Edgar Basto, Asset President Western Australia Iron Ore
20th Annual Global Iron Ore and Steel Forecast Conference, Perth, Australia, 29 March 2017

Presentation (PDF 534 kb)

Good morning ladies and gentleman.

Before I begin, I would like to acknowledge the traditional owners of the land we gather on today upon the Whadjuk Noongar people, and their Elders past and present.

And, given that today my focus is BHP Billiton’s WA Iron Ore business, I would also like to acknowledge the traditional owners of the land upon which our Pilbara operations are situated.

It is my pleasure to be here today as BHP Billiton’s Asset President of WA Iron Ore.

Please take note of the disclaimer slide, which is important in relation to today’s presentation.

In today’s presentation, I will touch on:

• The health and safety of our people and the communities in which we operate always come first;
• A brief description of the market and what we expect going forward;
• Our focus on continuous improvement and how our Tier 1 assets will deliver sustainable returns for the future; 
• South Flank as our preferred option to sustain volumes; 
• How our new operating model and commitment to an inclusive and diverse workplace will deliver and sustain transformational productivity;
• And finally, how we are partnering with our local communities to share in our success.

I will now reflect on the global outlook for iron ore supply and demand.

World economic growth is likely to remain within the range of three to three and a half per cent this calendar year. A move above this range will be delayed by rising political uncertainty, which has the potential to weigh on international trade and business confidence.

However – our view on China remains unchanged. China’s economic growth rate is expected to moderate in the coming year, consistent with official guidance.

China’s policymakers will continue to seek a balance between pursuing reform and maintaining macroeconomic and financial stability. We expect a continuation of efforts to address excess capacity and improve balance sheet health in over-indebted sectors.

Global steel production growth gained momentum in the first half of the 2017 financial year, led by a recovery in China.

While Chinese steel production growth is expected to moderate as the rate of growth in the housing market eases amidst escalating supply-side measures, we continue to see upside given that steel stock per capita in China still lags behind that in the US and Europe – as is clear from the graph shown here.

China’s steel stock will need to continue to grow for its continued economic development.

While we expect to see a moderation in Chinese steel demand growth over the long-term, the path could be more volatile from year to year due to cyclicality in end use sectors, as well as in the inventory held in the supply chain. 

In the long-term, we expect the global steel market will grow modestly, supported mainly by incremental demand from India and other populous emerging markets, including elsewhere in Asia, which will require steel for their economic growth, and add steel stock for their urbanisation and industrialisation.

The BHP Billiton view on steel trade flows is that China will export steel to feed part of Emerging Asia’s market demand. As a result, a greater share of Chinese steel production will be drawn from the country’s southeast coast, which will support modest growth in global demand for seaborne raw materials over the next decade or so.

The growth of seaborne iron ore supply is expected to out-pace total demand over this period.

Overall we believe we are well positioned, as low-cost iron ore producers in established locations are expected to lead this supply.

The supply-demand scenario in 2016 did not materialise as expected due to supply misses and positive demand surprises.

From the chart, we can see coking coal prices increased through to December 2016.

The surge in coking coal prices led to an increase in demand for premium iron ore products, which require lower levels of coking coal for steel production.

Despite coking coal prices softening from the peak, the discount for 58 per cent iron ore has continued to widen supported by strong steel margins and the drive to maximise productivity.

BHP Billiton has benefited from this drive for quality, through our leading position in both high quality coking coals and iron ore.

At BHP Billiton WA Iron Ore, we continue to strive for consistent supply of both volumes and quality to market as our customers increasingly stress preference for reliability and consistency.

The short-term market is likely to see moderating Chinese steel demand growth and a significant amount of low cost seaborne supply from the major producers in Australia and Brazil over the next two years.

Against this back-drop I will now turn my focus to the performance of the BHP Billiton Western Australian Iron Ore business.

Our continuous improvement effort, coupled with the ramp up of additional capacity at Jimblebar saw WA Iron Ore produce record volumes of 136 million tonnes in the first half of this financial year at a unit cost of US$15.05 per tonne. This was despite a higher Australian dollar and over US$1 per tonne related to a series of one-offs.

This program enabled us to capture the benefit of higher iron ore prices, which supported an increase in return in net operating assets.

We have identified productivity initiatives to lower costs even further.

These reductions will be achieved sustainably through focusing on:

• Realising the capacity of the whole supply chain, through further synchronisation between mines, rail and port;
• Improving our maintenance practices through standardised work to reduce equipment downtime and cost;
• Continuing to drive efficiencies in material and consumables by eliminating waste in usage and ensuring we are getting the best price in the market.

It has been three years now since we embarked on our WA Iron Ore-wide Continuous Improvement program and the results speak for themselves.

Our 9,000 people have generated over 5,000 initiatives across safety, culture and productivity areas.

We have continuously reinforced a “back to basics approach” focusing on operational discipline and ongoing engagement with front line personnel, which is driving marked improvements in our business.

As I said at this event last year - we recognise that no one knows more about a job than the person that does it, and that the ideas of our people should be heard, implemented and rewarded – Our approach has not changed and is continuing to deliver benefits.

We are doing what we have always done, but doing it better – and since our continuous improvement program commenced we have:

• reduced our Total Recordable Injury Frequency by 11 per cent;
• closed the gap on high performing companies in the areas of “inclusion”, “lead change” and “sustainable engagement”;
• increased production by 26 per cent;
• and reduced unit costs by 48 per cent.

I will now explore each of these in a little more detail starting with the most important - Safety.

At BHP Billiton, the health and safety of our people and host communities always comes first.

Nothing is more important than ensuring that each and every one of our employees goes home safe, every day.

We always strive to improve our safety performance, without increasing complexity, and since the commencement of this financial year, our people have created 275 safety initiatives across the supply chain.

Whilst improving safety performance these initiatives have also delivered a major productivity benefit as well – For example, the time taken to complete a shutdown on a Liebherr Hydraulic excavator has fallen by almost 40 per cent, reducing the teams risk exposure while allowing a faster return to service.

Our culture has also improved through our continuous improvement journey, as we’ve been deliberate in engaging all our employees – at every level - in stepping up to identify and solve business problems.

So far approximately one quarter of WA Iron Ore employees have submitted an improvement initiative into the program... we are excited by what could be delivered if this were 100 per cent.

This program is helping to build the culture of collaboration across our teams.

We have many examples across the supply chain of what our continuous improvement approach has achieved in productivity:

• In the past year Mining Area C has improved truck productive hours from 5400hrs to 6000hrs;
• At our rail operations, optimising fuel injector tuning in locomotives has led to cheaper injector cost and reduced fuel usage;
• We are taking a manufacturing mindset approach, a good example of this is our recent re-railing activity - previously it took ten hours for 1.5 kilometers, now it takes the team four hours for three kilometers, and their sights are set on six kilometers in six hours.

We now expect our re-rail program to be complete in the June 2017 quarter – 6 months ahead of schedule, which will help to deliver the long-term supply chain reliability to support 290 million tonnes per annum capacity by the end of the 2019 financial year.

This program replaces the rail to make it better for heavier axels, improves reliability and allows for higher speeds. This will deliver a reduction of cycle time of more than 130 minutes, or 6 per cent.
We are also looking at ways to optimise our supply chain.

Technology has worked with WA Iron Ore’s Integrated Planning and Remote Operations (IPRO) team to develop a rail-scheduling tool, which applies new algorithms that continually learn and optimise rail movements.

Train scheduling is one of the most critical components in transportation and the tool has enabled IPRO Scheduling to capitalise on the upside within the rail system.  The project commenced in March 2016 enabling the capture of 47 additional trains over the 3 months measured from September to November 2016, with further upside achieved on an ongoing basis.

Our Yandi mine, located in the central Pilbara, and currently operating at 80 million tonnes per annum, will be depleted over the next five to ten years and we are looking at options to sustain this production.

South Flank is currently the preferred long-term solution, and the investment case for using this deposit for replacement tonnes is strong, given the ability to leverage aspects of the existing infrastructure at the MAC operation and excellent ore quality.

The return of a more stable investment environment in WA helps build our confidence to make this significant investment.

While this project is still in study phase, if approved by the Board, it will see development of the world’s largest iron ore mining and processing centre located next to billions of tonnes of high-grade resources.

This operation would continue our path to reducing operating costs by generating favourable economies of scale and synergies.

So far I have focused on what is happening at WA Iron Ore.

I also want to touch on how our new operating model, introduced just over one year ago, has changed the way we work globally and is helping us further accelerate our performance.

In its simplest form, we now have Global Functions wrapped around three key regions being Minerals Australia, Minerals Americas and Petroleum.

WA Iron Ore forms part of the Minerals Australia region along with our Australian Coal, Nickel and Copper Assets.

Just twelve months on, this new way of working is delivering significant value through the collaboration, sharing and replication we are seeing both regionally and globally.

Maintenance is one area of significant opportunity as it represents one third of our total cost base.

To accelerate maintenance performance we have established a Maintenance Centre of Excellence, to help us deliver the highest standards of maintenance globally.

The Centre focuses on leveraging and improving the way our maintenance teams use the wealth of information that our people and systems have to offer.

The WA Iron Ore maintenance teams play a critical role in working with the Centre to develop world-class total equipment strategies for our largest equipment classes.

Teams will have the opportunity to work with subject matter experts from across BHP Billiton to use their collective knowledge, business data and manufacturer information to develop the best possible equipment strategy for the business.

We have analysed BHP Billiton’s equipment classes by their maintenance cost and business priority to identify where standardisation could have the largest benefits. This led to a focus on our Caterpillar 793F trucks.

Ten of our team members recently contributed to the development of a new equipment strategy that we anticipate will result in cost savings of over A$95M for WA Iron Ore and A$400M across BHP Billiton for the life of these trucks alone.

This is due to:

• 20% improvement in the engine life;
• 50% improvement in the life of the front suspension cylinder life;
• 20% improvement in final drive life; and
• servicing focused on tasks to improve reliability.

The Centre is also looking closely at how we can use data mining technology to quickly and accurately analyse data and then recommend the optimal maintenance solutions.

By lifting the technical strength of our teams, leveraging and improving technology, standardising global best practice and building a sense of pride in the maintenance profession, we will deliver a higher quality of work across maintenance.

This is a fantastic example of how our new operating model allows us to engage our workforce at all levels of the organisation to share, standardise and replicate.I have touched briefly on culture, however in order to deliver on what I have outlined today, we fundamentally believe that having the right culture is the key enabler to unlocking our full potential.

We recognise that if we have a workplace where we leverage the capability of our talented workforce and empower our people to speak up, bring all their ideas to the table, enjoy coming to work and give their best effort every day – we will deliver high performance.

I cannot emphasise enough how critical this is to our business.

This is captured in our Company Charter, which is at the heart of everything we do and helps guide our decision-making.

Making changes to our Charter is something we don’t take lightly, however in October last year we updated it to include an important statement - “We are successful when our teams are inclusive and diverse".

Over the past 3 years, our Company’s most inclusive and diverse teams have outperformed the BHP Billiton average on Safety, Culture and Productivity.

Our most inclusive and diverse teams have 19 to 68 per cent lower Total Recordable Injury Frequencies, rate BHP Billiton more favorably, are more confident to raise issues and are more productive.

Why? Because people in these teams feel safe to speak up, share ideas and work together to solve problems and make better decisions.

They bring a diversity of views, backgrounds and experiences to the workplace, which are respected and valued by their peers and leaders.

At BHP Billiton we are committed to improving the overall diversity of our workforce – looking more broadly for diversity of cultural background, diversity of views, thinking styles and experiences.

Initially we are focusing on female representation and Indigenous participation, as we know this is where we have the greatest opportunity to ensure our workforce is more reflective of our society.

We are aspiring to a gender-balanced workforce by 2025.

We are doing this because it is the right thing to do, because it makes business sense and has a positive flow on to the economy.

We know this will be critical to shifting how we think about solving business problems and begin to really leverage the benefits of diverse views and experiences.

This is key to unlocking our full potential.

We recognise that we do not operate in isolation and that we rely on the support of all of our stakeholders, including the local communities and government where we are located.

This year we are celebrating an important milestone – 50 years since the commencement of construction of Mt Whaleback and the Newman town.

We are proud to be a part of the Pilbara community over the last 50 years and plan to be around for at least 100 more.

The information shown here represents the contribution of WA Iron Ore for financial year 2016.

We are proud to share the benefits of our operations with the local communities where we operate, Western Australia and the nation in the form of taxes, employment, local purchasing and social investment.  However, we can do better – and we will do better.

We must build stronger relationships with the communities where we operate, with governments and with other industry members.

We must be humble in our approach, and work together to build a shared vision and plan and collaborate to deliver on our shared goals in partnership with our communities, the governments that represent them and our industry peers.

I have worked as part of a similar approach in South America. I know that being truly collaborative can be challenging. I also know that working together we can deliver more value, shared by everyone, than each of us working alone.

This is a journey that we have only just begun and I look forward to sharing our progress with you in the future.

So in conclusion, to summarise the themes I have covered today;

• At BHP Billiton our people and the communities in which we operate will always come first;
• We believe long term steel demand long growth will be driven by China and emerging Asia;
• We continue to be well positioned due to our continuous improvement drive involving engagement at all levels through bottom-up, collaboration;
• Our Tier 1 assets will continue to deliver strong and sustainable returns through the cycle;
• Our new Operating Model and inclusive and diverse workforce will sustain transformational levels of productivity;
• And finally, we look forward to continuing to partner with our local communities to share in our success.

 We have many opportunities ahead of us, and I am honoured and committed to leading the WA Iron Ore team through the next phase of our industry.