Just how important is Perth in the scheme of things?
Just how important is Perth in the scheme of things?
Last week, we reported on the Western Australian state capital’s 50-year climb up the corporate ladder, inching its way, decade by decade, to become the nation’s third most important corporate centre, depending on how you look at it.
Of the top 100 Australian Securities Exchange-listed companies we have five, none of which sits in the top 10. In terms of the overall ASX, we have more than 30 per cent of the nation’s listed companies, suggesting we are either the small company capital or the corporate capital of the future – possibly both.
One of the points made in that article was the extent to which we are home to some of the key divisions of Australian companies, or the Australian headquarters of multinationals. This is limited to resources, in the main.
Chevron’s Australian business is run out of central Perth, for instance, while Alcoa of Australia Ltd is headquartered in Booragoon.
And then there are the resources giants, Rio Tinto Ltd and BHP Billiton Ltd, both of which run their global iron ore divisions out of Perth. BHP also headquarters its stainless steel materials division here, though it has shifted its petroleum division HQ to the US in recent times.
In terms of revenue, assets, capital expenditure and profits, that makes WA the jewel in the crown of both those companies by quite some distance.
For instance, at BHP at June 30 2006, most of its natural gas reserves and more than half its oil, condensate and LPG reserves were located in WA. In iron ore, the Pilbara assets dwarf other reserves.
It’s a similar story in aluminium.
In terms of assets, base metals are the big one – clearly through its South American copper operations – but iron ore, energy and stainless steel materials are closing in fast.
The location of assets, profits and capital expenditure shows this. In 2006, Australia represented half BHP’s assets and profits. More importantly, it represented two thirds of its capital expenditure, meaning it was investing for the future here, predominantly in energy, iron ore and stainless steel materials.
At Rio Tinto, iron ore represented more than 30 per cent of sales for the year ending December 31, 43 per cent of pre-tax profits and one third of its assets. About two thirds of this is from Pilbara operations.
Well over half of Rio’s assets are in Australia, which is where the majority of its capital expenditure took place.
When you look at the future opportunities, this seems only to underscore the importance of WA. This is especially so with BHP.
More than half BHP’s major projects of $2 billion or more are located in WA or off the state’s coast. In contrast, future options elsewhere are scattered fairly equally around the rest of the world, including Australia.
Which brings me to the point I wanted to raise. Why don’t both these companies consider moving their Melbourne headquarters to Perth?
I reckon BHP has the best case in this respect, not that Rio wouldn’t be welcome to at least move its Australian HQ here – to reflect the weight iron ore carries in its asset portfolio.
BHP is top heavy in WA assets, being iron ore and oil/gas, not to mention its local strengths in nickel and aluminium.
BHP is also the state’s third largest private employer, with 7,000 employees – beaten only by the nation’s two biggest retailers.
Globally, BHP has 38,000, so a fair slice of those people are here.
No wonder the company plans to take 40,000 square metres in a new office tower planned for a site on the Esplanade.
In its Melbourne head office, BHP employs 600 people who are hundreds, if not thousands, of kilometres from any of its serious holdings.
Melbourne may well be slightly better placed in terms of dealing with the distant times zones of Chile, where the mining giant’s hugely profitable copper mining operation is, or the key investment markets in the US, where BHP is also seeking to grow its petroleum assets.
But Perth remains better located for its Asian and European customer base, not to mention assets in Africa – where significant minerals development is taking place.
There is talk that, when African-focused Billiton plc’s Brian Gilbertson took the helm of the newly merged BHP Billiton, he wanted to shift the company’s headquarters to Perth – which would have been a compromise between the Melbourne and Johannesburg seats of power.
In fact, I’m led to believe the Billiton side of the transaction was code named ‘Perth’ during correspondence leading up to the announcement of the merger.
Of course, it’s no bed of roses here. Some of the cost advantages that prompted Woodside Petroleum Ltd to move from Melbourne in the mid-1990s have evaporated in the heat of the resources boom.
In terms of travel, Perth might be better for Europe, but Melbourne has advantages with respect to the US and South America.
Nevertheless, Perth’s unique stature in doubling as a minerals and an oil and gas capital would offer some real advantages in the longer term.
