BHP boss Mackenzie digs in against critics
Andrew Mackenzie says his stripped-down corporation is in good shape to thrive in 2018.
Andrew Mackenzie and Elliott Advisors can agree on one thing, at least. Both want to correct the misdeeds of the last commodities boom, when dizzying prices lured the mining industry dangerously astray. Beyond that, however, the two are on very different pages.
Mr Mackenzie is chief executive of BHP, the heavyweight miner born of the 2001 merger of Billiton and BHP and fed by the Chinese commodities boom. Opposite him is Elliott, the activist investor famous for a ruthless 15-year pursuit of Argentina’s debts which is, as ever, up for a fight.
In this case, it is taking aim at BHP, advocating the collapse of the company’s complex Anglo-Australian dual structure, selling its American oil and gas interests and carrying out a little financial engineering. Crucially, there is more than a suggestion that it is not especially keen on Mr Mackenzie being the man to do it.
The BHP boss, however, is unfazed. Having overseen the shedding of much of its operations to focus on the biggest and best, spinning off unwanted assets as South32, he has set his gaze on a more straightforward 2018: “I’m looking forward in the coming years to just making tremendous headway in growing our business by staying primarily within our existing footprint.” Not easy to do when you are overseeing operations spanning the Atacama Desert in Chile to the Pilbara, Western Australia, via the deep waters of the Gulf of Mexico, but illuminating, nonetheless.
In his version of the future, 2018 is the year that his lean, mean mining machine begins to rev its engine. “We’ve created something close to ideal for the portfolio that is suited to the skill base and the systems you would associate with BHP. And it feels good to get there at a time when prices are firming, because we can really get on with the business of adding value with the portfolio that we sought to get through a combination of the divestments and the South32 demerger.”
Is this austere and efficient BHP at odds with an industry feeling the benefit of a rally in commodities prices and growing excitement about the demand for batteries for electric vehicles? Not so, apparently. For Mr Mackenzie, booming demand for renewable energy and electric vehicles will translate into a need for lots of copper — and BHP controls Escondida in Chile, the world’s largest copper mine, has others in its portfolio and it is actively searching for still more deposits. He is happy to leave to others the more exotic metals, such as cobalt and lithium, that have been in demand of late.
Iron ore might not have the pizzazz of battery materials, now that China’s building boom has petered out, but when Mr Mackenzie looks at Asia and at the towns and cities, ports and railways needed to develop South Asian and African economies (while acknowledging that there are “some interesting things on the consumable side and on vehicles”), his eyes “just see the infrastructure opportunity”.
Mr Mackenzie, as you might expect of a geologist whose doctorate broke new ground in evaluating oil basins, is more animated talking about rocks, minerals and hydrocarbons than he is about finances, management or activist investors. When questions touch on science, his answers can run away and develop their own momentum. For example: “When we look at where we think there are key commodities that are geologically difficult, where there’s a sense of scarcity and therefore think there is money to be made by being good at dealing with that scarcity with some of the best skills in geology, petroleum engineering and mining engineering, we feel good about the four we’ve selected.” Indeed, there is “a potential fifth”, potash, a key fertiliser ingredient.
BHP’s chosen commodities are, in short, either difficult to find in abundance or difficult to extract. Mr Mackenzie is less enthused by aluminium or nickel because the barriers to entry are low (some miners jokingly refer to mining bauxite, the aluminium ore, as “gardening”, because it more or less sticks out of the ground). He talks of BHP being “the earth scientist’s company”. Few chief executives can as comfortably use the phrase “nice set of coal seams” or wax lyrical about copper porphyry (a type of deposit caused by magma cooling in a particular manner). He describes a technology-enabled focus on productivity, which means, for instance, using sensors to make sure that eye-wateringly expensive mining trucks can operate without disruption.
None of this is very exciting, but it comes from taking a manufacturing approach to efficiency, an approach that was impossible when BHP was a more complex organisation.
Mr Mackenzie used to run BP’s chemicals division, so he understands industrial processes. Did it take someone with his background to make the leap and shrink BHP? Keen, perhaps, to concede or at least share centre stage, he says that it was not a solo decision, even if he had provided the impetus. “Was it something symbolic and something I will look back on with great pride? Yeah, it was.”
It would be a mistake to see Mr Mackenzie’s obsession with efficiency and geology as evidence of insularity. He believes that China’s One Belt, One Road initiative, intended to build trading links and infrastructure westwards through Asia, will be transformative: “I think the Belt and Road is astounding and it would be even more so if it were part of a meeting between East and West in a way that benefited both.”
His stance, he insists, has more to do with his personal philosophy than the fact that China is his No 1 customer. “I’m a creature of the Scottish Enlightenment and I really do believe in it, in Adam Smith and David Hume.
“People will try to tar me with all sorts of political brushes, as they do all the time, but ultimately we will grow as a world, both spiritually and economically, when we’re able to have free debates and when we’re able to trust each other through international law. It will enrich us all. We will have better ideas.” If he has his way, 2018 will be the year in which shareholders begin to see that it is he, rather than his critics, who has the better ideas.
The Times
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