Overview of BHP Billiton

Broken Hill Proprietary Company, an Anglo-Australian company that specializes in mining and petroleum, formed BHP Billiton in 1885. (BHP). It generally deals with mineral extraction, metal extraction, and petroleum product extraction. The company is a multinational corporation with its main offices in Melbourne, Australia. BPG Billiton's CEO, Andrew Mackenzie, expanded the company's operations to explore coal, oil, uranium, copper, iron ore, and natural gas (de Villiers, & Alexander, 2014). By the end of the 2015 financial year, the company had total revenues of A$ 62.2 billion and yearly operating costs of 8.67 Australian Dollars. The company has close to thirty thousand employees around the world, and it makes a profit of approximately two billion Australian dollars every year.

The world largest mining company according to the 2015 data merged with Anglo-Dutch Billiton Company in 2001 so that it could enjoy both the financial exchange rates of Australia as well as that of the UK where Anglo-Dutch Billiton is registered. The agreement was by equal shares (de Villiers, & Alexander, 2014). The company first received its mining rights in the early 1860s in Hague Netherlands following its then shareholders agreed meeting at the Keizerof hotel. It started by mining tin in the Islands of Bangka and Billiton, found on the coast of Sumatra, territories of Netherlands. By the end of 1970, the company had grown and extended its scale of operation to Indonesia and begun smelting lead.

BHP Billiton Company moved to Thailand in 1990 where it still engages in smelting tin and lead as well as refinery services. Four years later, the company received a metal mining division in South Africa where it divested from Gencor (de Villiers, & Alexander, 2014). It became a member of the FTSE 100 Index in 1997. By the year 1998, BHP Company began smelting aluminum and nickel both in South Africa and Mozambique. It also signed an investment agreement into coal operations in Canada, Columbia, and Brazil. The company’s worst ever loss was experienced in 2016 when it recorded $6.4 billion loss and opted to expand its investment in petroleum extraction.

Blue Scope Steel, which was BHP Steel in 2003, got absorbed into the company in a bid to increase its scale of operation in steel metals. Two years later, the company started growing its activities in its homeland Australia where it agreed on a bid with Olympic Dam gold, copper and uranium resource owners. The company received a stiff competition from Rio Tinto Group and opted to buy it to reduce the competition (Bice, 2014). The plan failed to succeed though following the global recession in 2008 that was likely to increase the risks to the value of shareholders in the company. The global recession led to the closure of BHP Billiton operation branches including the Yabulu nickel Queensland’s plant and Pinto Valley mine that was then in the US.

BHP Billiton sold its Quantum Minerals based in Vancouver and Ravensthorpe Nickel Mine to rescue its economic status after the global recession. It also sent off close to 600 of its employees. The company announced its $2.2 billion investment in Mexican Gulf and Chile later in 2010. It is run by a single board of directorate that announced that BHP Billiton should become the leading company supplying potash around the world by the year 2020. The company has a social responsibility given that it engages in mining activities which are likely to degrade the environment and the community (Bice, 2014). As such, it voluntarily donates one percent of its profit before tax to give back to the community. It is close to $100 million that it gives out for charity purposes.

BHP Billiton’s mission statement states that “the primary objective is to make the company be of choice when it comes to the creation of sustainable values to its employees, suppliers, contractors, shareholders, business partners, customers and the community… The mission asserts that the company wishes to arrive at zero harm to individuals, community members and the society in general by adhering to safe industrial practices (Bice, 2014). Their core principle lies in controlled safety, conduct of business, economic, social and environmental activities, in the manner that they run the company’s operations…”

The vision of the company is to develop a long-lasting value through development and alteration of the natural resources to better commodities that provide innovative opportunities to consumers and solutions of the market problems. The company is committed to a strong strategy of low-cost investment, provision of world-class, export-oriented and expandable operations that facilitate diversification in geographical regions and product markets (Bice, 2014). The company aims to be the leading in not only making the largest profit margins and distribution of goods but also in engaging in activities that are protective the environment and environmental hazards that follow drilling and mining operations.

External Environment

The multinational company has numerous external influences that dictate its operations as a mining company. The attributes originate from all dimensional sectors including political, economic, social, legal, technological, and environmental factors:

Political Influences

Mining activities are controversial especially in Queensland when they are compared with the environmental demands and policies. Research has shown that most mining companies in Australia buy political influence in the sense that they take part in donating money that the political parties can operate their campaigns with so that the firm’s interests can always be protected once they come to power. The act enables companies to engage in activities that threaten the global environmental safety and as such a generalization is made against all enterprises including BHP Billiton whose vision is to promote environmental conservation. The green and Coalition voters believe that mining companies influence the political powers within Australia. The significant efforts that the mining companies have to the political parties help them to protect some of their individual interest and thereby to make the market competition-biased.

Social Influence

BHP Billiton is one of the oldest in the Australian community and hence widely known in the services that it per takes and delivers to the global community. The fact that it is well known enables the company to spend a little money on advertisements and reputational construction. The company has a portion of its profits delegated to the community and thus improves the social rapport with its operational society. BHP Billiton also participates in charity activities that aid in the development of localities and to solve some of the social challenges that face the community.

The company’s popularity is increased by the fact that it is multinational. It operates and has offices close to all the continents of the world. This improves its social image as a big and stable company. Most of the new talents are likely to contribute their innovations in such enterprises knowing that in most cases job security is assured. The company is also able to acquire the most qualified personnel for its activities and research owing to its financial strength to compensate its employees well. Most customers consider the experience of the firms before buying its product. Shareholders also believe social reputation before buying shares in the company. The social influence that the enterprise enjoys owing to its old and good reputation attracts customers and shareholders to the company thereby increasing its capital base.

Economic Influence

The price of commodities is one economic impact that is experienced by BHP Billiton especially when the price range of its products has to be set by the individual countries of its operation. The commodity prices linked around the word determine the company’s set sales. The variations that accompany demand and supply curve makes it difficult for the company to set fixed prices for its commodities. The volatility in prices that follows the decrease in petroleum and mineral supply from other companies affects the profit margin of BHP Billiton. Metal prices and cost of petroleum faces stiff competition from the exports in the Middle East and hence the difficulty in accessing major oil consuming companies like China given that they rely on that from the Middle East.

BHP Billiton price its commodities mainly in US dollars, and fluctuations in exchange rates especially concerning currencies of Australia, Britain and South Africa. They are the regions where its market share is significant. The company’s liabilities are substantially influenced by the exchange rates prominent when it has to pay debts in instances when the country’s currency is so strong, and yet they did the borrowing at a weaker rate. Interest rates also regularly change concerning different countries currencies that the company is involved with. Calculation of the interest rates on borrowings and investments requires that it be based on the stable US dollar currency or else the company is usually subjected to numerous financial risks.

Legal Influences

BHP Billiton has faced some lawsuits since it began its operation in the 1840s. One time its employees in Brazil were sued by the residential community for homicides. The Sarmaco Dam charges especially after its collapse was also a legal concern to BHP Billiton. The legal matters especially those involving a public incrimination ruin the reputation of a company like BHP Billiton and are likely to make it lose its customers and shareholders. Legal issues, especially the negative ones, impact on the financial losses of a company in the sense that it at times makes the company pay huge fines that could have otherwise been invested in other sectors and yielded fruitful profits for the enterprise.

Environmental Influence

The company has taken a significant step in its vision to engage in practices that foster environmental safety. It is the largest polluter of the atmosphere from the emissions that come from its sold products (Hakansson, 2014). Its project on biodiversity land helps to reduce emissions from greenhouses and maximize on energy that it produces. The drilling process leads to the sinking of the earth surface with oil and other metals extraction. The picture it portrays necessitates the environmentalists to exercise stiff penalties and tax demands to the company.

SWOT Analysis

Strengths

The company has a good valuable asset that ensures a good return to its capital base. It has been in existence for a very long time and therefore has a strong market for its products. The company is diversified when it comes to its operational products and therefore makes it gunner a stronger position financially (Hakansson, 2014). Its central marketing management is one of its strengths given that it eliminates influences and competition. Its strength is further evidenced by its global operation using a standard name brand internationally. It has the highest number of employees as the largest Mining and Petroleum Company.

Weaknesses

The interventions that the company experiences from governments in the countries that it operates in limit its full functional intentions. Incidences of collapse and charges are criticized and highly likely to ruin its reputation in some regions of the world.

Opportunities

Its larger size and economic strength enable it to acquire small companies and utilize their innovations for the overall benefit of the enterprise. The company’s exploration into copper and coal broadens its market operation given that many businesses rely on coal as a source of energy (Hakansson, 2014). The company has links with other firms around the world, and this enables it to borrow labor and services quickly.

Threats

High competition from the Middle East Oil and therefore reduction in the export demands are some of the challenges that the company is likely to face in the coming days.

Recommendation

The company has adequate strength and financial capabilities that enable it to explore other options of extraction with the aid of technology that are entirely safe to the community and environment. The company can only fit into the competition by increasing its access to global oil markets and improving its quality so that its demand export increases (Cuniffe, 2014). Compensation of accident victims that follow the disasters of mining and oil drilling shall reduce the criticism and challenges that the company can lose its reputation through defamation. The company can also use its links with other bigger companies to favor its competition with the oil companies from the Middle East.

Creating Share Value Initiative

Creation of stock value project that was initiated by BHP Billiton and is aimed at ensuring that the community safety is first assured before the company begins to focus on its profit. The move is believed to follow the reasoning behind the fact that safety of a community in an environment where mining and extraction take place is a humanity action that attracts more shareholders because it is a clean business that does not entail the destruction of other people’s lives (Brown, & Nuttal, 2013). The strategy goes beyond extraction to the utilization of the product so as to reduce crisis that might arise from the environmental protection agencies.

The company looks forwards to identifying market opportunities for its intermediate products so that the wastes are used as a raw material by other businesses and not left to decay and destroy soil fertility. In the redefinition of productivity process, the value chain is improved by having emergency preparedness programs that are rapid in response and enhances the local human capital (Brown, & Nuttal, 2013). The share value is then enhanced by creating an enabling environment for the local natives to improve their living standards. Stock values increase when shareholders observe that the company gives back to the community and users the community extracted resources to make situations better than it was before.

References

Bice, S. (2014). What gives you social license? An exploration of the social license to operate in the Australian mining industry. Resources, 3(1), 62-80.

Brown, J., & Nuttal, R. (2013). Beyond corporate social responsibility: Integrated external engagement. The McKinsey Quarterly, (April), 1-11.

Cuniffe, B. (2014). Iron Age Britain. Pavilion Books

de Villiers, C., & Alexander, D. (2014). The institutionalization of corporate social responsibility reporting. The British Accounting Review, 46(2), 198-212.

Hakansson, H. (2014). Corporate Technological Behaviour (Routledge Revivals): Co-operation and Networks. Routledge.