Mike Henry, CEO of mining giant BHP, has set out plans to rebuild its business after the COVID-19 pandemic, with the aim of becoming leaner, higher performing and safer.
Henry was addressing the recent Bank of America Securities 2020 Global Metals, Mining and Steel Conference, which was held online this month.
“Ours is an industry that has seen some extraordinary events, but nothing like the past few months,” he said. “As with everyone on this call, I’m very conscious of the devastating effect the pandemic is having on lives, society and on the economy.
“In the face of this, people across BHP have rallied in line with our purpose and values in a way that has seen them stay safe and has kept the business running and performing strongly.
“And this has had an even higher purpose during these times – our industry supports not only our workforce, but communities, customers and countries around the world with the jobs, business and materials that will help us navigate and then come out the other side of this crisis, and then rebuild.
“Our people have stepped up. They’ve been working with particular purpose, focus, speed and decisiveness. What they have been able to achieve in terms of operational performance and external leadership has reinforced my views of what’s possible.
“At our interim results in February, I spoke about BHP’s strong foundations. I also talked to a number of things that we will change, strengthen and focus on in order to unlock more of our potential, to further address the challenges coming at us, and to capitalise on opportunities that will reveal themselves over time.
“We aim to be leaner and high performing in all parts of BHP – lower cost, more reliable and more productive. And to be even safer. We must also create and capture more options in future-facing commodities – to help us continue to protect and grow value.
“In order to unlock our true performance potential, we are focused on five specific levers: culture, capability, an asset-centric focus, technology and capital allocation.
“Our focus on these remains unchanged by COVID-19. And, in many respects, the COVID-19 crisis has allowed us to both demonstrate and accelerate our intent.”
Henry pointed to a good performance from BHP both operationally and financially. “We carried good momentum into the new year and delivered another strong underlying operational performance in the March quarter. We leaned into the triple challenges of heavy weather in Australia, unrest in Chile and the impacts of COVID-19 globally. We kept our people safe and operations performing well.”
For the nine months ended March, BHP achieved record year-to-date production at Western Australia Iron Ore and Caval Ridge, while its Escondida production increased, supported by record concentrator throughput. The firm also we stacked record material at its Spence operation.
Henry attributed this to three things – people, focus and capability. “Firstly, great people,” he said. “72,000 people across BHP have stepped up with commitment and ingenuity to deal with some unprecedented challenges. I’ve seen so many examples of people going the extra mile. Nearly 1,000 people elected over the course of one weekend to up and relocate themselves, and in many instances their families, across Australia in order to keep the business running.
“Secondly, focus. Everyone has been made it their mission to enable our Assets to keep people safe and our operations performing. This Asset-centric focus has resulted in much sharper prioritisation of effort, stronger team alignment, and very fast decision making. We’ve been moving at pace. This has been supported as well by the steps we’ve taken to free up our front-line supervisors to spend more time in field.
“And finally, capability. We’ve been building capability for some time through multiple channels: The Maintenance and Engineering Centre of Excellence, Operations Services, our functionalised model and the BHP Operating System. It is telling that both the WAIO port and the Escondida concentrators have been supported by early deployment of the BHP Operating System as well as targeted effort from the Maintenance and Engineering Centre of Excellence. This has resulted in a substantial improvement in car dumper reliability and train turnaround time at Port Hedland and increased reliability, and throughput, at Escondida’s concentrators.
“We have continued to ramp up Operations Services and it now has over 2,000 people, on track for 3,000 by year end. This has enabled us to respond more nimbly to some of the workforce challenges that have arisen through COVID-19.”
Despite markets remaining uncertain and under pressure to varying degrees, Henry said that BHP continues to move all of its product, while payment performance has remained strong. “We benefit from our diversified portfolio, high quality products and strong relationships with our customers,” he explained
Going forward, the CEO pointed to the G20 nations having committed more than US$7T of fiscal stimulus. “This has gone some way to cushioning the damage to underlying economies and commodity demand and will help support a faster recovery,” he said.
“We are also now beginning to see the progressive relaxation of some of the COVID constraints. Even so, other than in China where a V-shaped recovery appears to be underway, we think the recovery will be more protracted elsewhere.
“Tens of millions of people have lost their jobs across developed economies, and more than 1 billion workers in the informal labour markets of developing economies have had their livelihoods affected. Re-establishing these livelihoods will take time and consumption will be inevitably constrained, making a V-shaped recovery increasingly unlikely.
“By the end of CY 2021, our base case has the global economy roughly 4% smaller than it would have been if COVID-19 had not happened.
“We do think though that if China avoids a second wave, Chinese pig-iron production still has the potential to grow slightly this year. As for the rest of the world, it is likely that pig iron production will experience a double-digit decline.
“We expect that copper demand will also fall, but that it will be more resilient than steel, with the impact of COVID-19 on the supply side providing a degree of support for prices.
“Oil products demand is expected to begin to recover in line with the easing of mobility restrictions, but the level of demand is unlikely to fully recover before the end of CY2021.
“It is too early to say anything definitive about the longer-term impacts of COVID-19, but what I can say is that the underlying demand drivers – population growth, urbanisation, industrialisation and increased standards of living – remain the same.
“The fundamental need for our commodities remains. We anticipate that global steel and primary energy demand will both grow slightly faster than population growth for decades to come, while copper, nickel and potash will do a little better than that. Our commodity attractiveness framework, which takes account a range of factors, not just demand, leaves us both comfortable with what we have but also committed to increasing our exposure to future-facing commodities.
“In terms of our very near term plans, our portfolio, balance sheet and operations enable us to weather times like these. But we will of course make decisions about what level of capital and exploration expenditure is warranted in the coming year given market circumstances. We will look to defer some, where that makes sense for value or to preserve cash. We’ll have further detail on this at the full year.
“To sum up, the past four months have combined challenge and tragedy in ways that none of us foresaw. But our strengths have shone through and we continue to perform.
“We have a simple, diversified portfolio of large, high quality assets, where we create value at scale. Our balance sheet strength is underpinned by the disciplined application of our Capital Allocation Framework. We are in one of the industries which continue to operate. And with our strong financial position and low-cost operations we have the capacity to generate solid cash flow and returns to shareholders through this period and to emerge well placed as the global economy recovers.
“Indeed, the team and I are committed to locking in and building upon the focus, energy and speed that we’ve realised in recent months such that we exit this period stronger and accelerate on the agenda that I’ve spoken about previously,” he concluded.