for years to come bhp billiton produces and supplies world markets including the developing asian and other economies with many of the natural resources they rely on to fuel their growth these resources include iron ore copper nickel alumina manganese coal uranium oil and gas as the world s leading natural resources company we are central to the growth of the world s developing economies we really are resourcing the future our charter outlining our purpose plans values and measures of success our charter outlines the actions values and measures by which we judge our success in creating long-term value through discovering developing and converting natural resources earning the trust of our employees contractors customers suppliers communities and shareholders is a vital aspect of our success our values embrace safety and the environment integrity high performance win-win relationships the courage to lead change and respect for each other link to `our charter at www.bhpbilliton.com/aboutus/charter this annual report is issued subject to the important notices appearing on page 268 of this annual report bhp billiton limited abn 49 004 028 077 registered in australia registered office 180 lonsdale street melbourne victoria 3000 australia bhp billiton plc registration number 3196209 registered in england and wales registered office neathouse place london sw1v 1bh uk

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contents 1 key information 1.1 1.2 1.3 1.4 1.5 1.6 our business chairman s review chief executive officer s report selected key measures risk factors forward looking statements 3 5 6 7 8 9 12 5 corporate governance statement 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 governance at bhp billiton shareholder engagement board of directors board of directors ­ review re-election and renewal board committees risk management management business conduct market disclosure conformance with corporate governance standards 123 125 126 126 129 130 134 134 135 135 136 2 information on the company 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 bhp billiton locations business overview production marketing minerals exploration global technology resource and business optimisation government regulations sustainable development ­ health safety environment and community closure and rehabilitation employees organisational structure material contracts constitution reserves and resources 13 16 16 48 53 53 53 53 54 56 57 57 58 59 60 63 6 remuneration report 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 the remuneration committee reporting requirements remuneration policy and structure group management committee remuneration details group management committee remuneration and share awards non-executive directors aggregate directors remuneration group performance earnings performance share prices 137 139 139 139 141 142 147 148 149 149 149 3 operating and financial review and prospects 93 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 introduction our strategy key measures external factors and trends affecting our results application of critical accounting policies and estimates operating results liquidity and capital resources off-balance sheet arrangements and contractual commitments subsidiaries and related party transactions significant changes 95 95 96 98 100 101 112 116 116 116 7 directors report 7.1 principal activities state of affairs and business review 7.2 share capital and buy-back programs 7.3 results financial instruments and going concern 7.4 directors 7.5 remuneration and share interests 7.6 secretaries 7.7 indemnities and insurance 7.8 employee policies and involvement 7.9 environmental performance 7.10 dividends 7.11 auditors 7.12 non-audit services 7.13 value of land 7.14 political and charitable donations 7.15 exploration research and development 7.16 creditor payment policy 7.17 class order 7.18 proceedings on behalf of bhp billiton limited 7.19 directors shareholdings 7.20 gmc members shareholdings other than directors 7.21 performance in relation to environmental regulation 7.22 share capital restrictions on transfer of shares and other additional information 151 153 153 155 155 155 155 155 156 156 156 156 157 157 157 157 157 157 157 157 158 158 158 4 board of directors and group management committee 4.1 board of directors 4.2 group management committee 117 119 122 bhp billiton annual report 2008 1

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contents continued 8 legal proceedings 9 financial statements consolidated income statement consolidated statement of recognised income and expense consolidated balance sheet consolidated cash flow statement notes to the financial statements bhp billiton plc directors declaration statement of directors responsibilities in respect of the annual report and the financial statements lead auditor s independence declaration independent auditors reports supplementary oil and gas information unaudited 159 163 165 166 167 168 169 236 240 241 242 243 245 10 glossary 10.1 non-mining terms 10.2 mining and mining-related terms 10.3 units of measure 251 253 254 256 11 shareholder information 11.1 11.2 11.3 11.4 11.5 11.6 markets share ownership dividends share price information taxation ancillary information for our shareholders 257 259 259 262 262 264 266 2 bhp billiton annual report 2008

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section 1 key information contents page 1.1 our business 1.2 chairman s review 1.3 chief executive officer s report 1.4 selected key measures 1.4.1 financial information 1.4.2 operational information 1.5 risk factors 1.6 forward looking statements 5 6 7 8 8 9 9 12 bhp billiton annual report 2008 3

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4 bhp billiton annual report 2008

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1 key information 1.1 our business we are the world s largest diversified natural resources company our objective being to create long-term value through the discovery development and conversion of natural resources and the provision of innovative customer and market-focused solutions we have significant businesses producing alumina and aluminium copper energy thermal coal iron ore nickel manganese metallurgical coal oil and gas and uranium as well as gold zinc lead silver and diamonds we have approximately 41,000 employees and 61,000 contractors working in more than 100 operations in over 25 countries the group is headquartered in melbourne australia and consists of the bhp billiton limited group and the bhp billiton plc group as a combined enterprise following the completion of the dual listed company dlc merger in june 2001 bhp billiton limited and bhp billiton plc have each retained their separate corporate identities and maintained their separate stock exchange listings but they are operated and managed as if they are a single unified economic entity with their boards and senior executive management comprising the same people bhp billiton limited has a primary listing on the australian securities exchange asx in australia and secondary listings on the frankfurt stock exchange in germany and the zurich stock exchange in switzerland bhp billiton plc has a primary listing on the london stock exchange lse in the uk and a secondary listing on the johannesburg stock exchange in south africa in addition bhp billiton limited american depositary receipts adrs and bhp billiton plc adrs trade on the new york stock exchange nyse in the us as at 30 june 2008 we had a market capitalisation of approximately us$225 billion for the year ended 30 june 2008 we reported revenue of us$59.5 billion profit from operations of us$24.1 billion net profit attributable to shareholders of us$15.4 billion and net operating cash flow of us$18.2 billion we operate nine customer sector groups csgs aligned with the commodities which we extract and market being · petroleum · aluminium · base metals · diamonds and specialty products · stainless steel materials · iron ore · manganese · metallurgical coal · energy coal pre-conditional offers for rio tinto on 6 february 2008 we announced the terms of two interconditional offers for the entire ordinary share capital of rio tinto plc and rio tinto limited which together with their respective subsidiaries operate as a single economic entity under a dual listed company structure known as rio tinto rio tinto is a leading international mining group producing alumina and aluminium bauxite copper diamonds iron ore metallurgical and energy coal and uranium as well as other base metals and industrial minerals in 2007 rio tinto acquired alcan inc making its aluminium product group a global leader in aluminium the total cost of the acquisition amounted to us$38.7 billion in cash including fees under the announced offers we will offer 3.4 bhp billiton shares for each rio tinto share tendered the offers are subject to certain pre-conditions relating to merger control and regulatory approvals in a number of jurisdictions including the approval of anti-trust authorities in the european union the united states australia canada and south africa and foreign investment authorities in australia on 2 july 2008 the us department of justice and the federal trade commission granted early termination of the hart-scottrodino waiting period for the offers which satisfied part of the merger control pre-conditions we can only invoke a pre-condition to allow the offers not to proceed or to be withdrawn where it is of material significance to us in the context of the offers and the uk panel on takeovers and mergers has given its prior approval once the pre-conditions have been satisfied or waived we will be obliged to make the offers on the terms announced or terms not substantially less favourable to rio tinto shareholders the offers will be subject to certain conditions being satisfied or waived including · acceptances for more than 50 per cent of the ordinary shares in rio tinto plc and for more than 50 per cent of the publicly held shares in rio tinto limited · the passing by bhp billiton shareholders of all necessary resolutions to implement and effect the offers and · the receipt of all necessary outstanding regulatory approvals we believe the combination of bhp billiton and rio tinto is a logical and compelling combination for both companies and will unlock unique value and substantial benefits to bhp billiton shareholders and rio tinto shareholders if we are successful in acquiring all of the shares of rio tinto on the announced terms our current intention is to return up to us$30 billion to shareholders through a share buyback within 12 months of completion of the acquisition bhp billiton annual report 2008 5

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1 key information continued 1.2 chairman s review this year we reported another record profit of us$15.4 billion the seventh consecutive full-year profit increase this represents a 602 per cent increase in attributable profit since 2001 over the same period total shareholder returns the movement in our share price plus dividends have increased by 863 per cent reflecting progressive dividend increases and the market value of the company we also rebased our dividend for the second successive year this represents a 150 per cent increase over the past three years unfortunately mining stocks have seen a significant de-rating since may this year on the back of short-term uncertainty this is disappointing for the management and shareholders of bhp billiton while we expect commodity markets to remain volatile in the short term we are confident that longer-term market fundamentals should support growth in commodity demand and therefore our revenues margins and cash flow will be impacted by cost inflation but our strategy to ensure we have a suite of long-life low-cost assets diversified by geography and commodity that can be expanded and are largely export oriented is proving successful at delivering consistent results for all our stakeholders to fully appreciate the role bhp billiton and the resources industry generally is playing today it is essential to look at what is happening to the world s economies central to the world s economic growth is the development of the new economies ­ china in particular russia india and to a lesser extent brazil counteracting these forces is the relative shrinkage of the united states economy and the lessening influence of the united kingdom and europe asia is becoming increasingly dominant today accounting for nearly 30 per cent of global gross domestic product gdp these economic shifts are having many consequences for bhp billiton rapid and continuing asian growth has put pressure on demand for our products which are essential for the building and production of city infrastructure and personal goods that characterise asia s urbanisation and industrialisation i have no doubt that economic growth in the asian region will slow at some point but if i look at china specifically the slow down is concentrated in regions oriented to the light export sector the sectors of the economy oriented more towards domestic consumption are still performing well despite increasing input costs particularly for energy we expect asian demand for our products to continue our response has been to streamline our business to enable us to produce as much product as fast as possible within the non-negotiable framework of the highest safety and environmental standards in operating our business at full capacity and continually seeking opportunities to increase the volumes of product available to our customers it is the board s duty to ensure we are creating real and tangible value for shareholders we are proud to report that during the year we continued to deliver new projects to boost product volumes and we achieved strong profit margins across our businesses it is not only demand for our products that is being impacted by global economic shifts as the world s largest diversified resources company we are watching the creation of competitor companies that are spearheading the economic emergence of countries like russia brazil and china it is in this global context that the board endorsed a proposal to combine bhp billiton and rio tinto two leading resources companies that together could help meet the developing economies demand for resources better and faster than the two companies do apart a combined company would have a greater ability to develop the next generation of large-scale projects to provide greater volumes of product for the benefit of its customers the communities in which it operates and its shareholders in making the pre-conditional offer for rio tinto the board remains absolutely focused on value for shareholders we are confident that both sets of shareholders would share the value of a combined company on behalf of the board i want to thank our senior management team for their efforts this year they have performed magnificently and under the new leadership of marius kloppers the company has stepped up efforts to meet a new realm of global challenges and opportunities board renewal building an exceptional board is a cornerstone of an effective corporate governance system and planning for board renewal is a continuous process the process of putting together the best board for the business has to start with the business strategy and an assessment of the strengths and weaknesses of current members new non-executive directors must fill an essential role in line with the strategic intent of the business and bring to the company the skills determined by the board attracting exceptional people will not of itself create exceptional directors the candidates have to fit together as a team bhp billiton has an exceptional group of high-performing skilful professional people diverse in knowledge gender and geography who have overseen incredible growth in the business over the last seven years the tone at the top and within the board has fostered an environment in which we are committed to high ethical standards fairness full compliance with legal requirements and resistance to market pressures for short-term results during the year we engaged external search firms to assist with board renewal which resulted in the appointment of david morgan keith rumble and alan boeckmann these non-executive directors have the required functional expertise they are independent of thought and satisfy the independence test of the various jurisdictional codes of corporate governance we also completed a review of the board committees including an examination of the respective committee charters and a performance review of each director including the chairman to ensure that our board criteria is maintained these reviews were facilitated by external advisers in conclusion it has been a stellar year for the company and its stakeholders and i compliment my board colleagues and senior management team for their commitment and dedication to the delivery of our strategy don argus chairman 6 bhp billiton annual report 2008

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1.3 chief executive officer s report bhp billiton shareholders can look back on the 2008 financial year with a real sense of pride in what we ve achieved and in the performance of our people since my appointment as ceo in october 2007 we have continued to follow our strategy to own and operate world-class assets across a diverse range of mineral metal and energy products focused on the upstream end of the production process from the combination of our strategy the efforts of our people and a favourable commodity price environment we have been able to deliver record financial performance while we can report financial success i regret to report we have not performed well on safety in fy2008 11 of our employees died at work many more lives will have been impacted some forever by these tragic and avoidable events we have reflected deeply on what more we must do to reach our goal of zero harm in fy2009 we are making even greater efforts to improve our safety performance despite turbulent global economic conditions we continue to see enormous opportunity for the company while continuing to further our existing strategy we have refined our operational focus in order to give maximum clarity of responsibility to our operating units we are also embracing the concept of `simplicity even more deeply ensuring that we focus our effort and resources on key opportunities and value drivers for our shareholders this means the company is easier to understand more focused and more valuable in the past year our strategy has produced stronger annual production in 13 of our commodities with record production in seven of those this was achieved in an environment of industry-wide supply disruptions and input cost pressures our strong track record of project delivery also continued through the year enabling for example our western australia iron ore business to post an eighth consecutive annual production record a record performance in our petroleum business reflected the successful commissioning of three new major projects we expect volume growth from our petroleum business to continue at around 10 per cent a year a significant value creator at a time of historically high oil prices ten major projects spanning five commodities started production during the year the board approved a further seven for development bringing our total number of projects in either execution or feasibility to 28 representing an expected capital investment of us$24.8 billion we also have other medium-term growth options with expected capital commitments in excess of us$90 billion spanning our existing commodity range and beyond our results were outstanding in the context of a challenging supply environment which was characterised by unexpected disruptions rising input prices skills shortages and the further devaluation of the us dollar our strong performance demonstrates the power of our uniquely diversified and high-margin portfolio across the energy steelmaking and non-ferrous product suites given this future growth pipeline you may question why we are pursuing a combination with rio tinto within our industry the two companies are uniquely complementary and as such we believe a combined company would unlock synergies and provide greater value than the two companies can provide separately bhp billiton does not need rio tinto to have a great future but we believe the two companies combined will be better placed to meet the world s future need for our products we have a critical role in providing the raw materials for growth that so many economies need economies going through industrialisation and urbanisation on a scale and intensity not experienced before we are resourcing the future i have been fortunate to take the helm of a well-run business focused on its customers needs with a great team responding well to the opportunities for our sector in a year s time i hope to report we have been able to improve our company even further marius kloppers chief executive officer bhp billiton annual report 2008 7

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1 key information continued 1.4 selected key measures 1.4.1 financial information our selected financial information reflects the operations of the bhp billiton group and should be read in conjunction with the 2008 financial statements together with the accompanying notes we prepare our financial statements in accordance with international financial reporting standards ifrs as issued by the international accounting standards board and as outlined in note 1 `accounting policies to the financial statements we publish our consolidated financial statements in us dollars 2008 2007 a 2006 a 2005 a consolidated income statement us$m except per share data revenue profit from operations profit attributable to members of bhp billiton group dividends per ordinary share ­ paid during the period us cents dividends per ordinary share ­ declared in respect of the period us cents earnings per ordinary share basic us cents b earnings per ordinary share diluted us cents b number of ordinary shares millions ­ at period end ­ weighted average ­ diluted consolidated balance sheet us$m total assets share capital total equity attributable to members of bhp billiton group other financial information underlying ebit margin c return on capital employed c net operating cash flow us$m project investment us$m c gearing c a 59,473 24,145 15,390 56.0 70.0 275.3 275.1 5,589 5,590 5,605 47,473 19,724 13,416 38.5 47.0 229.5 229.0 5,724 5,846 5,866 39,099 15,716 10,450 32.0 36.0 173.2 172.4 5,964 6,035 6,066 31,150 9,810 6,396 23.0 28.0 104.4 104.0 6,056 6,124 6,156 75,889 2,861 38,335 61,404 2,922 29,667 51,343 3,242 24,218 45,077 3,363 17,575 47.5 37.5 18,159 12,065 17.8 48.4 38.4 15,957 12,781 25.0 44.4 36.6 11,325 9,503 27.2 39.6 29.4 9,117 5,439 32.8 b c on 1 july 2007 the group adopted the policy of recognising its proportionate interest in the assets liabilities revenues and expenses of jointly controlled entities within each applicable line item of the financial statements all such interests were previously recognised using the equity method comparative figures for the years 2007 to 2005 that are affected by the policy change have been restated total assets for 2006 and 2005 profit from operations for 2005 and net operating cash flow for 2005 have been restated but are unaudited the calculation of the number of ordinary shares used in the computation of basic earnings per share is the aggregate of the weighted average number of ordinary shares outstanding during the period of bhp billiton limited and bhp billiton plc after deduction of the number of shares held by the billiton share repurchase scheme and the billiton employee share ownership trust the bhp performance share plan trust and the bhp bonus equity plan trust and adjusting for the bhp billiton limited bonus share issue included in the calculation of fully diluted earnings per share are shares and options contingently issuable under employee share ownership plans refer to section 10 `glossary for definitions 8 bhp billiton annual report 2008

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1.4.2 operational information our board and group management committee monitor a range of financial and operational performance indicators reported on a monthly basis to measure performance over time we also monitor a comprehensive set of health safety environment and community contribution indicators 2008 2007 2006 people and licence to operate ­ health safety environment and community total recordable injury frequency rate trifr a voluntary community contribution us$m a production total petroleum products million barrels of oil equivalent alumina 000 tonnes aluminium 000 tonnes copper cathode and concentrate 000 tonnes nickel 000 tonnes iron ore 000 tonnes metallurgical coal 000 tonnes energy coal 000 tonnes a 5.9 141.0 129.50 4,554 1,298 1,375.5 167.9 112,260 35,193 80,868 7.4 103.4 116.19 4,460 1,340 1,250.1 187.2 99,424 38,429 87,025 8.7 81.3 117.36 4,187 1,362 1,267.8 176.2 97,072 35,643 85,756 refer to section 10 `glossary for definitions 1.5 risk factors we believe that because of the international scope of our operations and the industries in which we are engaged there are numerous factors which may have an effect on our results and operations the following describes the material risks that could affect the bhp billiton group fluctuations in commodity prices may negatively impact our results the prices we obtain for our oil gas minerals and other commodities are determined by or linked to prices in world markets which have historically been subject to substantial variations the group s usual policy is to sell its products at the prevailing market prices the diversity provided by the group s broad portfolio of commodities may not fully insulate the effects of price changes fluctuations in commodity prices can occur due to sustained price shifts reflecting underlying global economic and geopolitical factors industry demand and supply balances product substitution and national tariffs additionally the volatility in prices for most of our commodities will occur the synchronisation of global commodity markets and influence of demand from china has in recent years impacted and may continue to impact price volatility the impact on global economic growth particularly in the developed economies of the us sub-prime-induced global liquidity crisis may impact demand and prices for commodities the influence of hedge and other financial investment funds participating in commodity markets has increased in recent years contributing to higher levels of price volatility the impact of potential longer-term sustained price shifts and shorter-term price volatility creates the risk that our financial and operating results and asset values will be materially and adversely affected by unforeseen declines in the prevailing prices of our products our profits may be negatively affected by currency exchange rate fluctuations in which the costs of imported equipment and services are determined the australian dollar south african rand chilean peso brazilian real and us dollar are the most important currencies influencing our operating costs given the dominant role of the us currency in our affairs the us dollar is the currency in which we present financial performance it is also the natural currency for borrowing and holding surplus cash we do not generally believe that active currency hedging provides long-term benefits to our shareholders we may consider currency protection measures appropriate in specific commercial circumstances subject to strict limits established by our board therefore in any particular year currency fluctuations may have a significant impact on our financial results failure to discover new reserves maintain or enhance existing reserves or develop new operations could negatively affect our future results and financial condition the increased demand for commodities in recent years has resulted in existing reserves being depleted at an accelerated rate because our revenues and profits are related to our oil and gas and minerals operations our results and financial conditions are directly related to the success of our exploration and acquisition efforts and our ability to replace existing reserves the depletion of reserves has necessitated increased exploration adjacent to established operations and development of new operations in less-developed countries additionally these activities may increase land tenure infrastructure and related political risks the rapid growth in demand for mining and petroleum industry related technical skills supplies and critical equipment has led to shortages and delays in these areas a failure in our ability to discover new reserves enhance existing reserves or develop new operations in sufficient quantities to maintain or grow the current level of our reserves could negatively affect our results financial condition and prospects there are numerous uncertainties inherent in estimating ore and oil and gas reserves and geological technical and economic assumptions that are valid at the time of estimation may change significantly when new information becomes available reserve restatements could negatively affect our reputation results financial condition and prospects our assets earnings and cash flows are influenced by a wide variety of currencies due to the geographic diversity of the countries in which we operate fluctuations in the exchange rates of those currencies may have a significant impact on our financial results the us dollar is the currency in which the majority of our sales are denominated operating costs are influenced by the currencies of those countries where our mines and processing plants are located and also by those currencies bhp billiton annual report 2008 9

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1 key information continued 1.5 risk factors continued reduction in chinese demand may negatively impact our results the chinese market has become a significant source of global demand for commodities china now represents in excess of 53 per cent of global seaborne iron ore demand 25 per cent of copper demand 24 per cent of nickel demand and 16 per cent of energy demand china s demand for these commodities has been driving global materials demand over the past decade while this increase represents a significant business opportunity our exposure to china s economic fortunes and economic policies has increased sales into china generated us$11.7 billion or 19.8 per cent of revenue in the year ended 30 june 2008 in recent years strong economic growth and infrastructure development in china has resulted in higher prices for the commodities we produce a slowing in china s economic growth potentially impacted by slowing developed economies could result in lower prices for our products and therefore reduce our revenues in response to its increased demand for commodities china is increasingly seeking strategic self-sufficiency in key commodities including investments in additional developments in other countries these investments may impact future commodity demand and supply balances and prices actions by governments or political events in the countries in which we operate could have a negative impact on our business we operate in several countries where ownership of land is uncertain and where disputes may arise in relation to ownership in australia the native title act 1993 provides for the establishment and recognition of native title under certain circumstances in south africa the extension of security of tenure act 1997 and the restitution of land rights act 1994 provide for various landholding rights such legislation could negatively affect new or existing projects we may not be able to successfully integrate our acquired businesses we have grown our business in part through acquisitions we expect that some of our future growth will stem from acquisitions there are numerous risks encountered in business combinations these include adverse regulatory conditions and obligations commercial objectives not achieved due to minority interests unforeseen liabilities arising from the acquired businesses retention of key staff anticipated synergies and cost savings being delayed or not being achieved uncertainty in sales proceeds from planned divestments and planned expansion projects are delayed or higher cost than anticipated these factors could negatively affect our financial condition and results of operations we may not recover our investments in mining and oil and gas projects we have operations in many countries around the globe some of which have varying degrees of political and commercial stability we operate in emerging markets which may involve additional risks that could have an adverse impact upon the profitability of an operation these risks could include terrorism civil unrest nationalisation renegotiation or nullification of existing contracts leases permits or other agreements and changes in laws and policy as well as other unforeseeable risks risks relating to bribery and corruption may be prevalent in some of the countries in which we operate if one or more of these risks occurs at one of our major projects it could have a negative effect on the operations in those countries as well as the group s overall operating results and financial condition our business could be adversely affected by new government regulation such as controls on imports exports and prices new forms or rates of taxation and royalties increasing requirements relating to regulatory environmental and social approvals can potentially result in significant delays in construction and may adversely impact upon the economics of new mining and oil and gas projects the expansion of existing operations and results of our operations infrastructure such as rail ports power and water is critical to our business operations we have operations or potential development projects in countries where government provided infrastructure or regulatory regimes for access to infrastructure including our own privately operated infrastructure may be inadequate or uncertain these may adversely impact the efficient operations and expansion of our businesses in south africa the mineral and petroleum resources development act 2002 mprda came into effect on 1 may 2004 the law provides for the conversion of existing mining rights so called `old order rights to rights under the new regime new order rights subject to certain undertakings to be made by the company applying for such conversion the mining charter requires that mining companies achieve 15 per cent ownership by historically disadvantaged south africans of south african mining assets within five years and 26 per cent ownership within 10 years if we are unable to convert our south african mining rights in accordance with the mprda and the mining charter we could lose some of those rights our operations may be impacted by changed market or industry structures commodity prices technical operating difficulties inability to recover our mineral oil or gas reserves and increased operating cost levels these may impact the ability for assets to recover their historical investment and may require financial write-downs adversely impacting our financial results our non-controlled assets may not comply with our standards some of our assets are controlled and managed by joint venture partners or by other companies some joint venture partners may have divergent business objectives which may impact business and financial results management of our non-controlled assets may not comply with our management and operating standards controls and procedures including health safety environment failure to adopt equivalent standards controls and procedures at these assets could lead to higher costs and reduced production and adversely impact our results and reputation operating cost pressures and shortages could negatively impact our operations and expansion plans the strong commodity cycle and large numbers of projects being developed in the resources industry has led to increased demand for and shortages in skilled personnel contractors materials and supplies that are required as critical inputs to our existing operations and planned developments labour unions may seek to secure an increased share of the economic rent in the current environment a number of key cost inputs consumed in our operations are commodity price-linked and have consequently been impacted by the higher commodity price environment a number of our operations are energy or water intensive and as a result the group s costs and earnings could be adversely affected by rising costs or by supply interruptions these could include the unavailability of energy fuel or water due to a variety of reasons including fluctuations in climate significant increase in costs inadequate infrastructure capacity interruptions in supply due to equipment failure or other causes and the inability to extend supply contracts on economical terms these factors have led and could continue to lead to increased capital and operating costs at existing operations as well as impacting the cost and schedule of projects under development industrial action may impact our operations resulting in lost production and revenues 10 bhp billiton annual report 2008

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1.5 risk factors continued health safety and environmental exposures and related regulations may impact our operations and reputation negatively climate change and greenhouse effects may adversely impact our operations and markets the nature of the industries in which we operate means that our activities are highly regulated by health safety and environmental laws as regulatory standards and expectations are constantly developing we may be exposed to increased litigation compliance costs and unforeseen environmental remediation expenses potential health safety and environmental events that may materially impact our operations include rockfall incidents in underground mining operations aircraft incidents light vehicle incidents explosions or gas leaks incidents involving mobile equipment uncontrolled tailings breaches or escape of polluting substances longer-term health impacts may arise due to unanticipated workplace exposures by employees or site contractors these effects may create future financial compensation obligations we provide for mine and site remediation we have mine closure plans for all of our operating and closed mine sites changes in regulatory or community expectations may result in the relevant plans not being adequate this may impact financial provisioning and costs at the affected operations we contribute to the communities in which we operate by providing skilled employment opportunities salaries and wages taxes and royalties and community development programs notwithstanding these actions local communities may become dissatisfied with the impact of our operations potentially affecting costs and production and in extreme cases viability legislation requiring manufacturers importers and downstream users of chemical substances including metals and minerals to establish that the substances can be used without negatively affecting health or the environment may impact our operations and markets these potential compliance costs litigation expenses regulatory delays remediation expenses and operational costs could negatively affect our financial results we may continue to be exposed to increased operational costs due to the costs and lost time associated with the hiv/aids and malaria infection rate mainly within our african workforce because we operate globally we may be affected by potential avian flu outbreaks in any of the regions in which we operate despite our best efforts and best intentions there remains a risk that health safety and/or environmental incidents or accidents may occur that may negatively impact our reputation or licence to operate unexpected natural and operational catastrophes may impact our operations we are a major producer of energy-related products such as energy coal oil gas liquefied natural gas and uranium energy is also a significant input in a number of the group s mining and processing operations there is a substantial weight of scientific evidence concluding that co2 emissions from fossil fuel based energy consumption contribute to global warming greenhouse effects and climate change a number of governments or governmental bodies have introduced or are contemplating regulatory change in response to the impacts of climate change the december 1997 kyoto protocol established a set of greenhouse gas emission targets for developed countries that have ratified the protocol the european union emissions trading system eu ets which came into effect on 1 january 2005 has had an impact on greenhouse gas and energy-intensive businesses based in the eu our petroleum assets in the uk are currently subject to the eu ets as are our eu based customers elsewhere there is current and emerging climate change regulation that will affect energy prices demand and margins for carbon intensive products the australian government s plan of action on climate change includes the introduction of a national emissions trading scheme by 2010 and a mandatory renewable energy target of 20 per cent by the year 2020 from a medium and long-term perspective we are likely to see changes in the margins of our greenhousegas-intensive assets and energy-intensive assets as a result of regulatory impacts in the countries in which we operate these regulatory mechanisms may be either voluntary or legislated and may impact our operations directly or indirectly via our customers inconsistency of regulations particularly between developed and developing countries may also change the attractiveness of the locations of some of our assets assessments of the potential impact of future climate change regulation are uncertain given the wide scope of potential regulatory change in the many countries in which we operate the physical impacts of climate change on our operations are highly uncertain and will be particular to the geographic circumstances these may include changes in rainfall patterns water shortages rising sea levels increased storm intensities and higher average temperature levels these effects may adversely impact the cost production and financial performance of our operations our human resource talent pool may not be adequate to support the group s growth we operate extractive processing and logistical operations in many geographic locations both onshore and offshore our operational processes and geographic locations may be subject to operational accidents such as port and shipping incidents fire and explosion pitwall failures loss of power supply railroad incidents and mechanical failures our operations may also be subject to unexpected natural catastrophes such as earthquakes flood hurricanes and tsunamis existing business continuity plans and insurance arrangements may not provide protection for all of the costs that may arise from such events the impact of these events could lead to disruptions in production and loss of facilities adversely affecting our financial results the current strong commodity cycle and our pipeline of development projects have increased demand for highly skilled executives and staff with relevant industry and technical experience the inability of the group and industry to attract and retain such people may adversely impact our ability to adequately resource development projects and fill roles and vacancies in existing operations similar shortages have also impacted and may continue to affect key engineering technical service construction and maintenance contractors utilised by us in development projects and existing operations these shortages may adversely impact the cost and schedule of development projects and the cost and efficiency of existing operations bhp billiton annual report 2008 11

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1 key information continued 1.5 risk factors continued breaches in our information technology it security processes may adversely impact the conduct of our business activities we maintain global it and communication networks and applications to support our business activities it security processes protecting these systems are in place and subject to assessment as part of the review of internal control over financial reporting these processes may not prevent future malicious action or fraud by individuals or groups resulting in the corruption of operating systems theft of commercially sensitive data misappropriation of funds and disruptions to our business operations a breach in our governance processes may lead to regulatory penalties and loss of reputation for example our future revenues from our operations projects or mines described in this annual report will be based in part upon the market price of the minerals metals or petroleum produced which may vary significantly from current levels these variations if materially adverse may affect the timing or the feasibility of the development of a particular project or the expansion of certain facilities or mines other factors that may affect the actual construction or production commencement dates costs or production output and anticipated lives of operations mines or facilities include our ability to profitably produce and transport the minerals petroleum and/or metals extracted to applicable markets the impact of foreign currency exchange rates on the market prices of the minerals petroleum or metals we produce activities of government authorities in some of the countries where we are exploring or developing these projects facilities or mines including increases in taxes changes in environmental and other regulations and political uncertainty and other factors identified in the description of the risk factors above we cannot assure you that our estimated economically recoverable reserve figures closure or divestment of such operations or facilities including associated costs actual production or commencement dates cost or production output or anticipated lives of the projects mines and facilities discussed in this annual report will not differ materially from the statements contained in this annual report except as required by applicable regulations or by law the group does not undertake any obligation to publicly update or review any forward looking statements whether as a result of new information or future events we operate in a global environment straddling multiple jurisdictions and complex regulatory frameworks our governance and compliance processes which include the review of control over financial reporting may not prevent future potential breaches of law accounting or governance practice our business conduct and anti-trust protocols may not prevent instances of fraudulent behaviour and dishonesty nor guarantee compliance with legal or regulatory requirements this may lead to regulatory fines litigation loss of operating licences or loss of reputation 1.6 forward looking statements this annual report contains forward looking statements including statements regarding · our proposal to acquire rio tinto and associated capital management initiatives · estimated reserves · trends in commodity prices · demand for commodities · plans strategies and objectives of management · closure or divestment of certain operations or facilities including associated costs · anticipated production or construction commencement dates · expected costs or production output · anticipated productive lives of projects mines and facilities · provisions and contingent liabilities forward looking statements can be identified by the use of terminology such as `intend `aim `project `anticipate `estimate `plan `believe `expect `may `should `will `continue or similar words these statements discuss future expectations concerning the results of operations or financial condition or provide other forward looking statements 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 annual report readers are cautioned not to put undue reliance on forward looking statements 12 bhp billiton annual report 2008

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section 2 information on the company contents page 2.1 bhp billiton locations 2.2 business overview 2.2.1 history and development 2.2.2 petroleum customer sector group 2.2.3 aluminium customer sector group 2.2.4 base metals customer sector group 2.2.5 diamonds and specialty products customer sector group 2.2.6 stainless steel materials customer sector group 2.2.7 iron ore customer sector group 2.2.8 manganese customer sector group 2.2.9 metallurgical coal customer sector group 2.2.10 energy coal customer sector group 2.3 production 2.3.1 petroleum 2.3.2 minerals 2.4 marketing 2.5 minerals exploration 2.6 global technology 2.7 resource and business optimisation 2.8 government regulations 2.8.1 south african mining charter and black economic empowerment 2.8.2 uranium production in australia 2.8.3 exchange controls and shareholding limits 2.9 sustainable development ­ health safety environment and community 2.10 closure and rehabilitation 2.11 employees 2.12 organisational structure 2.12.1 general 2.12.2 dlc structure 2.13 material contracts 16 16 16 17 24 28 32 34 37 40 42 44 48 48 49 53 53 53 53 54 54 54 55 56 57 57 58 58 58 59 2.14 constitution 2.14.1 directors 2.14.2 power to issue securities 2.14.3 restrictions on voting by directors 2.14.4 loans by directors 2.14.5 retirement of directors 2.14.6 rights attaching to shares 2.14.7 right on a return of assets on liquidation 2.14.8 redemption of preference shares 2.14.9 capital calls 2.14.10 borrowing powers 2.14.11 changes to rights of shareholders 2.14.12 conditions governing general meetings 2.14.13 limitations on rights to own securities 2.14.14 documents on display 2.15 reserves and resources 2.15.1 petroleum reserves 2.15.2 mineral resources and ore reserves page 60 60 60 60 60 60 61 62 62 62 62 62 63 63 63 63 63 65 bhp billiton annual report 2008 13

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