Arnoud Balhuizen Speech: Understanding commercial value in our connected world

By ogrepublic On Jun 1, 2017

Arnoud Balhuizen, CCO speaks at the Melbourne Mining Club on understanding commercial value in our connected world.

Arnoud Balhuizen, Chief Commercial Officer
Melbourne Mining Club, Melbourne, Australia, 1 June 2017

Good afternoon everyone.

I acknowledge the traditional owners of the land on which we stand, the Wurundjeri people of the Kulin nation, and pay my respects to their Elders, past and present.

Thank you to the Melbourne Mining Club for inviting me. It is an honour to be among so many who are passionate about our industry and have done so much to progress it.

I acknowledge all special guests, in particular, the Club’s patron, Sir Arvi Parbo.

Much of my talk today reflects his career. From Estonia to Australia, via Germany, he took his company from a small gold miner into bauxite, and nickel – elevating it onto the world stage.

I am reliably told – that in the early 70s when the industry was doing it tough, Sir Arvi stared down the critics from his company, the banks, investors and the media to expand his exploration team saying publicly.

“When you are exploring today you are thinking about conditions in 10 years’ time”.

Soon after, this team, discovered the Olympic Dam deposit.

Forty years later we still haven’t scratched surface on the potential of Olympic Dam – it will deliver for Australia for generations to come.

I honour Sir Arvi’s determination and dedication – from which we are lucky enough to be still reaping the benefits of today.

It’s great to be back in Melbourne.

Melbourne is the traditional home of mining in Australia.

And Melbourne, I know, is the multicultural capital of Australia – a melting pot of arts, entertainment and sport.

This is something I can relate to.

While I am Dutch, I was born in Venezuela, I have lived in the Middle East, the Netherlands, Texas, and Singapore.

Having spent time at BHP for 15 years, I think I’m entitled to call myself half Australian as well!

In this day and age though, no matter where you live, everything is connected.

Just look at BHP.

From our humble beginnings of one mine in one town, we now have people in multiple locations around the globe:

From Shanghai to London, Tokyo to Santiago, and from Texas back here to Melbourne.

Yet we’re all connected.

It’s this connectivity I’d like to explore today:

How BHP’s strategy connects to our long-term vision;
How the connectivity within our commercial teams enhances our strategy; and
How our connectivity with the world allows us to see and act upon emerging trends.

We have been around since 1885.

As a Company with a long history and operations that have a productive life that can be measured in decades, we think in generations.

One of the advantages of long-term thinking is perspective.

We’re prepared to withstand short-term volatility because we know change is a constant.

We know technologies, economies and the environment will evolve at a rapid rate.

However, we have a long-term strategy. A strategy that’s remained unchanged for nearly two decades.

BHP, true to this strategy, has a simple, yet diversified portfolio of just 12 core-operated assets – and those assets are well located, with low-costs and attractive future growth options.

We’ve built on this strategy with a discipline to focus on what matters most. Safety, Culture and Productivity.

In February, we announced over 11 billion dollars in annualised productivity gains since 2012.

And that is just the beginning.

From this foundation we have a strong plan for growth. There are significant gains to come.

As Andrew outlined recently in Barcelona, from where we stand today and at consensus commodity prices, we have the potential to grow the base value of BHP by more than 50 per cent through six key drivers:
Productivity;
Latent capacity;
US Shale optimisation;
Growth projects;
Targeted exploration; and
Technology advancement.

The outlook for BHP is strong and we have a unique set of opportunities that will see us prosper, and grow value-per-share throughout the cycle.

That’s the foundation:

Our strategy,
Our three key priorities of safety, culture and productivity, and,
Our plan to grow the value of our Company.

So what part do I play in this? How does my team contribute to BHP’s success through our Marketing and Supply functions?

As Chief Commercial Officer, my team looks at all our key value drivers through a commercial lens.

In simple terms, my team’s role is to maximise the value of every dollar that comes in – and every dollar that goes out.

I believe that the effectiveness of our commercial function is based on two central attributes:

Firstly. How we are structured gives us an advantage.

By combining our marketing and supply teams we have a single strategic view of our entire value chain.

We operate on both sides of the commercial coin.

Let me give you a specific example of how Marketing and Supply – together– can add commercial value:

In US Shale, additional investment creates the opportunity to generate shareholder returns.

But to guarantee the return on investment, we can lock in the revenue line and the cost line.

So, our marketing team deployed a hedging strategy and our supply team fixed over 95 per cent of the costs.

This has secured a 30 per cent rate of return on incremental investments in gas development in the Haynesville.

The second way we maximise the value of our Commercial function is by taking advantage of both our global and local footprint.

The centralisation of our commercial operations in Singapore gives us proximity to our key Asian customers – such as Korea, China, Japan and India.

Asia is our most important market and we need to be at the heart of its demand.

Last financial year almost 70 per cent of our sales went to Asia.

Our relationships have deepened over time because of our proximity to our customers.