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our strategy delivers annual report 2010

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we are bhp billiton a leading global natural resources company our corporate objective is to create long-term value for shareholders through the discovery development and conversion of natural resources and the provision of innovative customer and market-focused solutions our unique position in the resources industry is due to our proven strategy 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 each of bhp billiton limited and bhp billiton plc are members of the bhp billiton group which is headquartered in australia.

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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 10 13 4 board of directors and group management committee 4.1 board of directors 4.2 group management committee 121 123 126 5 corporate governance statement 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 governance at bhp billiton shareholder engagement board of directors board of directors ­ review re-election and renewal board committees risk management management diversity at bhp billiton business conduct market disclosure conformance with corporate governance standards additional uk disclosure 127 129 130 130 136 138 144 145 146 146 147 147 148 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 bhp billiton locations business overview production marketing minerals exploration 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 15 16 18 50 54 54 54 54 56 57 57 59 60 62 65 6 remuneration report using this remuneration report 6.1 message from the remuneration committee chairman 6.2 remuneration strategy 6.3 executive remuneration outcomes 6.4 executive remuneration 6.5 remuneration governance 6.6 aggregate directors remuneration 6.7 non-executive director arrangements 149 150 151 151 155 164 170 171 172 3 operating and financial review and prospects 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 introduction our strategy key measures external factors and trends affecting our results application of critical accounting policies operating results liquidity and capital resources off-balance sheet arrangements and contractual commitments 3.9 subsidiaries and related party transactions 3.10 significant changes 97 99 100 100 102 106 106 117 120 120 120 bhp billiton annual report 2010 1

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contents continued 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 corporate governance 7.11 dividends 7.12 auditors 7.13 non-audit services 7.14 value of land 7.15 political and charitable donations 7.16 exploration research and development 7.17 creditor payment policy 7.18 class order 7.19 proceedings on behalf of bhp billiton limited 7.20 directors shareholdings 7.21 gmc members shareholdings other than directors 7.22 performance in relation to environmental regulation 7.23 share capital restrictions on transfer of shares and other additional information 175 177 178 179 179 179 180 180 180 180 181 181 181 181 181 181 181 181 181 181 182 183 183 184 10 glossary 10.1 non-mining terms 10.2 mining and mining-related terms 10.3 units of measure 277 279 280 282 11 shareholder information 11.1 markets 11.2 share ownership 11.3 dividends 11.4 share price information 11.5 taxation 11.6 ancillary information for our shareholders 283 285 285 289 290 292 296 8 legal proceedings 9 financial statements consolidated income statement consolidated statement of comprehensive income consolidated balance sheet consolidated cash flow statement consolidated statement of changes in equity notes to 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 185 189 191 192 193 194 195 196 262 266 267 268 269 272 2 bhp billiton annual report 2010

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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 1.5 risk factors 1.6 forward looking statements 5 6 7 8 10 13 bhp billiton annual report 2010 3

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4 bhp billiton annual report 2010

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1 key information 1.1 our business we are the world s largest diversified natural resources company our corporate objective is to create long-term value for shareholders through the discovery development and conversion of natural resources and the provision of innovative customer and market-focused solutions we pursue this objective through our unchanged strategy of investing in `tier one assets that are large low-cost and long-life to provide a balanced portfolio of export-oriented commodities · steelmaking products ­ iron ore metallurgical coal manganese ·non-ferrousproducts­copper,aluminium,nickel,diamonds,potash ·energyproducts­petroleum,energycoal,uranium we continue to invest in the future and have a deep inventory of growth assets our operations and investments are designed to ensure the group remains stable in the long term and responsive to market volatility in the short term 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 bhp billiton plc has a premium 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 2010 we had a market capitalisation of approximately us$165.6 billion for the year ended 30 june 2010 we reported net operating cash flow of us$17.9 billion profit attributable to shareholders of us$12.7 billion and revenue of us$52.8 billion we have approximately 100,000 employees and contractors working in more than 100 operations in over 25 countries we operate nine businesses called customer sector groups csgs which are aligned with the commodities we extract and market · petroleum · aluminium · basemetalsincludinguranium · diamondsandspecialtyproducts · stainlesssteelmaterials · ironore · manganese · metallurgicalcoal · energycoal bhp billiton annual report 2010 5

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1 key information continued 1.2 chairman s review i am pleased to report that in a difficult global economic and financial environment bhp billiton continued to perform well and strengthened its strategic and financial position while the global economic outlook has improved the recovery remains fragile despite a near-term slowing in china we continue to believe that the fundamentals driving asian growth are robust it is clear to the board that the long-term outlook for bhp billiton is strong we have unique assets that are critical to the growth of the world s developing economies and a geographic and commodity spread that reduces risk and optimises opportunity during the year your chief executive marius kloppers and his team focused on delivering strong production and cost performance as well as investing in new growth opportunities our strategy is clear and remains unchanged since 2001 we focus on large long-life low-cost upstream high-quality assets diversified by commodity geography and markets this strategy means more predictable business performance over time which in turn underpins the creation of value for our shareholders customers employees and importantly the communities in which we operate the execution of our strategy resulted in a profit from operations excluding exceptional items of us$19.7 billion an increase of 8.3 per cent net operating cash flows were us$17.9 billion us$7.7 billion of which was reinvested in new growth projects in addition the board increased dividends by 6.1 per cent to 87 cents per share in line with our progressive dividend policy while the board is pleased with these results our progress in the critical area of safety is still below expectation we continued to reduce the number of workplace injuries however five people lost their lives at our operations this year this is clearly unacceptable and a tragedy for their families friends and colleagues in august 2010 we announced a fully funded takeover of potash corporation of saskatchewan the proposed acquisition meets our criteria of developing quality long-life assets using our existing mining skills to gain a leading position in the growing world market for fertiliser we are committed to being a strong corporate citizen in saskatchewan and new brunswick canada and our intention is to establish a global potash business based in canada important governance developments occurred in the uk us and australia during the year responding to the challenges of the global recession we support the changes particularly the emphasis on ensuring boards comprise directors with the collective set of essential skills and experience to govern the group supported by robust succession planning and performance evaluation as part of our board succession carolyn hewson and malcolm broomhead joined the board in march 2010 together they bring deep experience in industrial and resource companies financial markets and investment risk management during the year don argus paul anderson gail de planque david jenkins and david morgan retired from the board we thank each of them for their contribution particularly former chairman don argus ac we have always believed that corporate governance and executive remuneration practices are critical issues for any company and its stakeholders we support the need for simplified and transparent executive remuneration reporting and these have been key influences on the structure of our remuneration report this year our remuneration committee reviewed the group s long term incentive plan for our most senior executives the plan was originally introduced in 2004 and given the changes in the global environment the committee believed a review was warranted we consulted widely with our shareholders as well as governance advisers as a result we continue to believe that the duration of our five-year long-term plan is appropriate however we also believe it is important to change some design elements as the plan produced highly leveraged outcomes not reflective of our business strategy this is a matter on which we will seek shareholder approval one thing that has impressed me since the time i started as a director in 2006 has been the quality of bhp billiton people throughout the group in resources as in many other industries results are not only a function of the quality of the assets but the quality of the people operating and managing those assets marius is a talented chief executive and he has developed a strong and diverse team with a depth of talent to support him on your behalf the board would like to thank everyone involved with our company for the contribution they have made in this challenging year finally since becoming chairman this year after the retirement of don argus i have had the privilege of meeting many of our institutional and individual shareholders this is a rewarding part of my role and i look forward to meeting many more of you over the coming years jacques nasser ao chairman 6 bhp billiton annual report 2010

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1.3 chief executive officer s report financial year 2010 was a year that presented a broad mix of challenges and achievements despite continued volatility and ongoing uncertainty across the global economy bhp billiton delivered a strong operational and financial performance it is our consistent and long-term strategy of focusing on a portfolio of upstream tier one low-cost assets diversified by commodity market and geography that underpinned our ability to overcome the challenges during the year i am encouraged by the group s performance which is testament to our focus on creating shareholder value in the long term we are a leading global resources company and our successes and achievements are significant however we cannot say we are truly successful until we eliminate fatalities and serious injuries in our workplace this year we continued to make progress in reducing the number of injuries though we did not meet our targets it is with great sadness that i report to you that five of our colleagues lost their lives at work during the year and i personally extend my condolences to the families and friends of those individuals this is a stark reminder that we must lead in a way that ensures a safe workplace and we can only do this by creating operating discipline and simplifying the way we work safety starts with strong leadership and i cannot emphasise enough how important this is to me personally and to our group i am pleased to announce that bhp billiton operations this year delivered solid results with annual production records achieved in our iron ore and petroleum businesses in iron ore this marked the tenth consecutive annual production record and for petroleum it was the third consecutive production record our long-life low-cost expandable assets provide our company with the capacity to continue to deliver and strengthen our position in a range of markets by operating at full capacity whenever possible and staying focused on eliminating low value activities we maintained our low-cost position and our ability to generate robust cash flows of significant note in fy2010 was the move from annually negotiated benchmark prices in metallurgical coal and iron ore to shorter-term reference pricing we have long advocated a move to a more transparent pricing regime and will actively support the development of a wider traded market in these commodities this move brings metallurgical coal and iron ore into line with how the rest of our portfolio is priced globally and moves us closer to achieving our stated objective of market prices for all of our commodities more broadly prices for our products recovered during the year driven by demand in china and restocking in the organisation for economic co-operation and development oecd countries while government stimulus measures generally supported a gradual return to normalised global trade the improvement in the developed economies was from a low base we believe that the recovery momentum of the major economies will remain uncertain as the impact of fiscal and monetary stimuli fades therefore we are still cautious in our short-term view of the economy in the longer term we are encouraged by the fundamentals underpinning sustained growth in china and india which will continue to drive a strong demand for our products this along with our strong balance sheet supports our capacity for future growth we have extensive experience operating in emerging resource regions and we have the capability to capture additional opportunities as they arise our disciplined approach to capital deployment has enabled bhp billiton to both invest in the expansion of high-quality assets and further diversify our portfolio by commodity market and geography consistent with our unchanged strategy the acquisition of athabasca potash earlier this year ensures our group has access to more than 14,000 square kilometres of prospective exploration ground in the world-class saskatchewan potash basin our all-cash bid to acquire potash corporation of saskatchewan the world s largest integrated fertiliser company and world s largest producer of potash by capacity is consistent with our strategy and is a natural fit with bhp billiton s greenfield land holdings in canada this acquisition represents an acceleration of our entry into the fertiliser industry this plus the delivery of five major capital projects is evidence of our growth capabilities however we only earn the right to grow this business if we can do it safely in an environmentally sound manner and in a way that demonstrates our unqualified commitment to working with integrity i believe it is worth reiterating that safe growth underpinned by demonstrating our charter values can only be achieved through leadership commitment and operating discipline i want to take this opportunity to sincerely thank our employees and contractors and other stakeholders for their efforts in responding to the accountabilities articulated in our operating model our company has a clear strategy for growing our value within a disciplined framework and using prudent decision-making who and what we are today is the product of the vision and efforts of previous management teams in executing a consistent strategy it is our responsibility to not only preserve but enhance and increase the value of that legacy marius kloppers chief executive officer bhp billiton annual report 2010 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 2010 financial statements together with the accompanying notes we prepare our consolidated 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 in this annual report we publish our consolidated financial statements in us dollars 2010 2009 2008 2007 a 2006 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 including share premium total equity attributable to members of bhp billiton group other financial information underlying ebit us$m c underlying ebit margin c d e return on capital employed e net operating cash flow us$m project investment us$m e gearing e a 52,798 20,031 12,722 83.0 87.0 228.6 227.8 5,589 5,565 5,595 88,852 2,861 48,525 19,719 40.7 26.4 17,920 10,770 6.3 50,211 12,160 5,877 82.0 82.0 105.6 105.4 5,589 5,565 5,598 78,770 2,861 39,954 18,214 40.1 24.6 18,863 13,965 12.1 59,473 24,145 15,390 56.0 70.0 275.3 274.8 5,589 5,590 5,605 76,008 2,861 38,335 24,282 47.5 37.5 17,817 11,440 17.8 47,473 19,724 13,416 38.5 47.0 229.5 228.9 5,724 5,846 5,866 61,404 2,922 29,667 20,067 48.4 38.4 15,957 12,781 25.0 39,099 15,716 10,450 32.0 36.0 173.2 172.4 5,964 6,035 6,066 51,343 3,242 24,218 15,277 44.4 36.6 11,325 9,503 27.2 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 and 2006 that were affected by the policy change have been restated total assets for 2006 have been restated but are unaudited b 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 weighted average number of shares held by the billiton share repurchase scheme and the billiton employee share ownership 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 contingently issuable under employee share ownership plans c underlying ebit is profit from operations excluding the effect of exceptional items see section 3.6.1 for more information about this measure including a reconciliation to profit from operations d underlying ebit margin excludes third party product e see section 10 for glossary definitions 8 bhp billiton annual report 2010

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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 fy2010 fy2009 fy2008 people and licence to operate ­ health safety environment and community total recordable injury frequency trif a community investment us$m a b production c total petroleum production 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 manganese alloys 000 tonnes manganese ores 000 tonnes energy coal 000 tonnes a b 5.3 200.5 158.56 3,841 1,241 1,075.2 176.2 124,962 37,381 583 6,124 66,131 5.6 197.8 b 137.97 4,396 1,233 1,207.1 173.1 114,415 36,416 513 4,475 66,401 5.9 141.0 130.07 4,554 1,298 1,375.5 167.9 112,260 35,193 775 6,575 80,868 c see section 10 for glossary definitions in fy2009 we established a uk-based charitable company bhp billiton sustainable communities registered with the uk charities commission for the purpose of funding community investment globally in fy2010 our voluntary community contribution included the provision of us$80 million 2009 us$60 million 2008 us$0 million to bhp billiton sustainable communities further details appear in section 2.3 of this report bhp billiton annual report 2010 9

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1 key information continued 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 and impacts of the global financial crisis 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 the ongoing effects of the global financial crisis has impacted commodity markets in terms of lower prices reduced demand and increased price volatility the ongoing uncertainty and impact on global economic growth particularly in the developed economies may impact future demand and prices for commodities the influence of hedge and other financial investment funds participating in commodity markets have 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 we seek to maintain a solid `a credit rating as part of our strategy notwithstanding our financial and capital management programs the ongoing effects of the global financial crisis may impact our future cash flows ability to adequately access and source capital from financial markets and our credit rating our profits may be negatively affected by currency exchange rate fluctuations 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 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 the commercial counterparties we transact with may not meet their obligations and negatively impact our results we commercially contract with a large number of commercial and financial counterparties including customers suppliers and financial institutions the global financial crisis has placed strains on global financial markets reduced liquidity and impacted business conditions generally our existing counterparty credit controls may not prevent a material loss due to credit exposure to a major customer or financial counterparty in addition customers suppliers contractors or joint venture partners may fail to perform against existing contracts and obligations non-supply of key inputs or equipment may unfavourably impact our operations reduced liquidity and available sources of capital in financial markets may impact the cost and ability to fund planned investments these factors could negatively affect our financial condition and results of operations 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 our products and increased production rates from our operations in recent years has resulted in existing reserves being depleted at an accelerated rate as 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 exploration activity occurs adjacent to established operations and in new regions in developed and less developed countries these activities may increase land tenure infrastructure and related political risks 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 the impacts of the global financial crisis may impact economic assumptions related to reserve recovery and require reserve restatements reserve restatements could negatively affect our reputation results financial condition and prospects reduction in chinese demand may negatively impact our results the chinese market has become a significant source of global demand for commodities in cy2009 china represented 56 per cent of global seaborne iron ore demand 36 per cent of copper demand 35 per cent of nickel demand 39 per cent of aluminium demand 42 per cent of energy coal demand and nine per cent of oil demand china s demand for these commodities has been driving global materials demand over the past decade the strong economic growth and infrastructure development in china of recent years has been tempered by the global financial crisis sales into china generated us$13.2 billion fy2009 us$9.9 billion or 25.1 per cent fy2009 19.7 per cent of our revenue in the year ended 30 june 2010 a slowing in china s economic growth could result in lower prices and demand 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 existing businesses or new developments in other countries these investments may adversely impact future commodity demand and supply balances and prices 10 bhp billiton annual report 2010

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1.5 risk factors continued actions by governments or political events in the countries in which we operate could have a negative impact on our business 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 operations are based on material long-term investments that anticipate long-term fiscal stability following the global financial crisis some governments face increased debt and funding obligations and may seek additional sources of revenue and economic rent by increasing rates of taxation royalties or resource rent taxes to levels that are globally uncompetitive to the resource industry such taxes may negatively impact the financial results of existing businesses and reduce the anticipated future returns and overall level of prospective investment in those countries on 2 may 2010 the australian government proposed a resource super profits tax at a rate of 40 per cent on profits made from the extraction of non-renewable resources subsequently on 2 july 2010 this proposal was amended to a minerals resource rent tax mrrt at a rate of 30 per cent with a 25 per cent extraction allowance ­ effectively resulted in a 22.5 per cent additional tax on profits for iron ore and coal while the current petroleum resource rent tax prrt will be extended to all australian oil and gas projects including the north west shelf legislation is proposed to be introduced into parliament in late cy2011 and then for the commencement date of the new tax regime to be 1 july 2012 the mrrt would operate in parallel with state and territory royalty regimes and those royalties in place or scheduled at 2 may 2010 would be creditable against the mrrt the proposed mrrt would increase the effective tax rate of australian coal and iron ore operations and the north west shelf project this could have a negative effect on the operating results of the group s australian operations the mrrt is subject to passing by the australian parliament and may differ wholly or in part in its final form with the objective of raising more funds to face the reconstruction following the recent earthquake in chile the chilean government announced on 16 april 2010 of an intention to increase the corporate income tax rate first category tax ­ fct as well as changing the mining tax in exchange for extending the tax invariability period available to investors from 2017 currently in place for an extra eight years to 2025 the current draft legislation proposes a temporary increase of the fct rate for two years 2010­2011 with the change in the mining tax regime having been removed from the current proposed bill any potential tax changes in the future if implemented may impact our financial results from chilean operations our business could be adversely affected by new government regulation such as controls on imports exports and prices 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 on 30 june 2010 the australian competition tribunal granted declaration of bhp billiton s goldsworthy rail line but rejected the application for declaration of its newman rail line under part iiia of the trade practices act following the tribunal s decision access seekers may now negotiate for access to the goldsworthy railway these negotiations and the availability and terms of access would be governed by the part iiia statutory framework and either the access seeker or bhp billiton could refer disputed matters to the accc for arbitration the outcome of this process would govern whether access would be provided and on what terms 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 by 1 may 2009 and 26 per cent ownership by 1 may 2014 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 where new order rights are obtained under the mprda these rights may not be equivalent to the old order rights in terms of duration renewal rights and obligations in may 2010 in response to the oil spill from bp s macondo well the united states government announced a deepwater drilling moratorium in the gulf of mexico there is uncertainty as to potential new permitting requirements that may be imposed on deep water drilling our business could be adversely affected by the moratorium and any new regulatory requirements 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 sales revenue and the operational performance not meeting our expectations 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 more than anticipated these factors could negatively affect our financial condition and results of operations bhp billiton annual report 2010 11

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1 key information continued 1.5 risk factors continued we may not recover our investments in mining and oil and gas projects 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 and 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 operating margins and expansion plans increasing cost pressures and shortages in skilled personnel contractors materials and supplies that are required as critical inputs to our existing operations and planned developments may occur across the resources industry as the prices for our products are determined by the global commodity markets in which we operate we may not have the ability to offset these cost increases resulting in operating margins being reduced notwithstanding our efforts to reduce costs and a number of key cost inputs being commodity price-linked the inability to reduce costs and a timing lag may impact our operating margins for an extended period changing industrial relations legislation such as the australian fair work act 2009 may impact workforce flexibility productivity and costs labour unions may seek to pursue claims under the new framework industrial action may impact our operations resulting in lost production and revenues since the introduction of the australian fair work act in 2009 increasing occurrences of low-level industrial activity have been experienced across many australian assets the additional claims relate to increases access and coverage as provided by the legislation if this activity continues some negative productivity impacts may result 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 increases 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 could lead to increased operating costs at existing operations increased costs and schedule delays may impact our development projects although we devote significant time and resources to our project planning approval and review process we may underestimate the cost or time required to complete a project in addition we may fail to manage projects as effectively as we anticipate and unforeseen challenges may emerge any of these may result in increased capital costs and schedule delays at our development projects impacting anticipated financial returns health safety environmental and community exposures and related regulations may impact our operations and reputation negatively we are a major producer of carbon-related products such as energy and metallurgical coal oil gas and liquefied natural gas our oil and gas operations are both onshore and offshore 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 rehabilitation expenses potential health safety environmental and community 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 escape of polluting substances community protests or civil unrest 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 operational closure and site rehabilitation our operating and closed facilities are required to have closure plans 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 rehabilitation 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 pandemic influenza outbreaks such as ah1n1 and avian flu in any of the regions in which we operate despite our best efforts and best intentions there remains a risk that health safety environmental and/or community incidents or accidents may occur that may negatively impact our reputation or licence to operate 12 bhp billiton annual report 2010

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1.5 risk factors continued unexpected natural and operational catastrophes may impact our operations we operate extractive processing and logistical operations in many geographic locations both onshore and offshore our operational processes may be subject to operational accidents such as port and shipping incidents fire and explosion pitwall failures loss of power supply railroad incidents loss of well control environmental pollution and mechanical failures our operations and geographic locations may also be subject to unexpected natural catastrophes such as earthquakes flood hurricanes and tsunamis based on our claims insurance premiums and loss experience our risk management approach is to maintain self-insurance for property damage and business interruption related risk exposures existing business continuity plans 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 more than offsetting premiums saved and adversely affect our financial results and prospects third party claims arising from these events may also exceed the limit of liability insurance policies we have in place climate change and greenhouse effects may adversely impact our operations and markets carbon based energy is a significant input in a number of the group s mining and processing operations and we have significant sales of carbon based energy products 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 2013 and a mandatory renewable energy target of 20 per cent by the year 2020 from a medium to long-term perspective we are likely to see some changes in the cost position of our greenhouse-gas-intensive assets and energy-intensive assets as a result of regulatory impacts in the countries in which we operate these regulatory mechanisms may impact our operations directly or indirectly via our suppliers and customers inconsistency of regulations particularly between developed and developing countries may also change the competitive position 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 productivity and financial performance of our operations our human resource talent pool may not be adequate to support our growth our existing operations and especially our pipeline of development projects in regions of numerous large projects such as western australia when activated require many highly skilled staff with relevant industry and technical experience in such a competitive environment the inability of the group and industry to attract and retain such people may adversely impact our ability to adequately meet demand in projects skills shortages in engineering technical service construction and maintenance may impact activities these shortages may adversely impact the cost and schedule of development projects and the cost and efficiency of existing operations 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 we operate in a global environment straddling multiple jurisdictions and complex regulatory frameworks our governance and compliance processes which include the review of internal control over financial reporting may not prevent future potential breaches of law accounting or governance practice our bhp billiton code of business conduct anti-bribery and corruption and anti-trust standards 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 · estimated reserves · trendsincommodityprices · demandforcommodities · plans,strategiesandobjectivesofmanagement · losureordivestmentofcertainoperationsorfacilities c including associated costs · anticipatedproductionorconstructioncommencementdates · expectedcostsorproductionoutput · anticipatedproductivelivesofprojects,minesandfacilities · provisionsandcontingentliabilities bhp billiton annual 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