The Australian cited departing Mr Marius Kloppers CEO of BHP Billiton as saying that the worst mistake of his 5 1/2-year tenure was not to do with acquisitions but a decision to pour billions of dollars into the Worsley alumina plant south of Perth.
Mr Kloppers said that "We spotted a technological change in aluminium and we made a great decision to not continue to invest in aluminium. The parallel with the alumina industry was very, very close but we kept on investing. I wish we just extrapolated a bit more and had not added some of the alumina capacity that we did."
BHP spent USD 3 billion expanding the Worsley alumina refinery which suffered cost blowouts and delays. Last week, when BHP released its H1 results, the company slashed the book value of Worsley by USD 2.2 billion before tax amid a dire outlook for the commodity.
Mr Kloppers warned that growth in China's demand for mineral commodities could slow substantially in coming years, forcing miners to focus on cutting costs. Over the next 5 years, Chinese demand for minerals could slow to growth of 2% to 4% a year from 15% to 20%. That means the suppliers will be able to respond and meet demand and, therefore, you have to be low cost and you have to take into account that price is not going to help you here.
He said that his best decision during his tenure was to listen to a board member who said he should ensure there was an exit strategy for BHP's attempted takeover of Rio Tinto if circumstances changed. That deal fell through when the global financial crisis raised the danger of taking on Rio's USD 40 billion of debt and regulatory hurdles were deemed too high.
Mr Kloppers' detractors have labelled his failure to seal takeovers, such as those of Rio and Potash Corporation and USD 3 billion write down on the USD 4.75 billion acquisition of Arkansas shale gas assets as areas where he could have been done better.
Mr Kloppers' successor, Mr Andrew Mackenzie backed BHP's shale acquisitions, which included the subsequent USD 15 billion acquisition of PetroHawk that gave it shale oil assets. The assets that we've bought have at least the hydrocarbons in them that we thought they would.
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