BHP Group

Final Consulting Report

Friday 2:00pm - 4:00pm
Kevin Wu

Prepared by

Lawrence Tchoudnovski
z5417083
Arya Rohan z5411222
Niamh Cassar z5418870
Phasith Vanicharoenchai
z5422242
Tables of Content

Purpose and scope 3

Organisational description 3
Mission Statement and Business Purpose 3
Value Proposition and Market Fit 4
Stakeholder Conflicts 5
Recommendation for Creating Shared Value 7
Conclusion 9
Bibliography 10
Appendices 12
Appendix A: The Value Proposition Canvas 12

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Purpose and scope

The purpose of this report is to inform the management of BHP Group on how
well their company is tracking in various dimensions and recommend potential initiatives
for creating additional share value.

Organisational description

BHP is a natural resource company headquartered in Melbourne, Australia. It is

one of the world’s largest mining companies and it supplies essential resources required
for daily life and economic development such as iron ore, copper, nickel, potash and
metallurgical coal. Their products are sold worldwide and many are important for a low
carbon world (BHP 2018).

Mission Statement and Business Purpose

The purpose of BHP is to meet customer demands globally for commodities

through mining to access Australia’s large natural resource base. However, since
establishment, BHP’s mining operations have expanded internationally to meet growing
demand, particularly from China as it attempts to sustain high levels of economic
growth. BHP has many stakeholders such as the government, landholders, employees
and contractors. Those most relevant to its purpose are customers, Aboriginal
Australians and the general public. This is because BHP’s operations have historically
been associated with largely negative effects to the natural environment and land where
native title has been claimed by Indigenous groups. Further, customers are key to
BHP’s purpose regarding the results of its operations, as the use of its products are
fundamental to be used as inputs of production by customer businesses. Overall, BHP
is moderately authentic in stating its purpose, as its annual report demonstrates
evidence of measures undertaken by BHP to reduce environmental harm and better
meet customer needs, however Indigenous groups continue to be adversely affected by
operations of BHP.

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Value Proposition and Market Fit

A customer segment of BHP are companies in the steel industry in China. A

persona within this customer segment is Baosteel Group who are a state owned iron
and steel company, headquartered in Shanghai, China. They are also the second
largest steel producer globally, resulting in their high demand for raw commodities to be
used in the manufacturing process of steel. More specifically, they purchase the product
of iron ore for a market price point of approximately US$160 a tonne (BHP, 2020). The
market of this customer segment is business to business demonstrating firmographic
segmentation, as BHP sells the raw commodities of iron ore to these steel industry
companies, who use the product to manufacture stainless steel to then be sold to other
customers. The type of segmentation is also behavioural as it groups customers based
on their use of BHP’s products and purchasing tendencies, which involve purchasing
large quantities of iron ore year round. This is evident in that BHP formed an agreement
with Baosteel to supply 10 million tonnes of iron ore each year for 10 years at a price to
be mutually agreed each year (BHP, 2008).

The value proposition-customer segment pairing aligns well with BHP’s overall
mission statement as BHP outlines its purpose being to bring people and resources
together. This is key in the customer segment of China’s steel industry companies,
including Baosteel as BHP works to source the inputs of production these companies
require to manufacture the steel they sell. Further, the mission statement also states
that BHP is committed to doing what is right, which aligns with the value proposition in
that BHP’s pain relievers involve the rehabilitation of the environment, such as through
the Olympic Dam closure management.

BHP has been somewhat effective within their research and development of
technology, mainly focusing on increasing efficiency of production of their mineral
products to address their customer needs surrounding the manufacturing of stainless
steel and acquiring iron ore for production use (BHP, 2022). In the 2021 fiscal year, BHP
allocated $199 million toward R&D in which part was allocated toward collaboration with
scientists at Curtin University and The Government’s Cooperative Research Centre for

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Spatial Information (CRCSI) to develop laser-scanner technology to analyse wear and
tear on heavy mineral-processing equipment. Furthermore, BHP’s advancement within
laser-scanner technology would be able to simulate a range of scenarios to assess a
range of scenarios involving economics and physical parameters which would enable
one to analyse multiple production schedules, enhance efficiency of resource modelling
and estimation workflows. This simulation is based on the “GeoMole Borehole Radar”
which uses electromagnetism to ‘see’ through solid rock mass (Australian Government,
2017). This would enable BHP engineers to gain an accurate view of the orebody and
thus, increase efficiency and productivity through faster extraction of mineral products
and reduce consumer pains revolving around time inefficiency. In turn, this technology
would create gain through increased productivity which would result in lower prices
and/or increased profits.

Although BHP has made steady advancement, their R&D on iron ore production
has been declining steadily since 2005. From 1985 to 2005, BHP carried out major R&D
into three projects which aimed to expand production capabilities through new
technological development surrounding air magnetism, EM technology and gravity
gradiometer system to generate accurate detection of orebodies and hence, increase
productivity (Witherly, 2018). Hence, their technologies developed could be considered
somewhat successful at strengthening and sustaining value to customers by increasing
production.

Overall, BHP’s technological advancements have given them the capability to

fulfil their value proposition to their customer segment by dutifully supplying common
raw minerals to manufacture steel.

Stakeholder Conflicts

One of the main stakeholder groups of BHP is the Indigenous communities

located near BHP operation sites as they are affected by BHP’s activities. The
Australian Indigenous community consists of Aboriginal and Torres Strait Islanders, with
many distinct groups each with their own traditions and cultures (AIHW 2021). Many of

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BHP’s operations take place in rural areas where some Indigenous communities reside
as the land is rich with natural resources, thus making them important stakeholders of
the company (Sustainability Supplementary Information 2010, p.4). For example, BHP’s
iron ore operations at Mt Newman in Western Australia are located on the traditional
lands of the Nyiyaparli people with the Martu people as the current custodians (BHP
2018).

The main relationship between BHP shareholders and the Indigenous

communities is the usage of Indigenous land and resources for BHP operations such as
mining and processing of minerals and other resources. BHP has recognised its
relationships with Indigenous communities, specifically their wellbeing, cultural heritage
sites as well as the management of the land and environment as some of their major
risks during operations (BHP Annual Report 2022, p.70). BHP is aware that Indigenous
people have strong connections to the lands and waters as it is tied to their spiritual and
cultural wellbeing thus making it important that they respect and take proper care of it
while conducting their operations (BHP Group Global Indigenous Peoples Strategy
2022, p.1).

Before commencing any projects, management attempts to identify any land

owners that may be affected and ensure the land does not contain any cultural heritage
sites. They also negotiate with Indigenous representatives to come to an agreement to
allow them to use the land by offering benefits to the Indigenous community and holding
themselves accountable for damages caused (Sustainability Supplementary Information
2010, p.14).

Conflicts arise between these groups when the Indigenous communities are
reluctant to allow BHP to carry out operations on their land due to the disruption of their
lives as well as the potential harm towards the area and their health and safety. Mining
and processing operations carried out on the land would result in drastic changes to the
area as well as disrupt the peaceful lifestyle that was valued by the communities. The
Indigenous communities value their land and its resources very highly which makes that
their priority when considering any projects. In contrast, BHP shareholders typically

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value the success of their projects to produce revenue for the company, which could
mean implementing cost-cutting measures that come with collateral damage. Hence
when making decisions, shareholders and management have to decide between
prioritising the wellbeing of the Indigenous community and maintaining their good
relationship or the company’s success and profits from the projects carried out.

In some cases, BHP have put their operations above the wellbeing of the
Indigenous communities leading to major conflicts and unwanted publicity. For example,
at the Olympic Dam on the land of the Kokatha, Dieri and Arabana people, the
hazardous tailings waste produced continues to increase each year and could
potentially cause permanent damage to the environment and cause health issues for
the community (theecologist.org, 2020). BHP has also been taking ground water free of
charge from the artesian basin located on Arabana land even though the Basin Springs
had already been listed as an “Endangered Ecological Community” and this has upset
the Arabana people (Noonan, 2020).

Hence, we can see that these business risks are something that have to be
carefully considered by management and shareholders in order for them to be able to
do what is best for their stakeholders as well as for the company itself.

Recommendation for Creating Shared Value

In contemplation of the distribution in development, BHP Group should seek to

preserve and revamp their infrastructure to serve the needs of the local community. As
part of BHP’s Closure and Rehabilitation process, BHP should introduce measures that
redevelop their mining infrastructure into resources that will be beneficial for the people
living in the surrounding area. In the case of the Olympic Dam project, the wind and
solar farms powering their operation should be awarded to the surrounding communities
for household energy usage, once their operation has been finalised.

BHP has always been long-committed to supporting local economic

development. As stated in their annual report, BHP aims to “source and promote locally
available goods and services as an important part of our external expenditure” (BHP

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Annual Report, 2022). This will generally involve BHP relying on local suppliers for their
primary activities as evidenced by the fact that they spend more than $17.6 billion in
payments to more than 8000 supplies in various regions (BHP Annual Report, 2022).
However, for BHP to impactfully contribute to regional development, they need to
commit more than payment to local communities. Given that economic development is
driven by an increase in physical capital, BHP should resort to providing the
much-needed infrastructure.

The “Renewable Energy Diversion” initiative will involve diverting energy to the
surrounding areas for residential use by locals. Specifically, energy infrastructure can be
easily diverted to the surrounding areas, once it is no longer needed by BHP. For
instance, the Nickel West project led to the construction of The Flat Rocks Wind Farm
and Meriden Solar Farm (BHP, 2022). Instead of constructing these energy farms for
the sole purpose of BHP’s operation, they should also be incorporated for personal use.
This initiative means that BHP will be responsible for providing the infrastructure that will
supply energy from these farms to the energy grid of the surrounding area. The
additional cost of the initiative will be low because most of the expenditure is already
accounted for in their fixed cost. Simply, the cost of the diverting grid will be relatively
low when compared with the financial investment in energy farms. Evidently, BHP will
now not only be restoring areas damaged by mining but also improving access to
energy in remote communities.

This initiative aligns with Alex Edmans’ Pie-Growing mindset because it is

creating shared value. In the short run, the diversion of energy will ensure that remote
communities in the Australian outback will have access to electricity. These remote
towns do not have reliable access to power and sometimes may have to rely on diesel
generators for electricity (Clean Energy Regulator, 2021). There is no doubt that
electricity is a basic need and it plays an important role in enhancing our productivity,
comfort, safety, health and economy. In the long run, the higher standard of living will
boost life satisfaction and make regional centres more livable. Although these benefits
are not directed toward BHP, there are clear indirect advantages of a healthier and more

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educated workforce. Importantly the idea, that profits might come from sources we
never expect, is clearly highlighted in Pieconomics (Edmans, 2022). More employable
workers will mean higher productivity, which reduces labour costs and leads to higher
output. Additionally, investment in renewable energy is a major part of green investing.
In 2022, the global energy investment for green energy reached 2.4 trillion dollars (IEA,
2022). BHP’s focus on distributing renewable energy will put them at the forefront of the
green energy transition. This will attract more investment, which maximises the return to
shareholders. All in all, profit can be a by-product of investment in energy infrastructure
in regional communities.

Conclusion

In conclusion, BHP has been authentically delivering its purpose of bringing

people and resources together. They have continuously aimed to reduce environmental
harm and reduce the impact of their operations towards Indigenous groups. At the same
time, they have created long-term shareholder value through technological
advancement that enables them to fulfil their value proposition in supplying raw
minerals. Since the actions of BHP may have disturbed and disrupted the lives of
Indigenous groups, BHP should seek to preserve and revamp their infrastructure to
serve the needs of the local community. All in all, the report recommends that BHP
should pursue the Renewable Energy Diversion initiative to create and boost share
value.

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Bibliography

Australian Institute of Health and Welfare (AIHW) (2021). Profile of Indigenous

Australians. [online] Australian Institute of Health and Welfare. Available at:
https://www.aihw.gov.au/reports/australias-welfare/profile-of-indigenous-australia
ns.

BHP (2018). BHP | A leading global resources company. [online] BHP. Available at:
https://www.bhp.com/.

BHP. (2022). BHP Nickel West secures wind farm power for Southern operations.
[online] Available at:https://www.bhp.com/es/news/articles/2022/04/bhp-nickel
-west-secures-wind-farm-power-for-southern-operations [Accessed 15 Nov.
2022].

BHP Annual Report (2022) BHP. BHP. Available at: https://www.bhp.com/investors/

annual-reporting (Accessed: October 3, 2022).

BHP Billiton Global Indigenous Peoples Strategy. (2022). [online] Available at:
https://www.bhp.com//media/documents/ourapproach/operatingwithintegrity/indig
enouspeoples/170622_bhpbillitonindigenouspeoplesstrategy.pdf?la=en.

Clean Energy Regulator. (2021). Solar power for remote Indigenous communities.
[online] Availableat:https://www.cleanenergyregulator.gov.au/Infohub/case-
studies/Pages/ret-case-studies/Solar-power-for-remote-Indigenous-communities.
aspx [Accessed 15 Nov. 2022].

Commission, A.T. and I. (n.d.). Austrade, Australian Government. [online]

www.austrade.gov.au. Available at: http://austrade.gov.au [Accessed 18 Nov.
2022].

Edmans, A. (2022). The Pie-Growing Mindset | Alex Edmans | TEDxManchester.

[online] Youtube. Availableat:https://www.youtube.com/watch?v=iM67YJtYo6k&t
=60s&ab_channel=TEDxTalks [Accessed 15 Nov. 2022].

IEA. (2022). Record clean energy spending is set to help global energy investment grow
by 8% in 2022. [online] Availableat:https://www.iea.org/news/record-clean-energy
-spending-is-set-to-help-global-energy-investment-grow-by-8-in-2022 [Accessed
15 Nov. 2022].

Noonan, D. (2020). BHP risks Indigenous heritage, workers and the environment.
[online]Michael West. Available at: https://michaelwest.com.au/bhp-cultural

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 -heritage-risk/.

Sustainability Supplementary Information 2010. (2010). [online] Available at:

https://www.bhp.com/-/media/bhp/documents/investors/reports/2010/sustainabilit
ysupplementaryinformation2010.pdf.

theecologist.org. (2020). BHP betrays international safety efforts. [online] Available at:
https://theecologist.org/2020/sep/15/bhp-betrays-international-safety-efforts.

Witherly, K. (2018). Quest for the Holy Grail; BHP’s Geophysical Research Program
1985-2005. ASEG Extended Abstracts, 2018(1), pp.1–6.
doi:10.1071/aseg2018abw8_2d.

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Appendices

Appendix A: The Value Proposition Canvas

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