03 June 2015
Andrew Mackenzie, Chief Executive Officer, BHP Billiton
Minerals Council of Australia
Canberra, 3 June 2015
I would like to acknowledge the traditional owners of the land on which we are meeting and pay my respect to Elders past and present, and extend that respect to other Aboriginal people joining us today.
Before I begin, I’d like to recognise Andrew Michelmore and his team for the development of this year’s excellent program and for the work they do throughout the year.
I’d also like to thank Minister Macfarlane for his remarks. The Minister is a strong advocate for our sector and a great supporter of innovation within the industry, and the business community.
It’s a privilege to speak during Minerals Week. This is a chance for the women and men of our diverse industry to come together to exchange ideas and speak directly to the political leaders of our country. It is also an opportunity to make a contribution to the reform agenda of the nation.
Ever since coal was first discovered near Newcastle, a decade after the arrival of the First Fleet, our industry has been a cornerstone of the Australian economy.
Our nation’s prosperity has been built on its abundance of natural resources and the last 10 years provide ample proof of that.
Resources sector a major contributor
The economic benefits from mining and petroleum have increased our standard of living and caused Australia to emerge as one of the world’s strongest economies and wealthiest nations.
In the last 50 years, Australia’s terms of trade increased more significantly than almost any other comparable country.
National income and government revenue grew and the wealth of Australians rose. Mining and petroleum companies have contributed at both State and Federal levels through the taxes and royalties we pay.
Last year alone, BHP Billiton paid nearly nine billion dollars in taxes and royalties in Australia – an effective tax rate of more than 45 per cent and as a sector, we contributed taxes and royalties to Australia of close to 23 billion dollars.
Beyond this, we have also been a significant contributor to the Australian economy through the investment in facilities and infrastructure, the purchase of local goods and services, and the jobs created in our business and throughout the supply chain.
In fact, by 2012, the mining and resources sector represented nearly a fifth of all production in Australia.
As an industry, we should take pride in the nation-building role our products have played in many countries around the world, particularly in Asia. Asia’s new cities are built with Australian iron ore and Australian coking coal. They’re powered by our copper, coal, gas and uranium and their consumer goods rely on our metals.
Changing Economic Environment
But today, the sector faces a changing environment.
As China works to rebalance its economy from investment toward consumption, growth and demand for commodities have slowed to more normal levels.
In many markets, recently installed low cost supply can now be stretched to meet growing demand. So incremental supply, induced during periods of higher prices, will take longer to absorb and this means over-supply may persist for some time.
Prices for most commodities are now lower than the extreme highs of the recent past and closer to more sustainable longer term levels. This shouldn’t come as a surprise.
Over the years, we have seen commodity prices rise and fall as demand increases and supply responds. This was true of almost all commodities over the last decade.
The speed at which prices have returned to long run levels for each commodity has varied as a function of the time taken for low cost supply to come to market.
So what we’ve seen in iron ore in the last year is no different from what we’ve seen across many commodities in recent years. Supply growth is the function of many countries and companies competing to meet global demand.
So we have to remain competitive.
It is unproductive for Australia to cut or stall low cost and profitable supply when the cycle drops. It destroys value, penalises shareholders, customers and employees and disrupts the power of open markets.
It is these markets that induce investment, during times of higher prices, and reduce investment during times of lower prices which is exactly what we have done in our Western Australia Iron Ore Business.
Commodity price changes not only in iron ore but in almost all other mineral and agricultural commodities are having a major impact on all companies in our sector and on Australia’s economic position.
The reductions in prices we face today are something our industry and country has seen many times before and while this operating environment tests us, I am optimistic for the future.
With each cycle, demand is greater than the previous one – and continues to rise.
But competition to meet that demand will be intense. Most recently, we’ve witnessed China’s deal with Brazil’s iron ore company, Vale.
The companies and nations that succeed will be those that are the most productive and can supply at the lowest cost.
Australia must be ready – and I think we are.
The business improvements we will make will give our industry the opportunity to capitalise on our competitive advantages and to continue to be a leading, ever safer, low cost producer.
We will retain, if not grow, Australia’s share in the global market for commodities. The longterm fundamentals for our industry remain strong and Australia is well positioned to benefit.
Australia’s competitive advantages
Australia’s key attributes give our industry a major competitive edge. We have unique geology, geographic location, invested infrastructure, a skilled workforce that welcomes continuous safety improvement, and a stable liberal democracy with strong institutions.
Together, these attributes form the foundation for our future prosperity.
Australia has some of the largest and most valuable mineral provinces in the world from the Pilbara and Goldfields in the West, the Gawler Craton in the South, to the Bowen Basin in the East.
Australia boasts a resource endowment that rivals any nation on earth.
We are also located on the doorstep of the greatest industrialisation project in the world. The size and scope of the opportunity in Asia, home to over half of the world’s population, is unprecedented.
Over the last decade, for example, China has leapfrogged the world’s economies to become Australia’s largest trading partner. It now accounts for nearly a quarter of Australia’s trade in goods and services.
To meet that demand in the decade leading up to 2011, our sector invested more than $400 billion in Australian infrastructure.
This investment safely increased extraction and processing rates and delivery of our products to customers, as well as making it more efficient and easier to expand further.
It boosted our industry’s competitiveness and gave us the capability in many of the most important commodities to become and remain one of the world’s lowest cost producers.
As our industry grew, we helped create a skilled workforce. Opportunities within the sector have attracted the best and brightest from overseas and through world class training and education programs developed home-grown talent.
Finally, one of Australia’s greatest advantages is its unique brand of liberal democracy. This is a free country – a fair country. This is a nation forged by the notion of the fair go. A nation shaped by equality and pragmatism.
While at times we have faced challenges, this equality and pragmatism have delivered the stable government which built Australia’s reputation as a reliable and ethical supplier of commodities.
Internationally, Australia is seen as a country that had the capability (and good fortune) to largely avoid the adversity of the Asian and global financial crises.
And it’s Australia’s democratic sense of fair go that sees us strive for ever safer working conditions, endorse and promote free and fair trade, advocate tolerance and free speech and push for full inclusiveness and recognition of Indigenous Australians.
I was pleased and proud last week when BHP Billiton announced its support for Constitutional Recognition and membership of Recognise.
Our position is strong. We have the competitive advantages to extend our success beyond the major mining growth of the last decade.
While future growth of mining in percentage terms may not be as fast as we have experienced in the last decade, our industry can remain a cornerstone of the Australian economy and continue to grow significantly in absolute terms (both in tonnes and dollars).
Future opportunities for Australia
For us to grasp this opportunity, our industry needs to regain its appetite for reform and play a more active role in the public policy debate.
On the big issues, we need to be willing to engage and seek solutions not just comment on the impact on our businesses. The Productivity Commission’s study of Australia’s framework for workplace relations is a good example of Government engaging with industry.
It is in the national interest to have more collaboration of this kind and the onus is on us to be pro-active and make an informed contribution to public policy.
Whatever others might say about the public debate on an iron ore inquiry, I am impressed by the willingness of politicians on both sides of the House to listen to all points of view and then act decisively.
Having lived and worked in 10 countries, I do not believe this would have happened as simply and swiftly anywhere else.
It’s a credit to the country and makes me confident about our work to increase the nation’s competitiveness.
So what will determine the future opportunities for our industry?
I believe two are critical. First trade, and then greater competitiveness through innovation, education and transparency.
Free trade is of fundamental importance. The free flow of goods and ideas underpins the success of a modern economy.
In Australia, the liberalisation of trade has been a bipartisan project. It began during the Hawke and Keating Governments, persisted through the Howard Government, and advanced during the Rudd / Gillard Governments. It continues with the Abbott Government as we have seen in the recent free trade agreements with China, Japan, and South Korea and the Trade Minister’s stated goal to sign an FTA with India this year.
We must promote the many benefits of agreements that reduce or eliminate both tariff and non-tariff protectionist barriers. We must champion the free trade agenda.
That brings me back to competitiveness.
A competitive nation is committed to innovation, education and transparency. Our industry has a good track record with innovation. We’ve invested heavily in new technologies to make our operations safer and more efficient.
We know Australians have the brains and abilities, the quality institutions and the market and business sophistication to match the best in the world.
The broader picture is, however, not so encouraging. According to the OECD’s Innovation ranking Australia is not an innovative nation. Innovation output is low and Australia is not leveraging its inherent advantages.
Australia needs to be both an exporter of minerals and also an exporter and implementer of profitable new ideas.
To become an exporter of new ideas, Australia must become a leader in education and research and develop a pipeline of talent, knowledge and skills, especially in the STEM subjects.
We need to work more closely with leading universities and with other research organisations such as CSIRO. Collaboration with these institutions will stimulate and shape the development of technologies, create scientific research that aligns with commercial needs, and foster an educational environment that inspires our best and brightest students to apply their intellectual know-how to industry in Australia.
It can be done!
In recent years, we have seen innovations applied to our operations from wireless tracking technology and navigation systems for automated vehicles to data analysis tools and open pit mining design.
And this innovation has made our operations safer and more productive.
We can apply these same skills and experience to respond to major complex global issues like climate change and accelerate efforts to drive energy efficiency, build resilience to physical impacts and develop and deploy low emissions technology.
For decades to come, fossil fuels will continue to be a significant part of the energy mix globally (and in Australia). Australian businesses need to reduce their emissions and prepare for a regulatory response if we are to remain connected to the rest of the world.
At BHP Billiton, we are taking action to reduce our emissions. We remain on track to keep these emissions lower in 2017 than they were in 2006 despite year-on-year increases in production since then.
We are also exploring opportunities to invest in low emission technologies like Carbon Capture and Storage. Investment in CCS is critical sooner rather than later.
If we are to understand how best to meet the challenge of climate change, CCS must be tested at scale for its affordability and effectiveness.
Sustainability and a commitment to ethical practices are now the hallmarks of the modern corporation in Australia and in other leading countries around the world.
Business flourishes under stable social, economic and political environments. The rule of law, transparency and participation in policy and decision-making processes can combine to provide this stability.
Countries that transparently and effectively allocate the wealth from mining for the benefit of its citizens have the potential to attract greater, more responsible and longer term business investment.
Conversely corruption erodes economic and social development and denies millions of people their rights to an education, basic health services and to essential infrastructure.
This is why BHP Billiton supports the Extractive Industries Transparency Initiative and publicly discloses our payments of taxes and royalties to governments. And why through our Transparency Principles, we support a globally consistent and mandatory disclosure framework.
It is vital to Australia’s position on the world stage that we continue to uphold and actively promote good governance and responsible investment.
It is imperative that Governments, civil society and the corporate sector work in partnership to support transparency and fight corruption.
The minerals sector has an important and strategic role in Australia – a role based not on the cyclicality of our industry but on making a fundamental contribution to the fabric of this country.
We have many competitive advantages – our superior resource endowment, geographic location close to key customers, infrastructure linking these resources to markets, a skilled workforce and our stable political environment.
These advantages set the Australian resources industry apart.
The mining sector must lead the way with innovation and sustainability to maximise the economic and social benefits of our operations and minimise our environmental footprint.
It is vital for our industry’s future that we take a pro-active role with Government in the discussion and development of long-term policies and regulatory frameworks that affect us. And by supporting their development, we attract and retain tomorrow’s problem-solvers and inventors.
Our industry is strong and vital to this country and to all Australians, from those who work in our mines and operations across the country, those who supply essential services to the industry, the many engineers, scientists and innovators to the millions of Australians who invest in us.
The values that Australia was founded on propel our industry forward – fairness, equality, stable liberal democracy and the spirit of ingenuity and innovation.
With a long and proud history, we can look forward to a promising future where the mining industry will continue to be a cornerstone of Australia’s economy.