But Mike Henry had performed the impossible and, after decades of BHP under performance he out-managed Rio Tinto in iron iron mining. That made him the front runner.
In his three years in charge of Australian minerals, Henry performed what no one ever thought was possible. He made BHP’s iron ore operations more efficient than Rio Tinto’s.
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When one of the BHP great leaders, Sir Ian McLennan, bought the Mount Newman iron ore from a group headed by CSR in the 1960s, he realised that it was a magnificent ore body. But Rio Tinto at Hamersley was in first and in the decades that followed it was always more efficient. Indeed, at one stage there were detailed discussion to merge the iron ore operations. As part of that process, BHP saw the Rio Tinto costs first hand and was shocked at how far it had fallen behind.
Mike Henry reversed decades of BHP history and dramatically improved BHP’s efficiency. He used the new technology but only when it was proven. Staff relations were improved. And London-based Rio Tinto could not keep its lead.
If you want to put a big smile on Mike Henry’s face just mention the fact that BHP has out-managed Rio Tinto in Australia. What makes that achievement so important is that it fits into the direction that Andrew Mackenzie and the board already had the company heading in. Mackenzie will be remembered as the BHP CEO who reversed the management direction of generations of BHP CEOs and focused the miner on a series of tier-one mineral operations.
But he also set BHP on the path of being a technology company. I set out the new strategy in two commentaries published in February and March this year under the headings “BHP’s tech overhaul will become a blueprint” and “BHP executive changes highlight its tech-led transformation”.
I did not realise at the time that I was explaining why Mike Henry would be the next CEO. The new environment that Henry will be managing will start with the cost cutting advantages provided by the technology, a field where he is clearly a master.
But he will be tested by the new technology directions which will improve the ability to find ore bodies and the feasibility of their extraction. New technology will cause demand for different minerals and that may make it dangerous to simply sit on a pile of assets.
And, of course, there will be the carbon issue. BHP mines coal, but the biggest challenge the steel industry faces is its carbon intensity. So, iron ore is part of the carbon challenge and this will become a technology issue.
The BHP vision of the future prescribes that “the transformative power of technology” starts with exploration drilling and assessment, and then extends to almost every activity in a chain that ends at the customer. Driverless trucks and trains merely represent one of the steps.
BHP’s big three
Henry takes charge of a company that has selected three materials for where it plans major output increases. The first is copper, where BHP expects demand to skyrocket because of electrification of society. Accordingly, Olympic Dam will double output in the next four or five years and then later it can be doubled again. Costs per tonne will be slashed. There will substantial production from BHP’s US copper joint venture with Rio Tinto. Chile is completing a major expansion.
Copper is going to be a much bigger driver of future BHP profits.
But oil may be an even bigger driver as output and production will be more than doubled via the Gulf of Mexico and the Caribbean. Here BHP is not so much predicting a big increase in oil demand, but rather it expect a fall in Middle Eastern oil output.
The third area is potash, because BHP expects higher demand for food will bring a boom in the demand for potash. Its Canadian deposits are some of the largest and lowest cost in the world. At this stage the economics are marginal, but BHP expects that to change over the decade.
There are no major plans for major iron ore expansion because, while BHP expects iron ore to be a good business, it does not expect long term demand to explode because of recycling and a moderation in the building of bridges and other infrastructure.
Iron ore becomes the cash cow that will deliver the rewards to shareholders. Coal has a similar position. But Henry will no doubt review these strategies as he settles into the role and may need to look at increasing the resource base, McLennan style.
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The BHP board had two excellent candidates for the position of chief executive once Andrew Mackenzie decided to step down: chief financial officer Peter Beaven and the chief operating officer of Australian minerals, Mike Henry.