Corporate Analysis Of Bhp Billiton Management Essay

Corpo measure Analysis Of Bhp Billiton Management EssayBHP Billiton is a spheric header in the resources intentness. Formed from a merger between BHP and Billiton, it brings unitedly an exceptional mix of quality, low-cost resource assets, complemented by a substantive management team determined to operate the assets in an effectual manner.BHP Billiton commenced a feasibility study in 2002 into opening a atomic number 28 and carbon monoxide mine and bear on plant at the cost of A$1.4 jillion 35 km East of the Ravensthorpe. The suffer was approved in 2004 and social system commenced shortly laterward. The plant cognise as the Ravensthorpe atomic number 28 dispatch was licenced in late 2007 with first yield occurring in October and the first 5,000 tonnes macrocosm produced by December 2007. The plant was officially candid in 2008, after massive cost blow outs and delays. Production was pass judgment to good 50,000 tonnes of nickel note note per twelvemonth.In Janu ary 2009, BHP Billiton announce that it was suspending proceedsion at the Ravensthorpe nickel mine indefinitely, collectible the reduction in land nickel impairments cause by the global economic crisis. nickel note prices, having reached a extravagantly of US$50,000 per tonne in whitethorn 2007, had fallen to under $11,000 per tonne by the time of the mines closure.Our report focuses on the strategic decisions which led BHP Billiton to invest in the Ravensthorpe nickel project. An analytic thinking has been conducted on the mines operation starting from the moving in strategy adopted by BHP Billiton bolt d receive to the operational decisions at the site level. We intend to predict scenarios which might confuse resulted in mines closure despite a strikingly detailed breast loaded design.Scope of the reportOur digest is groundingd entirely upon the development open on internet. The primary sources include BHP Billitons annual communications, industry summary reports from leading researchers, news paper and magazine articles.The investigation focuses importantly on strategic decisions at different levels.No attempt has been made to dismember the comp eithers per hitance in other sectors of its business.This report is taken up however as an academic project and no attempt has been made to try out the performance of any of the stakeholders involved in the project.Chapter 1 Corporate compend of BHP BillitonIntroductionBHP Billiton Group (BHP Billiton) is a diversified natural resources company tenanted in mineral exploration and work. The themes primary focus areas include coer and gas, aluminum, copper, nickel, bid ore, manganese, surfacelurgical burn, and capability coal, with additional exposures to uranium, gold, zinc, lead, silver, and diamonds. BHP Billiton comprises BHP Billiton Limited and BHP Billiton Plc. The group has a global st cuttingman with more than snow trading trading operations in 25 countries. It is headquar tered in Melbourne, Australia and employs about 41,000 people.BHP Billiton-HistoryBHP Billiton Group was formed in 2001 with the merger of Australian firm BHP and British firm Billiton.BHPBHP was founded in 1885. The company grew to be keep an eye on a global natural resources company, with a diversified commodity suite that include minerals, scratchy oil, gas, and leaf blade. In 1899, BHP leased an campaign ore mine at Iron knob in southbound Australia. The company forayed into steel making in 1915, military commission its first steelworks at Newcastle, New South Wales. After humanity War I, BHP continued to diversify, forming a shipping fleet, as well as acquiring coal mines and additional reserves of iron ore and limestone. Furthermore, BHP vexd companies that manufactured end steel products.BHP expanded its steel production in 1935 by acquiring Australian Iron and trade name and its expression Kembla steelworks. A labouredly a(prenominal) great time later, BHP est ablished blast furnace and shipbuilding facilities at Whyalla, South Australia.In 1967, BHP entered the crude oil industry with a major(ip) oil discovery in bass Strait, off the southeastern coast of Australia.Through the 1970s and 1980s, BHP enhanced its offshore operations by acquiring Utah International, comprising coal mines in New Mexico and Queensland, as well as discovering copper in Chile.In the mid-nineties, BHP acquired several companies, opened new mines, commenced new petroleum production, and strengthened its steel operations.BillitonBilliton was formed in 1860. It became a global mining company with a portfolio of mining and metals assets. In 1860, the company acquired the concession to a tin-rich island in the Indonesian archipelago burn up Sumatra. The island was called Billiton (now Belitung).Billiton initially ventured into tin and lead smelting in The Netherlands, followed by bauxite mining in Indonesia and Suriname, in the 1940s.In 1970, the Royal Dutch/Shell group of companies acquired Billiton. Throughout the 1990s and beyond, Billiton experienced considerable growth. In 1997, Billiton became a constituent of the FTSE 100 Index.BHP and Billiton co-ordinated to form BHP Billiton Group (BHP Billiton) in 2001. In the same social class, the group announced its intentions to establish an energy business to complement its mining activities. In 2002, BHP Steel commenced trading on the Australian Stock Exchange as a separate listed company after the de-merger was approved by overlapholders and the courts.Business expositionBHP Billiton operates nine customer sector groups (CSGs) aligned with the commodities which it extracts and trades. They are base metals, petroleum, iron ore, energy coal, aluminum, immaculate steel materials, metallurgical coal, manganese, and diamonds and specialty products. range of a function 1 Customer Sector Groups(CSG) at BHP Billiton LtdThe base metals CSG produces copper, silver, lead, uranium, and zinc. It p rovides copper, lead, and zinc concentrates to smelters worldwide.The petroleum CSG comprises oil and natural gas exploration, production, and development in Australia, the US, Algeria, Trinidad and Tobago, Pakistan, and the Gulf of Mexico. It besides conducts an multinational exploration and development program as well as marts crude oil, condensate, liquefied petroleum gases, natural gas, and liquefied natural gas to customers globally.The iron ore CSG is one of the leading suppliers of seaborne iron ore globally. Its operations comprise westbound Australia Iron Ore (WAIO) business and a 50% interest in the Samarco roast venture with Vale in Brazil.BHP Billitons energy coal CSG produces, markets, and exports thermal coal (steaming coal). The group operates ternary sets of assets a group of mines and associated infrastructure collectively kn consume as BHP Billiton Energy Coal South Africa (BECSA), New Mexico Coal operations in the US, and Hunter Valley Energy Coal operations in New South Wales, Australia.The aluminum CSG is engaged in the production of aluminum, bauxite, and alumina. It has quartette aluminum smelters in South Africa, Mozambique, and Brazil and tercet alumina refineries and threesome bauxite mining operations in Australia, Suriname, and Brazil. BHP Billiton is one of the stupendousst manufacturers of primary aluminum.The stainless steel materials CSG supplies a variety of nickel products to the global steel industry. In addition, it alike supplies nickel and cobalt to other markets including the specialty alloy, foundry, chemicals, and refractory material industries. The section produces nickel and cobalt at Yabulu and Nickle West in Australia and Cerro Matoso in Columbia.BHP Billitons manganese operations produce a combination of ores, alloys, and metal from sites in South Africa and Australia. The group owns and manages all of its manganese mining assets and alloy plants through 60-40 give voice ventures with an Anglo-American common venture known as Samancor Manganese.The diamonds and specialty products CSG comprises the businesses of diamonds and titanium minerals, and the exploration and development of a potassium hydroxide business. The groups Ekati Diamond Mine, of which it owns 80%, is regain in the Canadian Northwest Territories and produces over 3million carats of rough diamonds annually.SWOT AnalysisStrengthsWeaknesses unattackable market positionDiversified revenue stream interchangeized market activities preventive concerns at Western Australia Iron Ore (WAIO) operationsOpportunities scourgesExpansion of caustic potash operations in CanadaConsolidation of Western Australian iron ore assets of BHP Billiton and Rio TintoProposed joint venture with PT Adaro Energy for Indonesian coal project decrement in carry from chinawareEnvironmental issuesIntense tiltStrengths severe market positionBHP Billiton enjoys a dominant position in the metal and mining industry. The group has a global battl efront with more than 100 operations in 25 countries. The groups CSG organization structure has enabled the group to own and operate of importly profitable mineral resources across the globe.BHP Billitons hygienic presence and leadership position in a number of evidentiary markets gives the group a substantial belligerent improvement and also summations its cross selling opportunities.Diversified revenue streamBHP Billitons revenue stream is diversified in terms of business lines and geographies. The group generates revenues through nine business segments. In FY2009, the iron ore segment accounted for 20.5% of the total revenues, metallurgical coal accounted for 16.6%, petroleum 14.6%, base metals 14.6%, and energy coal 13.4%. Aluminium accounted for 8.5% of the total revenues in FY2009, manganese accounted for 5.2%, and stainless steel materials 4.8% The diamonds and specialty products segment accounted for the remaining 1.8% of the revenues in FY2009.The groups diversified business lines give it competitive advantage over its competitors by insulating the group against indecent market conditions in any one of the metal markets. Further, its worldwide presence reduces exposure to economic conditions or political stability in any maven country or region.Centralized trade activitiesThe customer-centric marketing operations of BHP Billiton are centralized in Singapore, The Hague and Antwerp. The Singapore emplacement focuses on the Asiatic energy market, base metals, stainless steel materials and carbon steelmaking raw materials. The Hague office focuses on aluminium, petroleum, energy marketing and freight, while the Antwerp office serves diamonds customers globally. These three marketing offices incorporate all the functions encompassing product marketing and distribution from the omen of production to final customer delivery. In addition, specialized marketers are situated in 20 regional offices worldwide.The groups centralized marketing operati ons increase the efficiency of the marketing activities with each office managing end to end marketing activities of certain CSGs. Therefore, efficient logistics capability and expertise in trading and deed structuring through centralized marketing activities enhance the groups product offerings.WeaknessesSafety concerns at Western Australia Iron Ore (WAIO) operationsThe group has been facing safety issues at its Western Australia Iron Ore (WAIO) operations. There were five fatalities at the groups operations in the Pilbara from July 2008 to April 2009. Addressing the concerns BHP Billiton Iron Ore announced some actions that include reducing site access, up contractor management, enhancing existing strategies to prevent excess working hours, moving course operations from the Mine Safety and Inspection Act to the Rail Safety Act, enhancing traffic management standards and suspending all non-essential work outside daylight hours. It had also ordered an extensive independent expert investigation of safety systems at all WAIOs operations. Such incidents could negatively disturb the groups reputation or permit to operate.OpportunitiesExpansion of potash operations in CanadaBuilding a toughened potash resource position is one of the key strategies of BHP Billiton. The group has been act opportunities to acquire operations that are a strategic fit with its potash operations in Canada and are aligned with its strategy of developing floor 1, long life, low-cost, expandable assets. The rising demand for fertilizers coupled with the big(p)-intensive nature of greenfield potash developments makes potash a operable addition to the groups portfolio.Consolidation of Western Australian iron ore (WAIO) assets of BHP Billiton and Rio TintoBHP Billiton and Rio Tinto signed a non-binding agreement to establish a production joint venture covering the entirety of some(prenominal) companies Western Australian iron ore (WAIO) assets, in June 2009. The joint venture would c ombine adjacent mines into single operations and reduce be through shorter rail hauls and more efficient allocations of port capacity. In addition, it will blend opportunities which will maximize product recovery and provide further operating efficiencies. It will also perfect future growth opportunities through the development of consolidated, larger and more capital efficient expansion projects. These will result in substantial synergies for both the groups. The net present value of these unique production and development synergies is expected to be in excess of $10 billion.Proposed joint venture with PT Adaro Energy for Indonesian coal projectBHP Billiton entered into binding agreements to create a new joint venture for its Indonesian Coal Project (ICP) with a subsidiary of PT Adaro Energy TBK (Adaro), in March 2010. Adaro will acquire a 25% interest in the ICP joint venture. BHP Billiton holds the remaining 75%. The ICP covers seven Coal Contracts of Work located in East and C entral Kalimantan in Indonesia. Adaro is Indonesias second largest thermal coal producer and has operations near the ICP.Through this joint venture, the group can leverage the expertise of a strong local player for the succeederful development of the metallurgical coal interests in Indonesia.ThreatsReduction in demand from ChinaThe global commodity market is driven by Chinese demand and a slowdown in the Chinese economy could adversely affect the prices of commodities. China is a significant consumer of commodities like iron ore and copper. Chinas demand for these commodities has been madcap global materials demand over the past decade. Though the increase in commodity demand is a significant business opportunity to the group, BHP Billitons exposure to Chinas economic fortunes and economic policies has change magnitude. China contributed 19.7% ($9.9 billion) to the groups total revenues in FY2009.Environmental issuesBHP Billiton is one of the major producers of energy-related pro ducts such as energy coal, oil, gas, liquefied natural gas, and uranium. Energy is also a significant input in the groups mining and bear on operations. The carbon dioxide (CO2) emissions from fossil fuel-based energy consumption contribute to global warming, greenhouse effects, and climate change. Many governments shake up introduced regulatory changes to address the impacts of climate change. BHP Billitons petroleum assets in the UK are currently subject to the EU ETS. To address climate change, the Australian Government has announced the introduction of a national emissions trading scheme by 2010 and a mandatory renewable energy target of 20% by the year 2020. In other regions, the current and emerging climate change mandate could affect energy prices, and demand and margins for carbon intensive products. The compliance be and in some cases remedial cost could increase the groups operational costs which in turn could affect its operating margins. Consequently, these regulato ry mechanisms could adversely impact the cost, production and financial performance of the groups operations.Intense aspirationBHP Billiton faces intense competition in the metals and mining industry. The metals and mining industry tends towards concentration. Within each segment, large multinational companies dominate. Moreover, this is a cyclical industry, which suggests that the current high growth rate is unlikely to be sustained. Industry margins are susceptible to changes in raw material prices, with iron ore prices expected to rise in the next few years, and the industry is also vulnerable to rises in the price of energy, one of its main costs. The group faces competition from Newmont Mining, a US based gold producer and Xstrata, a UK-based natural resources company with presence in coal, copper, zinc, alloys, and other businesses. The group also faces competition from UK-based ThyssenKrupp. Intense competition in the industry could lead to loss of market share and put press ure on the groups margins.Chapter 2 Prospective Analysis of Ravensthorpe Nickel mineRavensthorpeRavensthorpe Nickel mine is located 35 Km from the town of Ravensthorpe. The mine is a combination of three ore bodies located close to the surface in the form of limonite and saprolite deposits of Nickel and Cobalt. The three ore bodies grow a proven reserve of 125.3Mt at 0.73% nickel and 0.032% cobalt, and a probable reserve 137.9Mt at 0.57% nickel and 0.026% cobalt, giving a total of 263.3Mt at 0.65% Ni and 0.029% Co. The reserves ensured a project life of 21 years1.BHP Billiton commenced a feasibility study in 2002 into opening a nickel and cobalt mine and process plant. The project was approved in 2004 and reflection commenced shortly afterward. The project involved open-pit mining from three nickel deposits, and a hydrometallurgical process plant to produce up to 50,000t of contained nickel and 1,400t of contained cobalt per annum in a mixed hydroxide intermediate product (MHP) fo r further processing at BHP Billitons Yabulu Nickel Refinery in Queensland1. The plant known as the Ravensthorpe Nickel Project was commissioned in late 2007 with first production occurring in October and the first 5000 tonnes being produced by December 2007.What made Ravensthorpe Nickel Project particularly attractive? trade Price of NickelFigure 1 shows the Nickel price distribution over a 4 year period from 2000 to 2004. As seen, the price of Nickel showed a steady up(a) trend over the 4 year period. With then metals market allay in boom coupled with the heavy demand from China, the Nickel price would have been a major driver for BHP Billiton to move ahead with the project at Ravensthorpe.Nickel Price_2000to2004.jpg1. http//www.mining-engineering.com/projects/bhp-ravensthorpe/ accessed on 20-5-2010Yabulu Refinery at Townville, QueenslandQNI Yabulu Refinery is located 25 kilometres northwest of Townsville. The ore is shipped to the Port of Townsville where QNI has its own materi als handling facility, and then transported by rail to Yabulu Refinery.Yabulu has an annual processing capacity of around 3.6 million wet tonnes of lateritic ore. Its annual production in 2003 was 31,200 tonnes of nickel and 1900 tonnes of cobalt. The refinery is one of the largest nickel/cobalt processing plants in the world and a leader in nickel hydrometallurgy.Yabulu Refinery carries-out two major functions ore processing and ore refining to produce products for sale in the global market 1.Chinese growth storyNeedless to say that Chinese growth has been driving most of the Worlds demand markets. Steel being a primary cistron of construction, Chinas thrust for Steel has been essentially insatiable over the past decade. graph 1 infra shows the Steel suppliers distribution of China. As seen, 90% of the imports come from Asia. Nickel forms an important component of stainless steel manufacturing and the location of Ravensthorpe and Yabulu refineries provided a strategic advantage to BHP Billiton.Distribution of chinese stainless steel suppliers.jpggraph Chinas Steel supplier distribution1. The Ravensthorpe Nickel Project and Yabulu refinery expansion Overview 2004, BHP Billiton.PESTEL manakin Analysis of Ravensthorpe BHP Billiton LtdPoliticalSupport from Government of Western AustraliaEconomicMarket price of NickelCost price of production of Nickel from Ravensthorpe on tap(predicate) cost of capital for BHP BillitonProfitability from the mine over a long termSocialEstablishment of infrastructure for the town of Ravensthorpe to attract good staffMaintaining good relations with the local communitiesTechnologicalCombination of tweet acid leach and atmospheric leach extraction techniques to optimize Nickel extractionEnvironmentalNALegalNAA PESTEL analysis is used to analyze the macro surroundings of a firm. Factors contributing for Ravensthorpes success have been tabulated in the table 1. As seen, the economic and social factors form the key drivers for B HP Billiton. The firm is focused to gain a significant market share in Nickel business and the strategic advantage of Ravensthorpe acts as a silver lining for this market. Though the Pressure leach and atmospheric leach have been tried and tested in Zinc industry, the finishing of that process in Ravensthorpe will provide BHP Billiton with a strategic advantage to cut down on Yabulus processing costs.PESTEL analysis has revealed that economy of production and strategic location of Ravensthorpe form key drivers for BHP Billiton in Nickel industry and will help the firm focus on attaining its market share in Nickel industry.5 oblige analysisMichaels 5 force analysis is a very powerful tool which helps in analysing the environment of an industry. It depicts the levels of competition, attractiveness of the industry and also details pertaining to suppliers, buyer and substitutes.Analysing a competitive environment is a systematic examination of all the levels of the environmentFigure 5 Forces of a Competitive EnvironmentThreat of competition competition is very high in the Nickel industry as in that location is very low product differentiation among the various rivals. The focus of major companies has been to be competitive on the basis of their unit price and the gain they make, because of the fact that only when the company that can be cheapest in the market place can survive. BHP Billiton over the years has developed a boffo reputation which gives it a clear edge over the others.The chart below gives an idea about the competitors in the market. The chart or graph is scaly based on the amount of nickel extracted. It is also clear that the draw 5 organisations produce 70% of world nickel production.By considering a broader scenario it is possible to analyse the companies in terms of the strategic space occupies in the global market. The more crowded a spot become the competition becomes cut throat.NORILSKVALE INCOXSTRATABHP BILLITONJINCHUANCOSTLOWLOW game yHIGHPerformanceCUSTOMER BARGAINING POWERInformation is widely available to the customers and thus has made the customers quite powerful and in the end, the customer is the only person who puts money into the supply chain. In todays world it is very hard to find an entity called loyal customer as the customers frequently shift allegiance based on circumstances making life harder for companies. Customers normally refers to the global demand for nickel. If the demand is high then the profitability would be high orelse vice versa. As a result it leads to Lack of differentiation in the marketCut throat competitionLow switching costsSupplier Bargaining PowerIn the nickel industry, the companies have their own nickel mines. The outputs are processed to produce the respective nickel products as a result of which the supply chain reduces the unit cost and culminates the suppliers negociate power. Supplier here refers to the supply of raw materials for the production of nickel products.Thre at of permutationIn most cases, substitutes for nickel would result in increased cost or a tradeoff in performance of the product. Aluminium, coat steels, plain chromium steels, and plastics are some of the substitutes which can replace nickel in some places but not effectively. Nickel-free specialty steels are used instead of stainless steel in some cases but have proven to be expensive.As long as there is high demand for stainless steel there would be demand for nickel as it is a major constituent. As a result of this, the threat of substitution is low.THREAT OF NEW ENTRANTSFor maintaining the profitability, a company needs to develop economies of scale. change magnitude competition makes it difficult for new entrants to achieve the levels of economies of scale for sustainable and viable operation in a market. High capital required for the place up of the industry also prevents investment. Thereby resulting in destructive rivalry among the competitors.Infrastructure setup cost - HighRapid change in technologyHigh entry barriers.The following chart depicts the results of the 5 force analysisChapter 3 What went wrong at Ravensthorpe?Methodology of analysisAn analysis of the company reports over the last 3 years of the mines establishment will be reviewed and excerpts from the same will be used to come up with the priming coat for closure of the mine.