Big miners navigate to energy future

It is fascinating to examine the twists and turns of companies over time as they evolve, devolve or disappear.

In Western Australia’s iron ore mining sector we have three enormous business, all in different phases of their development.

Arguably, BHP and its major rival Rio Tinto are more similar than they are different.

Both are global and diversified in production of a handful of major commodities they try to dominate.

Around since the latter half of the 19th Century, they have both added and discarded many different business lines.

It goes without saying both have found iron ore a lucrative profit generator after a decade of huge investment in their Pilbara operations.

They are both either out of, or exiting, the energy business.

Rio Tinto sold out of thermal coal in 2018. BHP is following suit with its petroleum assets, while thermal coal still quietly exists in its portfolio, although much reduced of late.

The pair also share an equally poor record in the investment in value-adding technology in WA, having burned billions in capital developing iron ore beneficiation processes and plant here.

As I understand it, both were seeking to deliver on state agreements that required them to make such an effort, but not necessarily succeed, it seems.

Which brings me to Fortescue Metals Group, which is definitely an outlier in the trio that produce most of the nation’s iron ore.

Less than 20 years old, FMG is a single-commodity business with operations focused solely in WA.

You won’t need a lesson on FMG’s history from me, we have all lived it.

What is particularly intriguing is to see this upstart creation of Andrew Forrest simultaneously looking to take a contrarian approach to much of what its major iron ore rivals have done during the past 25 years.

FMG is diversifying its operations in terms of commodities and geography, by way of entering the energy business with a strategy that is largely focused on new technology.

It is not completely different, of course.

As I stated, Rio and BHP have six to eight major minerals classes.

It is also worth noting BHP has moved into potash recently in a big way, so the composition of their portfolios is subject to growth not just consolidation.

And, naturally, FMG’s move into energy is focused on renewables, with a bent towards hydrogen, while Rio and BHP are moving out of fossil fuels.

These seemingly opposite strategies are driven by the same forces – global efforts to reduce carbon emissions.

On the face of it, FMG’s decision to pursue hydrogen – a Big Hairy Audacious Goal in the sense that business author Jim Collins applies – is a free choice by an extremely profitable company following the visionary and entrepreneurial approach of its founder and major shareholder.

Then again, even in the absence of a state agreement demanding such an attempt, it could also be argued that the environment within which mining companies exist is rapidly changing and all of them are trying to get ahead of the regulatory curve.

This is by exiting dirty businesses, cleaning up their own extraction, transport and logistics operations, and even going so far as pushing their customers to reduce emissions.

Whether FMG has learned from the experience of its rivals in the technology business, it may equally be able to afford the bet on technology development.

The big difference may be the outcome if it gets it right.

Rottnest time

Regular readers of this column will know of my devotion to our great Rottnest Island. Some even patiently wait in anticipation of my once-a-year report on our annual family holiday.

I regret 2021 marks something of a let down in that regard.

For various reasons, I managed just one night on the fair isle.

What I can say is that while the Rottnest Island Authority continues to upgrade this tourism gem, it has presumably encountered the same issues that have beset industry in this time of booming economic growth coupled with border closures due to COVID-19 fears.

At least I assume that is why so much of the settlement remains under repair or closed to public access during the peak demand period of school holidays?

Even one of the relatively new major walks through the island’s interior was forbidden to hikers.

The inquisitive journalist in me did make certain investigations and found little to suggest there was any reason for closure, let alone one that could be attributed to labour shortages.