BHP Billiton to unwind JVs without operational control
By Barry Fitzgerald
BHP Billiton chief executive Andrew Mackenzie is looking to unwind mining ventures that it or its partners have no operational control over in a move that could see as much as $US22.5 billion ($29bn) worth of Latin American mining assets reshuffled.
Mr Mackenzie told The Australian BHP’s reputation as a safe and efficient operator was damaged by the Samarco iron ore tailings dam disaster in November, prompting a rethink of non-operated mining joint ventures. The Samarco tragedy caused 19 deaths in Brazil when a tsunami of tailings swept down on to the valley floor below before travelling 600km along the Rio Doce river system to the Atlantic.
Owned 50:50 by BHP and Brazil’s Vale but with neither partner the operator, Samarco runs itself independently (overseen by a board with BHP and Vale representation). It is a throwback to the 1980s and 1990s when mining houses presented themselves as investment opportunities rather than as operators.
If it were starting out today, either BHP or Vale would be the “legal’’ operator, in line with the new focus of resource companies as safe and efficient operators of assets. But unwinding the historical anomalies is not without challenges. Mr Mackenzie stressed that it could not be known that the November tragedy would have been avoided with a different operator. What is known is that it is a historical anomaly BHP would like removed, both at Samarco and its other non-operated mining joint ventures, both of which are also in Latin America — Cerrejon coal in Colombia (33.33 per cent owned), and Antamina copper/zinc in Peru (33.75 per cent).
“It’s work in progress,’’ Mr Mackenzie told The Australian.
Without assigning Samarco any value (it was the most profitable iron ore producer in the world before the disaster), BHP’s look at unravelling its non-operated mining joint venture exposures could mean a shuffling of $US17.4bn worth of Latin American mining assets, on Credit Suisse estimates.
At the more valuable Antamina ($US12bn), Glencore (33.75 per cent), Teck (22.5 per cent) and Mitsubishi (10 per cent) are the non-operating partners with BHP. At Cerrejon ($US5.4bn), BHP’s equal one-third non-operating partners are Glencore and Anglo American, with the latter a declared seller.
Also at Cerrejon, Glencore chief executive Ivan Glasenberg, commenting on Anglo American’s proposed sale, has previously declared the company “would find a way to do it if we can get the right price’’, proposing at the same time a 50:50 joint venture there with BHP.
BHP’s motivations for the simplification of its exposures to NOJVs runs much deeper than securing a potentially cheap increase in its ownership of an asset.
“It’s more urgent or made to be more urgent in the case of Samarco because we would like to have some clarity, particularly if we restart it,’’ Mr Mackenzie said.
“Because of the way in which we’ve suffered as a company with Vale, there’s a willingness to engage there. That makes it easier to make progress than perhaps in some of the others. But (we are) engaging with the others, for sure we are,’’ Mr Mackenzie.
But the difficulties in unwinding the non-operating joint ventures has not gone away.
“Somebody has to, to some extent, sell down at a discount so somebody else can become the operator, or somebody has to buy up at a premium so they become the operator,’’ Mr Mackenzie said.
The release of the external investigation into the cause of the deadly Samarco tailings dam failure is still a few months off.
But BHP is already drawing some key lessons from the tragedy. “Maybe what we learn from this and how we respond to this actually means that we emerge from it stronger than we might have done had this incident never happened, notwithstanding that we can’t bring people back,’’ Mr Mackenzie said.
“All told, I’m very positive about how we handled it, even though you would never wish that on anyone and you wished it had never happened,’’ he said.
He said one of his concerns was that the tragedy would be distracting for the company.
“Everybody in the company should feel a sense of regret and disappointment with what happened and the lives that were lost but, at the same time, the best response for almost everybody in the company was to do an even better job on what they were doing rather than rush to man-up what was required with Samarco,’’ Mr Mackenzie said.
“The decision made really very quickly was that we were going to isolate the management of Samarco as much as possible from the running of the whole company and that we would create a team that would find itself in Brazil (led by Dean Dalla Valle).”
That he says, was a critical lesson.
“No crisis is the same and you learn much more about managing a crisis when you’re in one. But I think the one thing that I would say to anybody, if you can find a small group of the right people to manage it, so you can get on with the rest of the company as soon as possible, please try and do so.
“It’s probably one of my strongest pieces of advice that I would hand over to somebody else,’’ Mr Mackenzie said.