Broken Hill Proprietary Company Analysis

This report provides an analysis of Broken Hill Proprietary Company in Australia and the Australian mining industry. It discusses the market structure, demand and supply determinants, and recent events in the industry. The Australian mining industry is oligopolistic, dominated by a few large companies such as Broken Hill Proprietary Company and Rio Tinto. The industry has barriers to entry, including high capital investment and lengthy registration procedures. The report also analyzes the demand elasticity for BHP products and the impact of a recent event in the industry. Overall, the Australian mining industry has been performing well and is expected to continue growing.

BROKEN HILL PROPRIETARY COMPANY ANALYSIS i
AN ANALYSIS OF THE BROKEN HILL PROPRIETARY COMPANY IN AUSTRALIA
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BROKEN HILL PROPRIETARY COMPANY ANALYSIS ii
Executive Summary
Globalization is taking over today’s world of business at a fast pace (Brière, Chapelle
and Szafarz 2012, p.1729). Technology is advancing with time. Businesses should,
therefore, invest in advanced technological production methods and innovation in order
to remain competitive in their respective industries not only domestically but also
internationally. For a company to perform better, it needs to strategize its future goals
keenly. In this process, the company needs to analyze its past and current performance
and that of its industry. In this report, BHP Company in Australia has been analyzed and
it is not only among the largest Australian mining companies but also in the world at
large.
The Australian mining industry is oligopolistic as it is dominated by only a few large
companies with the two significant ones being BHP Company and Rio Tonto. The
industry has various barriers to entry such as high initial capital investment and lengthy
registration procedures before startup. Also, the demand elasticity and its determinants
for the BHP Company have been analyzed. A recent event in the industry which is the
introduction of the RCS 5 by the Epiroc Company has been analyzed. In a nutshell, the
Australian mining industry has been doing well as evidenced by its significant
contribution to Australian economic growth and better results are anticipated in the
future (Ergas and Pincus 2014, p.13). BHP is also expected to perform better in terms
of profitability as its industry is expanding and its various products such as iron ore and
copper are highly demanded by the developing economies especially China and India.

BROKEN HILL PROPRIETARY COMPANY ANALYSIS iii
Table of Contents
Executive Summary...........................................................................................................ii
Introduction........................................................................................................................1
An Overview of the Broken Hill Proprietary Company in Australia...................................1
An Overview of the Australian Mining Industry..................................................................2
Australian Mining Industry Market Structure.....................................................................3
Determinants of Demand and Supply for BHP Products..................................................5
Determinants of Demand...............................................................................................5
Determinants of supply...................................................................................................5
The Demand elasticity for BHP Products..........................................................................6
Factors affecting the demand elasticity for BHP products.............................................6
A Recent Event Analysis...................................................................................................7
How the event is likely to impact supply.........................................................................7
Effect of the event on market quantity and price............................................................7
Conclusion.........................................................................................................................8
References.........................................................................................................................9

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 1
Introduction
Today’s world of business is becoming globalized at a fast pace (McMillan and Rodrik
2011, p.17143). Innovation and technology advancement have been happening
regularly. Businesses are adopting advanced technology in production and investing
much in research and development to outdo their competitors. It, therefore, requires
sound strategic goals by organizations to survive in their respective industries. Some of
these goals are formulated from the business analysis and its overall industry to access
its competitors and the trends and future of the industry it operates in. Great scrutiny
and analysis of an industry within which an entity operates enable it to plan for its future
operations with great certainty based on the facts at hand. In this report, the Broken Hill
Proprietary Company in Australia has been analyzed and the Australian industry in
which it operates (Australian Mining Industry). Various factors about the industry such
as its growth rate and contribution towards the overall Australian employment rate
among others and the company’s products characteristics such as elasticity of demand
and supply have been analyzed. In a nutshell, it is of paramount importance for a
company to analyze its industry to a have a broad view of its competitors and the future
of its industry before planning for future goals.
An Overview of the Broken Hill Proprietary Company in Australia
Broken Hill Proprietary Company in Australia was formerly referred to as the Broken Hill
Proprietary Billiton Company. Currently, it is a trading entity of the Broken Hill
Proprietary Group Limited and the Broken Hill Proprietary Group Plc. The company was
formed during the year 2001 when Broken Hill Proprietary (BHP) and Billiton formed a
merger to form Broken Hill Proprietary Billiton Company in Australia abbreviated as
BHP Billiton (Blainey 2010, p.23). The company has its headquarters at Melbourne,
Victoria, Australia. This is according to BHP history since 1851 as obtained from the
company’s website.
Broken Hill Proprietary was formed during the year 1885 at Broken Hill, Victoria,
Australia. The company was initially formed to mine silver, zinc, and lead at Broken Hill.
It later on expended and started the development and discovery as well as the
production and marketing of oil and gas, steel, iron core and copper among others.
During the year 2000, the company was given the name BHP Limited.
Billiton was formed during the year 1851 in Billiton (Belitung) island in Indonesia. It was
initially established to mine tin in Indonesia. The company since then expanded and
became a leader in the mining sector and metals and even started producing
manganese and chrome, titanium minerals, alumina, and aluminum, steaming coal,
alloys and ores and nickel among others especially the copper portfolio.
Since the establishment of the two companies, Broken Hill Proprietary and Billiton, the
companies continued to grow and develop while contributing much towards the
Australian mining industry, communities, and the entire world economic growth. After
their merger, the companies have grown significantly and have been ranked among the

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 2
top world largest companies in the mining and resource sectors. Broken Hill Proprietary
Company in Australia currently employs approximately 100000 workers and is
established in more than 25 nations worldwide. Since the merging of the two
companies, they have been engaged in the production of various minerals some of
which include nickel, aluminum, manganese, titanium, copper, uranium, silver, and iron
ore among others. The company also has significant assets in coal and petroleum. The
company has a market capitalization of approximately more than $166 billion and raises
the revenue of over $52.8 billion. The company is also estimated to have an operating
cash flow of more than $17.9 billion. To sum up, Broken Hill Proprietary Company in
Australia has been doing well and better results are anticipated in the future especially
as its industry continues to grow.
An Overview of the Australian Mining Industry
Broken Hill Proprietary Company in Australia operates in the Australian mining industry
and hence the industry has been analyzed. Mining generally refers to the act of
extracting valuable minerals and other various geological materials (de Villiers, Low and
Samkin 2014, p.51). These materials are usually extracted from the earth from placer
deposits and ore bodies among others. The Australian mining industry has been
contributing significantly towards the nation’s economic growth. Statistics show that the
mining industry in Australia contributes about $150 billion which accounts for about 10
percent of the nation’s gross domestic product. This is in accordance with the “Minerals
Council of Australia” (Perry and Rowe 2015, p.139). The industry contributes to about
60 percent of the Australian total exports. This is quite a significant contribution as no
other industry contributes such a huge percentage towards the Australian export
market. Australia has been ranked as the largest exporter of iron ore in the world having
a world trade percentage of 53. It is also ranked the second exporting nation of coal in
the world and the coal leads the nation’s energy exports. The other minerals which
account for the significant mining industry exportation in Australia include copper, zinc,
aluminum, uranium, and gold (Fleming, Measham and Paredes 2015, p.624). The
strong Australian mining industry in Australia has created various job opportunities both
for the citizens and internationals. The industry approximately employs more than
200000 employees accounting for almost 2.3 percent of the Australian total labor
workforce. This is a quite higher rate of employment as compared to other industries
such as the Australian Soft Drink Manufacturing Industry which only accounts for
approximately 0.6 percent of the Australian total labor workforce. The industry raises
significant revenue to the Australian government which is estimated to be $262 billion.
The industry has an annual growth rate of 2.4 percent. The industry’s contribution to the
overall Australian economic growth rate is expected to increase at an annual
percentage of 1.4 percent as the Australian gross domestic product is expected to grow
at an annual rate of 2.7 percent. Australia has been undergoing mining booms and as a
result, mining investment and the nation’s infrastructure have been improved and this
has led to an increase in revenue obtained from the Australian mining industry and
immigration to the nation has also increased significantly. The highest revenue in the
Australian mining industry is contributed by gold and coal mining which both account for
41 percent of the nation’s mining industry total revenue (Eklund 2015, p.177). The

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 3
Australian mining industry is dominated by various companies but only a few of them
have the largest market share. Some of the largest companies in the mining sector
include Broken Hill Proprietary Company in Australia, Rio Tinto Alcan, Newcrest Mining,
Fortescue Metals, and Alcoa. In conclusion, the Australian mining industry has been
doing well and contributing significantly towards the Australian economic growth and
better results are anticipated in the future.
Australian Mining Industry Market Structure
The market structure generally refers to market characteristics which can be either
competitive or organizational in nature (Campbell, Goldfarb and Tucker 2015, p.47).
Such characteristics define the competition level in the market and the best pricing
strategy which can be adopted by firms operating in the market. There are four
categories of market structures namely the monopoly, monopolistic, perfect and
oligopoly competition.
The Australian mining industry is oligopolistic in nature. An oligopoly industry is
characterized by a few key players who dominate the industry and are interdependent
on each especially when it comes to paramount decision making such as the pricing
decisions to be adopted by a firm (Geras’kin and Chkhartishvili 2017, p.332). The
Australian mining industry has a vast number of mining companies but only a few large
firms dominate the industry. The significant industries which dominate the industry
include the Broken Hill Proprietary Company in Australia (formerly called the BHP
Billiton), Rio Tinto, Fortescue Metals Group, Newcrest Mining and South32 with market
capitalizations estimated to be $90.67 billion, $74.04 billion, $14.68billion, $13.21 billion
and $11.30 billion respectively as per the year 2017. Fortescue and South32 are both
headquartered at Perth, Australia whilst the other three are have their headquarters at
Melbourne, Australia where the mining history of Australia actually began. According to
Frik Els’s information about the top 50 mining companies, the above five listed key
Australian mining companies both appear among the top 25 biggest mining companies
in the world. From the market capitalization data which shows a company’s outstanding
shares and hence giving an indication of a company’s size, the Broken Hill Proprietary
Company in Australia and Rio Tonto have the highest market share in the Australian
mining industry. The two companies top the world’s two largest mining companies with
Broken Hill Proprietary Company in Australia being the first one according to market
capitalization. This means that the industry is highly concentrated and hence various
barriers to entry into the industry exist.
One of the barriers to entry into the Australian mining industry is financing. Huge capital
investment is required for the construction of mines and acquiring the necessary
facilities for production. It is also costly to maintain a sustainable exploration and
development for the replenishment of reserves. This hinders many firms from entering
the industry. Also, economies of scale act as major barriers for entry into the industry
(Kalashnikov et al 2011, p.729). This is because the already established large
companies such as Broken Hill Proprietary Company in Australia and Rio Tonto are
able to minimize their costs of production by use of various available economies of
scale such as economies of large scale production which arises from their huge market

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 4
share both domestically and internationally. Another barrier to entry into the industry is
the lengthy procedure involved before starting a mining company. For instance, new
companies are required to undergo various steps before being allowed to open up their
operations such as approval of compliance to the Australian environmental laws.
According to Kym Livesley article about the regulation of the Australian mining industry,
a company which is less complex takes about six months before being granted a permit
to operate while complex companies which require public consultation can even take
several years before being granted the permit to operate. To sum up, the Australian
mining industry is oligopolistic in nature as it is dominated by a few large firms the two
significant ones being Broken Hill Proprietary Company in Australia and Rio Tonto and
various barriers to entry exist which make it difficult for new companies to enter the
industry.
The graph for profit maximization for the Australian oligopolistic mining industry is as
shown below.
Firms in the mining industry maximize their profit at the equilibrium point E whereby the
marginal revenue is equal to the marginal cost. At this point firms offer output Q1 at price
P1 as shown above. Any attempt by a firm to raise price above P1 leads to drastic losses
as the demand curve above point E is highly elastic since other firms will be reluctant to
raise their prices. Any attempt by a firm to lower price below P1 results in little gain as
demand curve below point E is inelastic since other firms will also consider lowering
their price to avoid losses.

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 5
Determinants of Demand and Supply for BHP Products
BHP deals with a variety of products which are supplied worldwide. Some of the most
influential products for BHP which have a global presence are the petroleum products
and copper along with other products. The demand and supply determinants have been
discussed for BHP petroleum and copper as well as other products which are affected
by the stated determinant factors.
Determinants of Demand
Demand refers to the number of commodities that consumers are willing and able to
purchase at a given price level over a given period of time (Hildenbrand 2014, p.13).
The demand for the BHP products especially petroleum products and copper is
determined by the following factors.
The US Dollar Currency Exchange Rates Fluctuations
BHP and the World Petroleum products, especially oil, trade in US Dollar currency. BHP
demand for petroleum products and other products which are traded internationally are
affected by various currency exchange rates as the company is based on various
continents. A strong dollar encourages higher demand for the company’s products such
as oil as their prices are reasonable worldwide. However, if the dollar weakens, then the
demand for the company’s products especially oil decline as their prices increases. This
may lead to worldwide customers seeking alternative sources of products such as oil
hence lowering the demand for the company significantly. This will lower the company’s
financial performance as its sales decrease from the decreased demand.
Demand from developing economies such as China and India
The demand in the international market for BHP products highly impacts the company’s
demand. For instance, the developing economies such as China and India are among
the largest trading partners of BHP especially for products such as oil, iron ore,
aluminum, and copper among others. These developing economies growth rates have
been high and hence the demand for oil and other products such as copper which is
currently being demanded for infrastructural development in China has also been high
according to Copper Investing News 2018. This has highly increased the demand for
BHP products especially oil and copper. On the other hand, if the demand in these
developing economies declines, then the demand for BHP products will consequently
fall.
Determinants of supply
Supply generally refers to the number of products which suppliers feel comfortable to
offer for sale in the market at a given price over a given period of time (Costantino 2012,
p.451). Various factors determine the supply for BHP products especially copper and
petroleum products as explained.
Natural Disasters and Calamities
Mining activities are highly affected by natural calamities and disasters such as
tsunamis, earthquakes, and hurricanes among others (Bayari 2016, p.552). BHP has its

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 6
production both onshore and offshore in different geographic locations and hence faces
the risk of natural calamities and disasters. An occurrence of a natural calamity or
disaster in BHP production sites will definitely lower the supply for its products. A
peaceful production environment free from natural calamities and disasters will lead to
an increase in supply for BHP products.
The Global Financial State
Most of the BHP products such as copper and petroleum products are traded
internationally. Therefore, the prevailing international prices highly impact the supply of
BHP products. For instance, a decrease in international prices for oil and copper and
other products offered by BHP will lead to a decrease in supply for the BHP products to
avoid loses. Also, an increase in the global prices for products offered by BHP will lead
to an increase in supply by BHP as the company will be after higher prices which are
generated from the higher prices.
The Demand elasticity for BHP Products
Demand elasticity is a measure which shows how the demand for goods and services
respond to a change in price for the goods and services (Han et al 2015, p.183). The
demand elasticity for BHP products especially petroleum products and copper among
others is demand inelastic. This is due to the oligopolistic nature of the industry and that
of the entire world (Kalashnikov 2014, p.281). This is due to the fact that the Australian
mining industry and consequently that of the world at large is dominated by a large few
mining companies which have a significant market share. The interdependence nature
of the companies in the mining industry makes the products sold to be inelastic as an
action by one company will lead to adjustment by the other companies immediately to
avoid any loses which may occur.
Factors affecting the demand elasticity for BHP products
Various factors affect the demand elasticity for BHP products especially copper and
petroleum products among others as explained below.
The availability of close substitutes
The mining industry does not involve various substitutes. This is because nothing can
exactly function as an intended good. Most mining products involve only a few or no
close substitutes at all. For instance, Zinc cannot take the functions of aluminum or
copper. The availability of a few or no close substitutes at all makes the demand for
most BHP products especially petroleum products and copper less elastic.
The degree of necessity of the products
Most mining products especially those offered by BHP such as petroleum products, iron
ore, copper and even coal among others are necessity goods and not luxury ones. They
are required for various purposes or rather used as crucial raw materials in producing
other goods and services. This makes BHP products less elastic as they have to be
purchased irrespective of the price change and hence other means are sought to solve

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 7
any imbalance between demand and supply as demand cannot decrease by a
significant percentage.
A Recent Event Analysis
A recent event which occurred in the Australian mining industry is the launch of an
updated drilling system made for autonomous drilling by the Epiroc Drilling Solutions
during the month of April 2019 according to Australian Mining News 2018. The company
has introduced the Rig Control System (RCS) which is its fifth generation made for
drilling Pit Viper blasthole rigs (Morton 2019, p.36). This is a next step which is expected
to contribute much towards the Australian mining automation by its various industries.
The company started by automating 18 BHP’s blasthole rigs Pit Viper during the year
2016 which made the company improve its productivity, safety of the working
environment and production costs according to Australian Mining News 2018. The
newly introduced RCS 5 has various features which enable communication from
machine to machine, updates of real-time drill plan sharing among drills, an integrated
camera which is used for advanced awareness and angle of the auto tower among
others.
How the event is likely to impact supply
The introduction of the RCS 5 updated drilling system is likely to improve the
productivity of the mining companies. This will definitely increase the market supply.
Evidence was witnessed during the year 2016 when BHP productivity rose from a
production of 9.8 percent to 22 percent of the meters drilled per shift due to the
automation of its 18 blasthole rigs Pit Viper.
Effect of the event on market quantity and price
The RCS 5 updated drilling system increase in market supply will increase the market
quantity. Also, the system is anticipated to reduce production costs, time spent and
improve the overall production efficiency. The lower production costs are likely to lower
the market prices accordingly.
The diagram indicating the changes in the market supply, quantity and price is shown
below. From the diagram, it is evident that the increase in mining companies’
productivity will lead to an increase in aggregate supply for the mining industry and
hence shift the aggregate supply curve towards the right direction from AS0 to AS1. As a
result, the market quantity supplied will increase from Q0 to Q1 while the market price
will decrease from P0 to P1 as indicated.

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 8
Conclusion
Today’s world of business is becoming globalized at a fast pace. Technology is
advancing and hence businesses must invest in innovation and technology as well as
strategize their goals accordingly for them to survive in their industries. Future planning
of a company’s strategic goals requires great scrutiny of various factors within the
company and the industry in which it operates. This report has analyzed the BHP
Company in Australia which is not among the biggest mining companies in Australia but
also in the whole world. Based on the analyzed industry indicators such as the
industry’s growth rate, better performance is anticipated from the Australian mining
industry and BHP is expected to post better results in terms of profitability.

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 9
References
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History, 8, p.23.
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mixed oligopoly model. Annals of Operations Research, 217(1), pp.281-297.

BROKEN HILL PROPRIETARY COMPANY ANALYSIS 10
Kalashnikov, V.V., Bulavsky, V.A., Kalashnykova, N.I. and Castillo, F.J., 2011. Mixed
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Website links
https://www.australianmining.com.au/news/epiroc-releases-updated-drilling-system-for-
autonomous-mining/
https://www.australianmining.com.au/features/epiroc-making-autonomous-mining-
reality/
https://investingnews.com/daily/resource-investing/base-metals-investing/copper-
investing/copper-fundamentals-driving-technological-economic-growth/
http://www.mondaq.com/australia/x/108106/Mining/
Mining+The+Regulation+of+Exploration+Extraction
https://www.bhp.com/our-approach/our-history
http://www.mining.com/top-50-biggest-mining-companies/