21 April 2016
Mike Henry, President Operations Minerals Australia
Melbourne Mining Club
Melbourne Town Hall, 21 April 2016
Members of the Melbourne Mining Club, distinguished guests, ladies and gentlemen.
I’d like to acknowledge the traditional owners of the land on which we are gathered – the Wurundjeri people of the Kulin nation – and pay my respects to their Elders, past and present.
I would also like to welcome special guests here today, in particular The Honourable Gary Gray, Shadow Resources Minister, who is retiring this this year. Your contribution to good public policy and overwhelming passion for the resources sector will be surely missed.
It’s good to be here with you today and my thanks to the Melbourne Mining Club for the opportunity. I thought I might start my talk with a reflection on history. The building we are in today – the Melbourne Town Hall – was opened in 1870, only a short two decades after Melbourne was first declared a city.
It was built on the proceeds of the Gold Rush, which saw Melbourne become one of the world’s wealthiest cities. The ‘Marvellous Melbourne’ of the 19th century was founded upon mining.
In historian Geoffrey Blainey’s book “The Rush That Never Ended” he makes reference to a popular English novelist visiting Melbourne in 1871, and being told that ‘if he walked the length of Collins Street he would hardly meet a man who had not owned a mining share’. Mining was helping to power the economy and it seems that everyone had an interest in the industry.
A century and a half later, not much has changed. The resources industry has helped Australia become one of the world’s richest economies.
Be it through share ownership, superannuation, direct and indirect employment, or the high standard of living and the generous social safety net that are supported by our national prosperity, all Australians have benefited from the industry, be they on Collins Street or any other street.
The contribution of the industry to the nation was particularly marked during the recent boom and today resources industry GDP continues to grow more rapidly than the economy as whole.
This is one of the factors that has helped Australia to beat the odds to achieve steady, continual growth in spite of the malaise that has plagued the global economy this decade.
We can’t be complacent though. As a nation, we face ongoing challenges – shifting geopolitics, global economic uncertainty, stiff global competition, weaker markets for our commodities and increased market volatility. I’m pretty sure that everyone in this room has borne some pain associated with these challenges in recent years.
In the face of these challenges, we can’t stand still. We need to be persistent and bold when it comes to those things that are within our control. This applies to both business and to government. Together we must ensure we remain innovative and productive.
Our ongoing prosperity is going to require us to continue to evolve in a way that sees us to rise to the challenges and opportunities ahead of us. We must build upon our natural strengths and on the foundation of the current economy.
The resources industry will continue to be an important part of our nation’s future growth story.
As we have come off arguably the largest resources investment period in our history, today there is much discussion about the Australian economy being ‘in transition’.
The recent period of intense resource project investment has resulted in an increase in the size and scope of the resources industry and the infrastructure that supports it, from which Australia will derive lasting benefit. We are now seeing increasing capital and effort being devoted to other sectors of the economy. This is a good thing. Diversity can only make us more resilient.
Given the contribution of our industry to the nation and the substantial opportunity that yet lies ahead, this doesn’t mean we will transition from resources to something else. It means we will strengthen other aspects of the economy, even as we continue to grow in resources. It will be resources and medical research, resources and higher education, resources and agribusiness.
Australia’s wealth and standard of living has grown at a quicker pace than most other developed economies over the past couple of decades. Our GDP per capita has risen by over 50 per cent in real terms since 1990 when we were ranked 17th in the world. Today, we are 10th. This was enabled in part by the fortuitous coming together of our natural resources endowment and the rapid growth in Asia.
Our industry employs more than 230,000 people in Australia with many more benefiting indirectly. Resources contributes 8 percent to GDP and accounts for around or more than half of our merchandise exports. In fact export earnings from resource and energy commodities in FY15 were just shy of $150 billion. There is no other single sector that contributes as much to Australian prosperity, or the sustainability of our balance of payments.
Yes, the pace of global commodity demand growth has slowed with a flow-on impact on investments and margins, but if we stay competitive, we can ensure an industry that is not only sustainable but which is able to capitalise on ongoing global growth.
Oxford Economics is forecasting GDP growth of around 5% per cent per annum in emerging Asia to 2030.
Australia’s proximity to Asian markets, our natural resource endowment, and our modernised and expanded infrastructure, position us well to continue to benefit from this growth.
Now, we shouldn’t expect that prices and margins will be as high as they were over the past decade.
The sustainability and growth of the industry, is going to depend on our ability to drive competitiveness and margins through productivity.
Our industry has made great strides in this regard in recent years, but we still have as a long way to go.
We have clawed back some of the productivity lost in the past decade. We’ve done this through a combination of working harder and smarter. We’ve brought a particularly sharp eye to bear on costs. We’ve been squeezing our assets more strongly.
As we move beyond the initial phase of productivity rebasing, ongoing improvement is going to be increasingly reliant upon doing things ‘smarter’.
Now of course, innovation is already a big part of our industry.
Examples at BHP Billiton in recent years include:
- The technology being used to improve the discovery and understanding of our ore bodies and our reservoirs such as the advanced application of 3D seismic, and the use of hyperspectral downhole assaying to log in-situ data in respect of the ore body;
- Technologies to improve the extraction and processing of our resources such as advanced heap leaching of copper ores, longwall top coal caving for increased extraction of thick underground coal seams, equipment automation, and the use of directional drilling and improved fracking in our Petroleum business.
- We have sought to restructure work and work practices in way that allows our equipment to be engaged in more productive work, more of the time.
- And there are instances in which we bring technology and ways of working together to unlock even greater productivity. This includes the remote operating centres that we and others have deployed in industry. At BHP Billiton we are currently replicating this from our West Australian Iron Ore Asset to our Eastern Australian Coal Assets.
It is through innovation in technology and in the way we work that we’ll lift ourselves to the next level of performance. This will allow us to sustain our competitiveness and to continue to grow.
Now, at BHP Billiton we also understand that the heights we can reach and how quickly we can get there will be partly a function of the system in which we operate. I’m not talking here about our IT systems – although they’re of course an important enabler. I’m talking about the way we’re organised, the way we work and the requirements we operate to.
Many of you will be aware of the recent restructuring that we’ve undertaken.
In simple terms we’ve streamlined our functions and we’ve brought our operating assets together geographically in a way that will enable sharper focus and accelerated deployment of best-practices, including the more rapid adoption of new technologies, all in an effort to allow us to reach even higher heights of safety and productivity.
We’ve taken the hard steps of simplifying our company through the South32 demerger and of reforming our system through the recent reorganisation. We’ve done so in spite already having achieved over US$10 billion in annualised productivity improvement in recent years.
This is because we know we can’t rest on past performance and we can’t take tomorrow for granted. We believe that we needed to tackle these changes in order to meet the challenges and opportunities on the horizon. We need to set ourselves up to achieve world class productivity throughout the whole of our value chain.
In order to enable competitiveness and set ourselves up for the future, we have reformed our system – how we organise ourselves and how we interact.
Now, clearly reform like this is hard. Even harder after a boom. A boom doesn’t just hide inefficient policies and practices – it institutionalises them.
And a long period of good times can cause people to forget that the need for reform is constant. It requires relentless attention. It requires good ideas and ongoing investment of capital and effort.
You can guess where this is going. These same principles that apply to business, also apply to the nation. Our institutions require constant tending and renewal.
And historically we’ve managed to do this well.
The common narrative is that the Mining Boom is responsible for Australia’s golden run as an economy – a run that began in the 1990s.
The reality is that while mining was a pretty big factor in our increasing prosperity in recent decades, it was by no means the only factor. For example, we also had the opening up of the economy that began in the 1970s, financial reforms, privatisation, competition, superannuation and industrial relations reform in the 1980s and 1990s, and tax reform in the early 2000s.
There’s more to the success of the Australian economy than just high commodity prices. Successive governments have managed the tension between constancy and reform in a way that has enabled continued competitiveness and economic renewal. Not always of course, but on balance we haven’t done a bad job.
As a nation we have stepped up and met the challenges and opportunities that come with competing in a fast-paced global economy.
Government and business can share credit for Australia’s economic success. We also share the responsibility for securing Australia’s future prosperity.
Business bears the primary onus for ensuring we are able to out-compete our global peers. But to be successful in this we also need governments to foster industry competitiveness and sustainable growth, including through reform of our institutions.
Amongst other priorities, this means:
- Continuing to work internationally to bring down barriers to trade;
- Making the tax system simpler, to attract ongoing investment; and
- Reforming the workplace relations framework in a way that supports safe productivity – through fostering workplaces that are more balanced, flexible, and innovative.
I’d like to elaborate a bit on that final point – workplace relations. There is no doubt of the role that it plays in underpinning our national competitiveness.
The current legislation operates in a way that isn’t always as balanced as it needs to be. It is a factor in constraining innovation and limits the creation of workplaces with the flexibility required to be productive and truly competitive in global markets.
Our nation must be able to unleash the full potential of both our capital and our people. Reform will help to secure Australian competitiveness and will help to protect jobs – or rather even grow jobs.
Now let me be clear, we are not proposing radical reform of the workplace relations system. Instead, we believe that there is a small set of reasonable, achievable changes that should be pursued. There are aspects of the Act that we believe reach well beyond the original intent and the basic protections that we all support.
In our submission to the Productivity Commission, we’ve proposed a few changes that we believe would see the system operate in a more balanced way, would support the culture and processes necessary for ongoing innovation, and would foster the flexibility necessary to compete in dynamic global markets.
The first thing that we need is for the content of Enterprise Agreements to be limited to the key conditions of employment which they were originally intended to cover. Absent a constraint, we have seen the content expand well beyond those relating to the key terms of the relationship between an employer and employees.
This has reduced flexibility and slowed up innovation. It leads to more time for bargaining, more points for dispute, and more potential for industrial action. This isn’t good for business or the economy, and in the long run it’s not good for workers. Australian business is made less competitive, impeding growth and putting jobs at greater risk.
Realigning permissible EA matters to the key conditions of employment would increase the efficiency of the EA system, would reduce the potential for disputes, and would foster a more collaborative, less transactional, relationship between employers and employees.
Freedom of association provisions are another example of where change is warranted. I support strong protections for employees from being victimised based on union membership, as well as for non-membership.
However, the current provisions operate in a way that goes well beyond protecting against genuine discrimination. This leads to uncertainty around ordinary operational decision making and performance management, impeding competitiveness. The broad nature of the provision also disincentivises actions that would otherwise safeguard jobs.
We have also advocated for sensible change to the Right of Entry provisions to allow greater flexibility for employers in arranging - not blocking - union right of entry accesses. This would support safety and productivity, while still ensuring the ability for employees and unions to meet.
These proposed changes are moderate and targeted. They focus on productivity improvement. They are intended to help us be competitive in the global market, and in doing so they would help to preserve and grow jobs in Australia.
Reform is a shared responsibility. Our industry, has a role in continuing to make the case for reform, and needs to continue to engage with all stakeholders to help achieve the changes that will make us and the nation more competitive.
In closing, let me come back to the Town Hall.
As I said, this building is a legacy of the prosperity of that bygone era – a time when Victoria was the wealthiest colony in the British Empire.
However, that prosperity did not last. Within 20 years, Melbourne went from boom to bear town. The property bubble burst. Debt was out of control. And the colonial government and businesses were unprepared. They didn’t adapt and reform quickly enough.
That’s of course easy to see and say in hindsight. In the moment, it can be easy to find reasons for why innovation and reform are all too hard. In fact Melbourne itself was named after the British Prime Minister of the day, Lord Melbourne. Lord Melbourne was known to be loathed to take on reform and one of his legacies is the political saying on policy reform – ‘why not leave it as it is?’.
I think that the answer for us today is that the world around us is not staying as it is. We can adapt to our circumstances and chase our opportunities or we can stagnate in the policies and approaches of headier times.
Industry and government must work together and lean into the hard changes required to secure our nation’s future prosperity.
Together, we must rise to our challenges and chase our opportunities.
For more information, please see the media release.