An ongoing union incursion into BHP’s powerhouse Pilbara iron ore operations might stop a multi-billion-dollar expansion from going ahead, warns the company’s chief Mike Henry.
BHP is mulling a plan boost its WA iron ore output from 287 million tonnes a year to 330mtpa and is set to make a decision on the growth scheme by the end of next year.
The gap between the two production numbers at current iron ore prices equates to about $4 billion of revenue.
Mr Henry was asked if a campaign by the Western Mine Workers Alliance — a partnership between the Mining and Energy Union and the Australian Workers Union — to re-unionise the mining giant’s army of Pilbara workers will influence the decision.
“Of course, underlying labour productivity is the one of the factors that drives economics of any future investment opportunity,” he said.
“There’s two opportunities ahead of us at iron ore, one is to go from where we are currently to 305 million tonnes and that largely comes through a focus on ongoing productivity improvement with some smaller de-bottlenecking investments.”
BHP has been pitching the 305mpta goal as ‘medium term’ since 2022.
“And then there’s these studies around lifting production from 305 to 330 million tons per annum, but we’ve been clear that that that that that second tranche of growth isn’t locked in,” Mr Henry said.
“All we’re doing right now is creating the option for ourselves to be able to grow if market circumstances warrant.”
BHP and the WMWA are currently locked in negotiations on the back of Federal Labor’s recent changes to industrial relations laws, following decades of the unions being effectively banished from the Pilbara.
The BHP boss said the full impact of Labor’s industrial relations reforms, such as the Right to Disconnect laws that kicked in on Monday, were still unclear.
“The cost impact won’t come through immediately, this will be gradual over time when some of these changes are brought into effect.”
Despite the looming threat to worker productivity Mr Henry was keen to point out the company widened its lead as the lowest cost iron ore producer in the world, with WAIO’s costs rising 3 per cent — below the inflation rate of about 4 per cent.
He spoke after BHP tabled its 2024 financial year results on Tuesday morning, results which were headlined by lower profit and a trimmed dividend.
The bottom line took a hit from $US12.9 billion ($19.1b) in FY2023 to $US7.9 billion ($11.7b) for FY2024, predominantly due to the $US3.8b WA Nickel write-down booked earlier this year.
Stripping away all the impairments BHP’s underlying profit rose from $US13.4b to $US13.7b.
The final dividend was pared back from $US0.80 to $US0.74, with the shareholder payout ratio falling from 59 per cent to 53 per cent.
This reduced dividend will be felt by the 17 million Australians who hold BHP shares directly or via their superannuation.
BHP is channelling the dividend cash towards higher growth spend, boosting the capital and exploration expenditure budget for FY2025 to $US10b — versus $US9.3b outlaid in FY2024 and US$7.1b for FY2023.
Copper is the key expansion avenue BHP is pursuing via enlarged production hubs for the commodity in South Australia and South America.
BHP last month shook hands with Lundin Mining to acquire Filo Corp in a $3.2b venture. The move will see BHP develop early-stage copper projects in Argentina and Chile. The Big Australian already has the largest copper endowment in the world and owns the globe’s biggest copper mine — Escondida in Chile.
Mr Henry said the company is balancing growing the money spinning iron ore business with a need to enhance its exposure to other commodities.
He reiterated that economic growth in China is cooling, impacting steel demand and subsequently the iron ore market.
“BHP has been saying for years now that we believe China is going to develop along a similar path to what other major economies have taken as they’ve developed, and that means steel intensive initial stage of development, and then if they move past that initial build out of steel in the economy the ongoing economic growth becomes less steel intensive.”
The prediction of plateauing steel demand has induced the company’s deeper push into copper and potash — a fertiliser product.
Construction of its $24 billion Jansen potash project in Canada is ahead of the original schedule, BHP said on Tuesday, with first production now “just over two years away”.
Shares in BHP were up 2 per cent to $41.64 in early trade.
RBC Capital Markets analyst Kaan Peker gave the set of financials the thumbs up.
“BHP’s FY2024 was another strong set of results, which highlights the consistency of the business, good margins and returns through the cycle,” he said.
Underlying profit beat Mr Peker’s expectations by 4 per cent and the dividend announced was broadly in line with forecasts.