Around the turn of the millennium, the bosses of Billiton, then an ambitious South African mining company, sat in the lobby of a big fund manager waiting to talk up their firm’s prospects.

At first, they were welcomed warmly. But their hosts’ smiles turned to frowns when they discovered that the waiting delegation was from a firm in the unfashionable business of mining. They had been expecting a group from lastminute.com, an online travel agent with a seemingly bright future.

That is how the British magazine The Economist recalls the starting point of BHP Billiton ten years ago, in early 2001, when investing in mining was regarded as misguided, and investment in what became the dotcom bubble as the height of enlightenment.

At that stage, the long-standing Australian mining company, Broken Hill Proprietary (BHP), had become so run down that it was being referred to disparagingly as Broken-Hearted People.

But it merged with that “ambitious South African” Billiton, and a decade on, the combined BHP Billiton is a top-ten global company, which is well and truly the hardest hat in the global mining business.

Today it sits with a market capitalisation of more than $280-billion, while lastminute.com, a minnow by comparison, bought in 2005 for just over $1-billion, is out of sight and mind.

But as vigorous as BHP Billiton is in other jurisdictions, its South African businesses – headed by chairperson Xolani Mkhwanazi who is also the current president of South Africa’s Chamber of Mines – are no longer growth engines.

For instance, the illustrious company’s energy-hungry KwaZulu-Natal aluminium smelter business has gone ex-growth in energy- short South Africa, and the undisclosed price that State-owned power utility Eskom charges for the electricity BHP Billiton uses in those smelters is the subject of an upcoming court case aimed at forcing Eskom to provide full price disclosure.

The pricing arrangement was entered into when Eskom had an abundance of power capacity, which resulted in the power utility agreeing to a price formula that takes into account the aluminium price, currency value and inflation.

Although Eskom has begun to increase its electricity tariffs substantially, these tariffs do not apply to the long-term, commodity-linked pricing agreement it has with BHP Billiton, which is due to expire only in 2028.

Then, in the case of BHP Billiton Energy Coal South Africa’s (Becsa’s) coal-mining activities in South Africa, Becsa is currently selling some of its undeveloped coal prospecting rights, and the strong rand has also lowered the profit expectations from the new Klipspruit and Douglas Middelburg Optimisation coal operations.

What could be a growth engine is BHP Billiton’s manganese business in the Northern Cape, but expansion of this has been held back by the constraints of the State-owned rail network.

Mkhwanazi believes that there is significant manganese potential to unlock through the provision of adequate rail infrastructure, and advocates that South Africa “starts doing things a bit differently”, particularly with regard to providing rail infrastructure to optimise the manganese endowment.

BHP Billiton is specifically ready to cooperate with State rail enterprise Transnet to provide adequate rail capacity in the Northern Cape.

Another area of potential greenfield growth in South Africa is in oil and gas, but the South African government has made BHP Billiton wait an inordinately long time for petroleum explora- tion rights off South Africa’s West Coast.

Had these rights been awarded sooner, BHP Billiton would probably have been at an advanced stage of exploration by now. But, with the rights granted only late last year, the company has yet to make a formal announcement on when it will commence with exploration drilling.

BHP Billiton regularly announces record profits, greater share buy-backs, huge cash flows and negligible debt. In the next five years, it will spend a prodigious $80-billion on new resource developments, but very few, if any, of those billions of dollars will come the way of South Africa, despite this country being on the ground floor of its inception, and despite BHP Billiton being led by South African-born CEO Marius Kloppers.

The two-headquartered, dual- listed company run as a single entity from Melbourne and London produces iron-ore, thermal and metallurgical coal, crude oil and natural gas, base metals, diamonds, manganese and stainless steel materials from what it calls tier-one assets.

Also, as big as it is, it does not always have things its own way. For example, last year, its bid to take over Canada’s Potash Corp was a high-profile failure that is continuing to elicit comment.

Only last month, the brazen Potash Corp CEO Bill Doyle chose to poke fun at BHP Billiton’s attempt to build the new Jansen potash mine in Saskatchewan, likening BHP Billiton to “those camping at the steps of England’s famous Westminster Abbey, in the futile hope of being invited to the royal wedding”.

Doyle based his ridicule on his contention that potash prices will have to reach $1 000/t – nearly triple the $366/t average price for the first quarter of 2011 – to justify new mine development.

But BHP Billiton’s view is that potash is not dissimilar to coal mining, where it has vast experience, and Potash Corp may live to feel BHP Billiton’s competitive heat in the potash field.

Failure in Canada has not stopped the company’s entry into new fields.
In March, it entered the shale gas business when it acquired Chesapeake Energy Corporation’s interests in Fayetteville Shale, of the US, including the midstream pipeline system.

Shale gas has had a game-changing impact in the US and the rush by companies to become involved has been dubbed ‘the shale gale’.

It has the scope for growth of the magnitude that BHP Billiton favours and analysts see the payment of 80c/mbtu as fair.

The assets acquired produce over 400-million cubic feet of gas a day and include development options that will support substantially higher production over a 40-year operating life.

Diversified miners like BHP Billiton, Rio Tinto, Anglo American and Xstrata insulate themselves from the cyclicality of commodity prices by producing a range of different metals and minerals, the prices of which rise and fall at different times.

BHP Billiton emerged from the recession stronger than other miners, its robust balance sheet allowing it to maintain investment while other big firms slashed capi- tal expenditure.

In 2009, BHP Billiton was able to spend $10,9-billion, more than the previous year’s spending of $9,5-billion, while Rio Tinto was able to spend only $5,4-billion in 2009, $4-billion below what it had planned to spend.

The steady investment helped BHP Billiton to keep its existing mines running at peak, as well as embark on some expansion projects.

But, despite its strong balance sheet and early South African influence, BHP Billiton is not showing an appetite for investment in Africa.

Ironically, Rio Tinto, the company it attempted to acquire before the global economic meltdown, and which has been slowed down by considerable debt, is showing far greater propensity to become more involved in Africa.

Rio Tinto has assumed recent control of ASX-listed coal miner Riversdale Mining’s Southern African metallurgical coal assets in Mozambique’s Tete province, which is being likened to the Bowen basin, which has created so much wealth in Australia.

Rio Tinto is also moving closer to production at its Simandou iron-ore project in West Africa, after signing a settlement agreement with the Guinean government.

The overall project cost, including infrastructure development, is expected to top the $10-billion mark.

During the March quarter, BHP Billiton approved projects worth $9,8-billion, the lion’s share of which will take place in Australia.

Africa will receive only moderate grassroots exploration expenditure on copper targets in Zambia and manganese targets in Gabon.

BHP Billiton’s supply of iron-ore, metallurgical coal and stainless-steel ingredients positions it well to benefit from China’s growth, which is heavily dependent on steel.

However, should China’s demand for steel fall, the company is conversely positioned to face more risk than even demand from upcoming India, which is less inclined than China to build high-rise steel-structured buildings, may be able to mitigate.

But as matters stand, the Chinese steel sector is expected to virtually double over the next 15 years, from its current production of 600-million tons a year.

Against the background of some Beijing officials blaming BHP Billiton for the failure of the 2009 Rio Tinto and Chinalco joint venture deal, the company appears to be taking steps to defrost its relations with China.

One of these is the sponsorship of a new chair of Australian studies at Peking University, in Beijing, in order to enhance research and education opportunities between the two countries.

For some time, BHP Billiton has also been advocating more transparent iron-ore pricing, which is seen not only as an important business move for both producers and consumers, but also as a means of removing fears of alleged industrial espionage, which were raised in WikiLeaks reports.

According to a WikiLeaks cable, BHP Billiton played a role in preventing Chinalco’s proposed $23,9-billion investment in Rio Tinto by encouraging the Austra- lian government to “draw a line in the sand” against large-scale Chinese investment in resource companies and projects.

But because these require huge effort and cost, no CEO wants to expend the time and the money if there is more than a half chance of deals being blocked by competition authorities or, as is also cropping up even in the developed world, resource nationalism.

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