London Calling cries foul on the Big AustralianPublished by MAC on 2014-10-07
Source: Nostromo Research, Business Spectator, Australian
BHP Billiton's carbon bill, caused by its coal mining, is obviously to be condemned - and no doubt will be at its forthcoming London AGM.
But the company's most profitable assets are its iron ore operations in Australia. They will remain so, even when BHP Billiton spins-off its "NewCo" sometime next year; they've helped make the company the world's third biggest exporter of the metal.
Now it's planning to expand these mines even further - despite the market price of iron ore recently toppling to its lowest point since 2009.
Actually, we should say it's because of this near-collapse in the market that BHP Blliton is mounting such an expansion. It wants to outflank Rio Tinto, and to a lesser extent Vale of Brazil, respectively the world's second and leading iron ore producers.
There are challenges of course. As noted in the following article, the Big Australian can't shift its ore to overseas customers with the same ease and port capacity that Rio Tinto enjoys.
Meanwhile, Rio Tinto continues cutting its own operating costs, putting it ahead of its (more) Ozzie rival.
However, BHP Billiton wants to take a leaf out of its prime competitor's book. It's to set up a "robot army", which won't need to be paid, doesn't eat or drink, and certainly isn't going to go on strike.
In return, hundreds, if not thousands, of dedicated miners will get thrown onto the scrap-heap.
Should workers fail to halt the "robotization", almost half the current workforce of around 16,000 could be out of a job within the next five years.
All for the sake of chucking even more iron ore into an already-brimful market, just to get one over on your rival.
[London Calling is published by Nostromo Research. Opinions expressed in this column are the sole responsibillty of the author. Reproduction is welcome under a Creative Commons licence].
BHP's robot army will cut costs
6 October 2014
BHP Billiton's Jimmy Wilson is sending a sobering message to the market and the mining world, especially the smaller players: the iron ore price war is just getting started.
BHP is hunkering down. Its plan to cut its unit cost of iron ore production from $US25.89 a tonne to less than $US20, announced today, is based on squeezing costs and ramping up automation rather than spending piles of money on capital-intensive projects.
But Rio Tinto won't easily give up its title as Australia's lowest cost iron ore producer. In August the miner confirmed it had slashed its unit costs by 11 per cent in the first half to $US20.40 a tonne, just shy of BHP's ‘medium-term' target.
Still, if BHP can eke out even marginal gains in the Pilbara, it would have a huge impact. Over the past five years, WA iron ore has become BHP's flagship asset, generating underlying earnings before interest and tax of $US53 billion.
The miner plans to add 65 million tonnes of capacity per year at WAIO at a capital intensity of approximately $US30 per annual tonne, Wilson said, taking total system capacity from 225 Mtpa to 290 Mtpa by the end of the 2017 financial year. BHP had previously said the 65 million tonnes would come at a capital intensity of $US100 per annual tonne, and then revised that figure down to $US50. To now be looking at a cost of $US30 per annual tonne is impressive.
The big question is how exactly it plans to get there.
Automation will play a big part. BHP is currently trialling nine driverless trucks in its Jimblebar mine and one autonomous drill rig at Yandi. Driverless trains are still to come, but the miner is likely to trial these before too long.
A spokesperson for BHP told Business Spectator that since the autonomous drill rig had been brought in, the miner has seen a 10 per cent increase in metres drilled per shift. Once automated drill rigs are brought in across the board the miner should see significant productivity gains - aswell as a heap of job losses.
Indeed, the job losses could be much more significant than many realise. In FY15, BHP expects that of the 245 million tonnes produced, 27 million tonnes will be hauled by automated trucks. But by FY19, the miner expects "40 per cent of total productive movement will be hauled autonomously," a spokesperson told Business Spectator. That means a lot more miners out of work and a much more efficient BHP. After all, automated trucks don't have drivers who need to eat or sleep. They can go non-stop, hour after hour.
But increased capacity brings its own problems. While BHP has invested in
its rail infrastructure to alleviate some of the bottleneck in that area by increasing the dual line to Port Hedland, this effectively just pushes the problem down the track.
"The bottleneck is moving to where it will be in the longer term, from the mines to the port," Wilson admitted.
The miner plans to deal with this future bottleneck issue through low capital intensive projects such as installing new car dumpers and ship loaders, but it's unclear if that will be enough to ‘de-bottleneck' the narrow, tide-affected and difficult to navigate Port Hedland.
And that's where BHP's at a significant disadvantage to its biggest competitor.
Before the iron ore price fell through the floor, the plan had been to build a $20 billion outer harbour. That's now on hold indefinitely, so BHP will have to work with what it has.
In contrast, Rio Tinto has access to two ports, Cape Lambert and Dampier, making it much easier to ship the ore out.
Throughout the presentation Wilson focused on making it clear that this is a new, simplified era at BHP - one where the focus is on keeping costs down and extracting gains from its current operations.
It's a completely different beast to a few years ago, and that in itself should have the higher-cost producers worried.
Glencore chief slams BHP's iron ore plan
Dow Jones newswires
7 October 2014
Glencore PLC chief executive Ivan Glasenberg on Monday criticised rival miner BHP Billiton PLC, saying its plans to further expand iron-ore output will hurt the development of one of Africa's poorest countries.
Mr Glasenberg said the huge amount of iron-ore being produced by the world's three biggest miners Vale SA, Rio Tinto PLC and BHP Billiton, was already having a clear impact on prices, and that further expanding output, as BHP Billiton said on Monday it intends to do, would make investing in African iron-ore a less appealing prospect.
"If you look at the statement put out today by BHP Billiton, one of the world's biggest iron-ore producers, saying they're going to expand production -- it has already had an impact on prices -- that is going to hurt Africa," said Mr Glasenberg, who was addressing a panel discussion in London.
Iron-ore prices have plunged 41 per cent this year to below $US80 a ton, their lowest level since 2009, exacerbated in large part by the world's three top iron-ore miners ramping up production in the hope that they can profit from economies of scale.
Mr Glasenberg said large projects, such as Guinea's massive Simandou iron-ore project would be less likely to see the light of day in the current price environment.
Located in one of Africa's poorest countries, Guinea's government hopes that the associated infrastructure required to develop Simandou -- a railway and a port -- will double gross domestic product and open up the nation's remote interior.
But with iron-ore prices falling fast, that could be easier said than done.
"Is Guinea going to have Simandou developed at current prices? It's going to be difficult," said Mr Glasenberg.
"It's a project that is going to cost in excess of $US25 billion. Who's going to put in $US25 billion?" he said.