BHPB Billiton LNG International Inc. - The Big fella: the rise and rise of BHP Billiton

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INTRODUCTION

Miners are gamblers; it is the nature of the beast. And there have been no greater gamblers in Australias history than the men of the Broken Hill Proprietary Company Limited and its latest incarnation, the dual-listed colossus BHP Billiton. From The Proprietary to The Big Australian to The Big Fella, the company has become the biggest diversified miner the world has ever seen.

A spirit of adventure and risk-taking (coupled with a ruthless edge) characterised the men who ran the separate companies until they collided and merged in one of the seminal mining events of the new century. And it was within this same spirit that the brash, young, South African-born chief executive officer, Marius Kloppers, ignoring the ancient lessons of Icarus, aimed at world domination in mineral resources with the launch of his hostile takeover bid for Rio Tinto in November 2007.

On a winters day in 2008, just a few weeks before his 46th birthday, he sits tieless in the Copper Room on the 28th floor of the companys global headquarters in the QV building at 180 Lonsdale Street, Melbourne, in the middle of the contest he has codenamed Project de Bello from the Latin to do battle and vanquish. This would be a wonderful thing if we can get it done, he says.

Forces have been deployed on every front to identify the cost-cutting synergies and arrange the finance. BHP Billiton is set to press home its offensive with the announcement of a record annual profit for the seventh successive year: a phenomenal US$15.4 billion to the end of 30 June, a rise of 22 per cent, helped by a jump in commodity prices, higher production and an ability to pass on higher costs.

In terms of market capitalisation at that time, a combined BHP and Rio Tinto would have challenged Exxon, General Electric (GE), Microsoft and Citigroup at the top of the world league. The companies really do overlap in a way that is very, very significant and different from the overlaps between any two other mining companies in the industry, Kloppers says. That applies in terms of operating jurisdictions, in terms of operating philosophies and also in terms of where we operate and share assets like Escondida, the Pilbara, the Hunter Valley and the Bowen Basin.

Sir Robert Wilson, the former chairman of Rio Tinto who was involved in at least two earlier attempts to merge his company with BHP Billiton, was not so sure. Such a behemoth, he said, could well be too big to manage. And he added, What both companies would lose is actually the incentive to improve because it would be daft to deny that for decades BHP and Rio Tinto have been sharpened by rivalry. Take that away and what have you got? Youve got, potentially, a big stodgy vegetable.

Wilsons theory remains to be tested. On 25 November 2008, the bid foundered against a backdrop of European Union opposition and a global credit collapse that saw capital and commodity markets plunge by up to 50 per cent. Mariuss strategy was correct but he isnt clairvoyant so he couldnt factor in the worldwide crash, says Ian Fraser, a former colleague who was closely associated with Kloppers rise to the top.

Kloppers himself was outwardly sanguine about his failure to pull off the deal. As you get to know me, I am the supreme realist in things, he told the Australian Financial Review.