How BHP Went From Sheep Station To Mining Giant

How BHP Went From Sheep Station To Mining Giant

BHP, formerly known as BHP Billiton, is the world’s leading diversified resources company. But how did it reach the pinnacle of the metals and mining industry? Find out all that and much more.

One of the largest resources companies in the world, BHP has its operations spread over different continents and has an extensive portfolio ranging from iron and steel to oil and diamonds.

Its journey takes us back to the middle of the 19th century where people were only starting to realize the potential of iron mining. From then to now, more than 150 years later, the world has transformed, and so has BHP. 

Here are some of the standouts stats to give you an overview of BHP’s dominance, making it the world’s leading diversified resources company:

From Sheep Farmers To Mega Miners

The story of BHP has its origins in two very different parts of the world. That’s because BHP and Billiton were separate companies that operated on their own for most of their history! So, as we dive in to explore how merged BHP Billiton became such a globally recognizable brand, we’ll uncover the parallel exploits of BHP and Billiton.

Where It All Started: Billiton and Broken Hill

In the 1850s, various European companies were voyaging the world, looking for new opportunities and untapped markets. One such Dutch party, led by Vincent Gildemeester van Tuyll van Serooskerken, exploring islands in Indonesia (the Dutch East Indies at the time), landed upon vast deposits of tin at Billiton Island. 

A few years later, in 1860, NV Billiton Maatschappij was established as a formal company, acquiring mineral rights for Billiton and Bangka Islands. The foundation for one-half of BHP Billiton was now laid.

BHP’s slightly different – more like out of a classic novel. In New South Wales, at Mt. Gipps station near Silverton, Charles Rasp worked as a boundary rider, patrolling the property and repairing fences for the sheep farm. 

1n 1883, he came across Broken Hill, a broken-back ridge on the site, which according to his strong hunch, contained hosts of ore containing silver. He convinced his manager George McCulloch and a few other co-workers to form a syndicate to test the ridge. Initial results weren’t promising, and some members sold their shares.

george-mcculloch-charles-raspSource

Still hopeful but in need of capital, the remaining decided to take the company public and floated its shares in the open market. Resultantly, the Broken Hill Proprietary Company was formed in 1885 with its headquarters in Melbourne.

This proved to be a stroke of luck as soon after, the company struck gold (silver actually!). Its first consignment contained 35,605 ounces of silver from 48 tons of ore – worth a whopping £7500 at the time.

Bringing In The Experts

Unlike Billiton, BHP didn’t comprise of a party set out to find and mine minerals. They primarily consisted of sheep farmers and their associates – none skilled in mining. If they wanted to keep the mine running and profitable, they needed to have people on the team who knew the ins and outs of the industry.

For this purpose, BHP did something that was unheard of in Australia – bringing foreign workers with expertise into the country. U.S. engineers William Patton and Hermann Schlapp were handed the reins to the company and entrusted to take them forward.

For the next 10-15 years, the company thrived owing to several reasons, mainly its labor and equipment costs being low and the prices of its high-grade ores constantly rising in the market.

The company also overcame a period of resistance from local unions over wage agreements by offering innovative freedom of contract. This budding mining company was on a rapid growth trajectory.

Modernizing Mining

Mining in Broken Hill was relatively simple and cheap for BHP. They were digging into top-side ores that were easily accessible, but those resources were fast depleting.

Now, the company needed to find a way to mine deeper-lying sulfide ores, which would be a complex task and, most likely, very expensive. Again, the solution came from engineering experts BHP had hired from abroad.

Brought in from Europe and promoted to General Manager of BHP in 1899, Dutch engineer and chemist Guillaume Delprat came up with a technique that revolutionized the mining industry. He suggested a floating process to extract silver, lead, and zinc from the sulfide tailings – something the mining world had previously deemed impossible and consequently worthless.

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This took BHP to the next level and opened countless opportunities.

Key Takeaway 1: Hire Experts For The Job

Broken Hill possessed a treasure of silver, but without the expertise, BHP could never have capitalized on it. Thus, very early on, the company realized it needed people relevant to the field to help it sustain and grow. 

The hirings of William Patton and Hermann Schlapp, and then Guillaume Delprat were pivotal in the company’s progress. It also set a precedent for the company to follow: always look towards the experts when presented with a challenge!

Setting Up The Steel Industry In Australia

For as long as BHP had been in the mining business, it was always looking for opportunities to improve and grow. 

However, a devastating fire in 1906 at an underground mine in Broken Hill that claimed several lives along with the falling prices of silver led the company to feel it had to look for opportunities outside of mining.

So, the company realized, soon, the Big Mine at Broken Hill would no longer be the profit-churning machine it used to be, and they needed to look beyond.

First Steps Outside Broken Hill

Having made up his mind to step out of mining, Delprat made no effort to sign new leases or open new mining locations. Instead, he wanted to set up a steel manufacturing business. However, the task was simple in no way. Australia did not have a steel industry as of yet. 

Hence, the infrastructure had to be built from the ground up. Moreover, traditional markets for steel were oceans across the globe. Understandably, many people did not share the enthusiasm for the venture.

Delprat was determined, though. The country was importing steel from Britain, which proved a costly burden on their import bill when Australia possessed abundant and cheap coal energy reserves as well as sufficient iron ore deposits. He saw potential in Australia as a growing market and also believed BHP had the potential to excel in the business. 

Delprat sure had a far-sighted vision, but his strong area was engineering. Hence, continuing the company’s legacy of having professionals from countries with well-established industries on the team – Delprat turned to the U.S. steel expert, David Baker.

Baker suggested harbor city, Newcastle, to be the perfect site for the steel plant, due to closely-located coalfields, a settled manufacturing industry, better mobility of labor, and most importantly, rail connection to commercial hub, Sydney.

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The company was quick to commence the construction of the factory being planned on U.S. designs, and by April 1915, they were ready to produce steel. 

Post-World War I: Opportunities and Challenges

For a steel mill, a global war meant booming demand in the form of armaments, weapons, and sheet steel. It perfectly laid the platform for BHP to focus its resources from the Broken Hill mine where costs were rising, and inflation further meant rising wages.

However, once the war ended, it wasn’t as easy for the steel business. For starters, there was no longer such an expansive need for arms and military equipment. The global demand was shrinking rapidly. Australia still hadn’t developed the need or use for the diverse products BHP offered. Hence, it could not produce on a scale large enough to experience economies of scale and thus, couldn’t compete with stronger, well-established foreign rivals. To add to BHP’s woes, the post-war shortage in shipping led to exorbitant export costs for freight, and the accelerating price of coal made energy even more expensive.

If immediate and strong measures were not taken, it could very well have been the end of the chapter that had only just begun.

To see BHP through this difficult phase, Essington Lewis, a mining engineer who had risen through the company’s rank over the past decade, succeeded Delprat at the top-most position in 1921. There was no time to be wasted, and he immediately worked towards solutions through multiple approaches.

Firstly, Lewis encouraged the setting of secondary manufacturers in Australia that would boost the use of steel, and hence, create a local demand for the product. Simultaneously, he successfully campaigned for the government to levy taxes on imports and protect the local industry. Instead of being dependent on other party shipping, he believed BHP had to take matters into its own hands, which led to the company founding its own fleet of ore carriers.

The Situation Gets Tougher But So Does BHP

Despite Lewis’ best attempts and the country’s control on imports, foreign steel was still dominating the markets. BHP had little choice but to lower wages or shut down its operations. 

The steel unions refused to accept the proposed reduction, and resultantly, the mill shut down for one month in May 1922, followed by another nine-month closure. The Arbitration Court and political parties became involved, forcing the company to resume production.

Now, Lewis pursued another line of action – one far more sophisticated and long-term. He emphasized upgrading the plant’s machinery, safety, productivity, and efficiency. Hence, if the company couldn’t reduce wages, it could save by producing more cost-effective and efficient products.

On the other front, to dampen the effect and dependency on coal prices, Lewis followed a strategy of buying up coal mines and thus, supplying its own coal. It was similar to their approach of having a self-owned fleet of carriers.

Not only did these significant changes enable the company to oversee the hardships of the 1920s, but they also gave them a strong foundation to lean on in the future.

Key Takeaway 2: Embrace Change and Be Self-Reliant

Two key strategies that underlined BHP’s success from 1900 to 1930 were the ability to adapt to change and to not be dependent on others. When it felt that there was little potential in the mining business despite an established setup, it decided to move on. The steel industry had potential, but the challenges were countless and diverse.

Along with molding itself into a manufacturing company, BHP also founded its fleet of carriers, took hold of coal reserves, advocated for protectionist measures from the government, and encouraged new manufacturers to join the industry. 

A firm single-handedly creating the market for steel and relying on its own self for the industry to thrive – BHP showed that it was a company that would never back down from a challenge.

Navigating The Great Depression & WWII

It hadn’t been long since BHP had overcome the challenge of foreign competition and a small local market when another crisis was staring at the company’s fate: The Great Depression.

A Matter Of Survival

The depression threw almost every industry into disarray. The market for steel, silver, lead – all of BHP’s main offerings – collapsed. The company had to lay off many of its employees; the Big Mine at Broken Hill was temporarily closed. The company didn’t give out any dividends to its shareholders for three years. Every door seemed to close on the firm.

Yet, as we had seen from its last round of struggles, BHP would not stop until it found a way to mitigate the crisis. Hence, using its financial success from previous years and following a low cost selling strategy, the company drove forward. Further help came from the Australian government, which increased the tax on imports.

It enabled the company to stay up on its feet and look for opportunities to strengthen its position further.

More Avenues For Growth

The Australian steel industry was almost completely dominated by BHP. Its only rival was the Australian Iron & Steel Company (AIS) which was finding it hard to carry on. 

In 1935, seeking a way out, AIS offered itself to BHP, which was immediately accepted, and now, BHP was the new owner of AIS’s steel plant in Port Kembla and iron deposits in Yampi Sound. Many players didn’t take to the merger too well and called for inquiries to investigate the unfair monopoly being formed.

During the same year, Billiton, which had been largely involved in the tin reserves of the Bintan, now established the world’s first bauxite mine in the same province. Little did they know, this would prove monumental in the years to come.

While this was ongoing, in 1937, the South Australian government invited BHP to open a steel plant in the state. The firm established both a furnace and a port at Whyalla, providing it with a new strategic location after Newcastle.

WWII: New Set Of Challenges

In 1934, Lewis had visited Japan and came back with the news that was not far along. This led to the formation of a syndicate to build the country’s first military aircraft.

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In 1938, as WWII was only on the verge of beginning and nowhere near its full scale, tensions had already spread around the world. There was serious opposition from labor unions in allowing the company’s shipments to leave for Japan. Also, with the war ensuing, there was an emphasis on diverting the steel industry’s efforts fully towards the war effort.

Australia’s Attorney General Robert Menzies appointed Lewis Director-General of Munitions, making him perhaps the most essential civilian in the country at the time. Naturally, BHP’s production expanded with a new blast and open-hearth furnaces at Port Kembla and a shipyard at Whyalla. This also resulted in the company becoming the largest private ship owner in the country.

For the most part, BHP did not find itself in the midst of the war action, but it did lose two of its carriers to enemy torpedoes, and the Japanese came frighteningly close to Australia in 1942 with their attack on neighboring New Guinea.

The real threat to BHP was within the country, where unions called for strikes and the nationalization of the company. It did not stop the company from growing but definitely slowed down progress.

BHP Billiton’s other half was also doing well during the war with its newly founded bauxite mine with the metals increasing use in lightweight aluminum. In 1941, Billiton even managed to open another bauxite mine in Suriname in South America, with the boosted demand for the product.

Key Takeaway 3: Take Every Opportunity That Comes Your Way

The Great Depression and WWII was an overall period of hardship for the world economy. BHP also faced its share of challenges, but the one thing it did was capitalize on every chance it got. 

It outlined BHP’s firm resolve in the face of adversity and showed that eventually, an opportunity would come knocking. Thus, from opening plants in South Australia to leading the war effort despite internal opposition, the company made sure that it persevered and found new ways to survive. 

Returning To Mining

During the post-war years, BHP followed a relatively stable trajectory with no wars or major economic shifts to cause any disruptions. Taking the calm as an opportunity to enhance its operations, the company established Central Research Laboratories in Newcastle in 1957. Its purpose was to find improved methods of ore-smelting and steel-making, as well as identifying new sites for natural resources – hinting at the company's return to mining.

Returning To Iron 

In the early 1960s, the Australian government relaxed several of its policies on iron ore mining, giving BHP the chance to enter the field again. The company was quick to identify and establish quarries at several sites, including Koolanyobbing, Koolan Island, and most notably, at Mt. Newman. 

There, along with American Metal Climax, Inc. (AMAX) and CSR, BHP founded the world's largest open-pit iron ore mine with a 30% share. Some years later, the steel manufacturer acquired complete control.

Exploring Oil

This decade was also marked by the world shifting to oil as its main source of fuel. But the problem was its scarcity, with few countries having reserves which they supplied at high prices to the world. Attempting to step out of its comfort zone and to enable Australia to become self-sufficient, BHP started a series of expeditions to find oil in the country.

Australia was home to diverse geology, and oil mining wasn't an industry the company was well-versed with. So, as they had done many times in the past, BHP sought the help of experts from outside Australia.

After a thorough analysis of the possibilities and potential, US petroleum genius, L. G. Weekes advised the company to drill in the Bass Strait Area. 

The cost and complexities of the project were high, but the potential reward was Australia becoming un-reliant on expensive oil imports. So, with the support of government subsidies and a 50% partnership with Standard Oil's Australian subsidiary, Esso Standard, BHP moved forward in 1964. Albeit three years later, the expedition proved fruitful with the discovery of crude oil in the strait.

Also, during this period, BHP established a manganese mine at Groote Eylandt, making the company owners of a diverse range of natural resources. Consequently, net profits doubled during the 1960s to adopt a decentralized profit center-based management system.

Key Takeaway 4: Always Search For Growth Opportunities 

Much of BHP's growth had been influenced by wars, recessions, and labor union turmoil. Now, it finally had a stable period. But the company, in no way, intended to let its growth stagnate.

Instead, it made full use of the opportunity to expand its ore deposits as well as discover oil in the country – becoming the leader in the industry and helping the country reduce its reliance on imports.

New Ventures, Restructures, & Expanding Globally

The steadiness and calm which had outlined recent decades were no longer going to continue for BHP. It was going to undergo several changes – some for the better, and some not quite so.

Enter Royal Shell Group 

The start of 1970 was promising for Billiton with Royal/Dutch Shell Group taking over. It was the first step in what would be decades of research, new mines, and sustainable methods that expanded across continents. 

However, BHP was not having the most favorable period. It had time and time again proved itself as one of the leading companies in Australia, but many voices rose against its monopoly in the market. The opposition was such that the government lifted its subsidies and tax incentives, leaving the company to find a new area of development.

Oil prices were also rising, and it prompted BHP to revisit its interests in the coal industry. In 1977, the company purchased Peabody Coal's Australian assets, including shares in Moura and Kianga coal mines. Subsequently, BHP went on to open Gregory mine in 1979 and Saxonvale mine in 1980. 

Simultaneously, BHP entered into a partnership with the Shell Group – its first formal business activity with the company it would eventually merge with. The two worked on the North West Shelf Natural Gas Project, which after several years of successful exploits, entered the export phase in 1989.

Restructuring Into Divisions

In the 1980s, around 30% of the share in BHP was acquired by Robert Holmes, a Court that was in favor of a significant restructuring of the company. At the same time, there was a global crisis in the steel industry, and BHP's business was taking a massive hit – nearly a third of its steelworkers were laid off. Eventually, the company had to restructure into its three main divisions of minerals, steel, and oil.

Realizing the direness of the situation, the government stepped in with a five-year Steel Industry Plan, which enabled BHP to turn around its failing business and achieve staggering rates of productivity in only a few years.

BHP Goes Global

1984 was the year BHP completed one of its most significant acquisitions: Utah Mines Ltd. from General Electric. It provided the company access to markets in the United States, Canada, and South America and further facilitated its interests in coal and iron ore. Escondida copper mine in Chile, the third-largest in the world, also fell into BHP's hands.

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This was only the start of an extensive series of acquisitions and mergers that took BHP from Australia to the world map. 

These included:

  • 30% shares in the OK Tedi gold and copper mine in PNG
  • Completing the remaining 70% purchase of Mt. Goldsworthy Mining Associates
  • Acquired Monsanto Oil in 1986
  • Hamilton Oil in 1987
  • Gulf Energy Development in 1988
  • Pacific Resources Inc. in 1989
  • Formed gold company Newcrest Mining Ltd. through a merger with Newmont Australia Ltd

From 1991 to 1996, BHP's foreign holdings shot up from 28% to 40% of assets, and by 1997, 70% of its revenue was coming from its international operations.

Iron, coal, or oil – BHP was ranked amongst the world's top companies in every sphere. It had even forayed into the diamond business.

Billiton was also thriving during the 1990s when it was acquired by Gencor in 1994. Then, in 1997 Gencor went onto list on the London Stock Exchange.

Key Takeaway 5: Partnerships and Acquisitions Are Crucial For Global Success

Backed against the wall by local players, BHP sought success in markets outside Australia. It was really the first time it was venturing abroad on such a scale, and it needed a strong footing.

The company realized that instead of starting from scratch, the best way to grow in foreign markets was to acquire or merge with already well-known companies, and thus, have access to established markets. This underlined the company's rapid success abroad without having to start afresh and also allowed them to explore new products, such as copper in Chile.

BHP & Billiton Become BHP Billiton

From 1851 when Billiton reserves were discovered to 2001, Billiton and BHP had been operating as two separate companies in different countries with very different trajectories. 

Billiton had largely remained a mining company and had been taken over twice by other firms. BHP was still involved in mining, but steel for many years had been its strong point. When BHP collaborated with Shell the two companies indirectly crossed paths.

BHP Billiton

The South African owned Billiton and Australian-based BHP finally agreed to join forces on 16th May 2001. A merger of such a huge scale that the newly formed company proclaimed itself the world’s largest diversified resources company. The Australian government welcomed the move on the promise that BHP Billiton’s focus and headquarters would remain in the country. 

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Listed as BHP Billiton PLC in the United Kingdom and BHP Billiton Ltd. in Australia, the company continued to operate as two separate entities on the mission for growth.

Key Changes & Progress

In the following years, BHP Billiton underwent some major changes and pursued even more acquisitions and expansions.

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In 2001, it discovered the first new oil reservoir offshore in Trinidad in 33 years. In the following year, it demerged its steel business and formed BHP Steel. In 2004, it expanded into Hillside aluminum smelter in South Africa, and in Chile, it approved a $990 million investment in the Spence Cooper Project – the largest undeveloped copper ore reserve in the world.

This was only the start. Since then, the company has opened various new mines, started new projects, and invested heavily in the minerals business. Simultaneously, it has also made its name in the diamond and potash market through its exploits in Canada. 

In 2015, the company again demerged some of its assets and rebranded it as South32. For itself, it undertook the simpler and easier name BHP.

Braving The Pandemic

The COVID-19 pandemic certainly wasn’t easy for the mining industry in any way, and although the impact wasn’t felt immediately, BHP did face several setbacks with employees and executives taking significant pay cuts

However, overall, the company’s strong financial position in recent years allowed it to survive through the most difficult closures and fall in demand. Now, as the world and industry look to resume operations, the company has already shown promising results in several of its major sectors, including coal and iron.

Key Takeaway 6: Consolidate Your Position At The Top

Wherever a company is thriving, competition is likely to enter and enjoy its share in the market. 

After merging and forming BHP Billiton, the company left no stone unturned, strengthening its position at the top of the resources industry by acquiring new mines and exploring new reserves, and establishing itself in markets around the globe. As a result, few companies even come close to BHP Billiton’s success.

BHP Today & Key Strategic Takeaways

The journey of BHP is spread out over three centuries with ups and downs, challenges, and perseverance, and in the end, BHP has always managed to come out on top. Thus, a company started by farmers-turned-miners ranks amongst the one of the best, if not the best, in the resources and mining industry.

Its growth can be credited to the business’ strong leadership, resolve in times of difficulty, and eagerness to find a solution, no matter how dim the chances seem. What the future hold, we can’t say for sure. But one thing we can say, without doubt, is that whatever circumstances, BHP will find a way to stand firm and thrive!

Growth By Numbers

Year

2021

2015

Revenue

$60.817 Billion

$44.6 Billion

Workforce

80,000

80,000

Countries Operating In

20

8

Share Price

$63.01

$25.77

Key Strategic Takeaways

  • Entrust The Job To Experts Of The Field

BHP didn’t consist of miners by profession. They were sheep farmers that had happened to discover a silver mine. However, where they lacked in mining engineering, they made up in a business sense. 

Understanding that if they wanted to sustain their company, they needed to have people relevant to the field on their side. They also realized that it was unlikely they would find such people within Australia, so they searched abroad and brought onboard experts from the US.

Later on, when the company expanded into steel and oil, it again looked for experts from other countries to help them set up its business in Australia. Resultantly, BHP was always the leader in its industry because it established itself in a newer field with the assistance of professionals who were already well-versed in the industry. 

  • Readily Accept Change On Your Own Terms

BHP was always ready to change its ways and step into new arenas when pushed into a corner or finding suitable opportunities elsewhere. It never became one of those businesses that reached their peak and then experienced stagnation, or even worse rapid decline. Instead, it has continued to expand around the world.

Although the company sought experts from other companies, it has never relied on external factors for its core production areas. It not only established a fleet and took control of coal mines to have its reigns to its personal supply, but it also ensured that Australia did not have to look outwards for its steel and oil requirements. Hence, the company was able to keep costs low and achieve sustainable growth.

  • Keep Pushing Until An Opportunity Arrives

Whether they are in the form of wars, competition, or opposition, challenges arise in every company’s journey. In the case of BHP, it did not let these challenges hold it back. Instead, it used them as opportunities, sometimes to expand within its field and other times, to diversify its operations. Almost every time, it managed to turn an adverse situation into a favorable one simply by not backing down and standing resolutely.

  • Never Slow Down

There is no slowing down in the world of businesses. After WWII, there were not many motivating factors for BHP to expand its operations. There were no war-like scenarios, and overall, the company was doing fine.

But BHP was a company driven by growth. If there was a factor forcing it to grow, it created its own opportunities to grow its business. Firstly, it established its research center in Newcastle, and then, despite the high cost and complex nature, it ventured into the oil business. As a result, BHP took itself to the next level, and so much so, it facilitated an entire country in becoming self-sufficient.

  • Capitalize On Others Success

A company expanding at the rate and scale of BHP was naturally going to be prompted to explore foreign markets sooner or later. When it finally did, it had the option to set up its own plants and gradually move from one country to the other, given it gained a reputation in the new markets. There were various risks involved, and the process would have been a tedious one. 

BHP chose another option. It decided to bank on companies with established plants and target markets, and by merging with or acquiring them, it inherited the company’s success. This permitted BHP to grow at a much faster rate and acquire a stronghold in many more international markets than it would have, had it started its own operations from the ground up.

  • Make The Top Position Yours

Many businesses, when they achieve a certain level of success, believe the competition won’t catch up and their reign will continue uninterrupted. But rarely is this the case. So, when BHP Billiton became the largest diversified resources company in the world, it did not stop there. It continued to explore more opportunities worldwide, opening mines, discovering new reserves, and stepping into the diamond and potash markets.

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