LONDON: The world’s largest miner has weathered the downturn well after walking away from a mega-merger with Rio Tinto.
Marius Kloppers, the 47-year-old South African chief executive of BHP Billiton, has a standard response to those who say China’s rapid economic rise could not have been foreseen. “My kids started learning Chinese a long time ago,” he says. “My youngest, who is now 13, started when she was four years old. When she turned up at Chinese school and they asked her what she doing there she told them ‘my dad says China is going to be a very big economic power’.”
That day has arrived and BHP, the world’s largest mining company, has prospered. The rapid industrialisation of China in the past decade has transformed BHP, a supplier of iron ore for steel, copper for wiring, coal for energy and most other major raw materials. Based in Melbourne and with a share listing in Australia and London, the group is worth GBP120 billion today, slightly more than oil groups BP and Shell. Now a huge market for its products could become enormous.
Forecasts for China’s economic growth are inevitably dizzying but McKinsey, the consultancy, recently laid out its guess at what it could mean in terms of population shifts and construction. By 2025, they forecast, 221 Chinese cities will have more than one million people living in them, which compares with 35 in Europe today; 170 mass-transport systems could be built; 5 billion square metres of road could be paved; and 50,000 skyscrapers could be erected. Such forecasts may sound fantastical — and upsets seem inevitable since global trade flows are currently so unbalanced — but BHP
and fellow miners have discovered in the past six months how quickly Chinese construction can recover after a global
downturn. The crash in commodity prices, which was meant to turn boom into
bust for the big miners,
was brief — a spectacular recovery in prices and demand has followed.
Billiton, a South African company spun out of Gencor, got out of stainless steel. BHP, the old Broken Hill Proprietary Company in Australia, shed steel, shipping companies and oil refineries. The two merged in 2001 and these days the top echelons contain an international mix - six nationalitities are represented on the seven-strong management board.
The $8bn purchase of WMC, the Australian owner of the massive Olympic Dam mine, containing the world’s largest deposits of uranium, followed in 2005. Sceptics said the deal would mark the top of the commodities boom.
Instead, it was arch-rival Rio that was guilty of poor timing two years later, when it spent $38bn buying Alcan, the Canadian aluminium group.
The Alcan purchase left Rio entering the downturn with huge debts. BHP would have had to tackle those debts if its attempt to buy Rio had succeeded. Instead, the year-long inquiry process gave Kloppers time to rethink and then withdraw in 2008. Luck or judgment? Probably both, but net effect was that BHP’s balance sheet and dividend were undamaged.