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Corporate Growth by Exploration – the BHP Example

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Author Palethorpe CE and Blain CF
ID P198601027

Description

For all mineral resource-based companies, it is important to reach the right balance of investment between acquisition and exploration to allow the best chance of achieving long-term corporate goals. The Broken Hill Proprietary Company Limited (BHP) provides an excellent example of success from generative exploration and supports the belief that exploration can be justified, not only in terms of investment criteria, but also because it is essential to a company wishing to build a dynamic profitable growth path based on world-class deposits as cheaply as possible. BHP was incorporated in 1885 to mine a lead/zinc/silver discovery at Broken Hill. The Company has since gone through a steel development phase (1911-1965) and is now in a major phase of growth partly based on exploration success. This third phase was marked by decisions taken in the 1950’s to search actively for mineral and energy resources above and beyond the requirements of the steel industry. The commercial successes of this period have been Bass Strait oil and gas, Groote Eylandt manganese, Deepdale iron ore, Gregory coal and Carnilya East nickel. In total at least 22 new resource discoveries have been made in the last 25 years, of which 11 have been developed and several are undergoing feasibility studies. A financial analysis shows that the real value of the returns seeded by discovery covers the real exploration cost many times over. Moreover, the major discoveries have had a spectacular impact on the growth and development of the Company. BHP’s present exploration effort is directed towards geological targets which most frequently meet attractive financial criteria and also promote diversification from steel-related earnings.