BHP’s iron man wants to stay lean and go (gradually) green

The five-year $50 million technology development effort is expected to slice 30 minutes off a typical ship loading of 24 hours or more. It may not sound much, but on a cost for capacity basis it is a bargain compared to building a new berth.

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Similarly, optimisation not expansion is the answer for the rail network of 1300 kilometres of track, 182 locomotives and about 10,000 ore cars that link the mines to Port Hedland.

After a runaway train in 2018 that had to be stopped with an intentional derailment that destroyed two locomotives and 245 ore cars, BHP undertook an upgrade of its signalling system. As well as improving safety, the upgrade will support moving block signalling that adjusts the minimum distance between trains according to conditions allowing them to travel closer to each other. Again, more output from the existing infrastructure.

Craig concedes that not all cost increases can be offset by productivity increases, particularly the huge diesel bill.

“We are a cost-taker, and there’s nothing we can do about that,” Craig said.

That situation now also applies to the BHP group after its petroleum division was sold to Woodside this week. Increased fuel costs for mining will no longer be offset by bumper profits from its oil and gas assets.

For Craig, current high oil and gas prices mean investment in wind and solar power is reaching the point of break-even, but the business still needs to do more work to decide where best to deploy capital to realise cost savings.

It is a more conservative take on the energy transition than his competitors’.

In 2021 Rio Tinto committed $2 billion to displace 80 per cent of the gas used for power generation, claiming the investment stacked up financially without applying a cost to emissions in its analysis.

The third force in Pilbara iron ore, Andrew Forrest’s Fortescue, has the most aggressive decarbonisation plan to reach net-zero emissions by 2030.

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Fortescue not only needs to generate clean power but replace its diesel-powered fleet with hydrogen and battery-driven mobile equipment, backed by wind and solar power five times the capacity planned by Rio Tinto.

Forrest also wants to make 15 million tonnes a year of green hydrogen by the end of the decade with the making of emission-free green steel a major market.

Craig said BHP is watching green steel closely, but he thinks the cost of hydrogen will need to drop to $1 a kilogram to make emissions-free green steel viable, half the price the coalition government set for Australia to achieve by 2030.

“We don’t see it being viable this decade…it could well go all the way into the 2040s before it’s competitive,” he said.

It is an outlook that suits BHP more than its competitors, given its extensive metallurgical coal production that will not be needed for green steel.

Peter Milne travelled to Port Hedland courtesy of BHP.

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