Overview: digging for victory

As ‘force majeure’ is declared at a copper mine strike in Chile ahead of its
prelims next week, is BHP Billiton’s CFO in line for the top job?

What’s happened?

It can’t be much fun to admit that events are beyond your control, but that
is exactly what the world’s largest mining group has been forced to do.

BHP Billiton, the UK-listed mining group last week declared a ‘force majeure’
at its copper mine in Escondia, Chile following the fourth day of strike action.
The term is usually reserved for natural disasters, but its effect is to free a
company from its supply contracts without incurring penalties as a result of
uncontrollable events.

BHP said the strike over pay and conditions meant the world’s largest copper
mine was operating at about 40% of its capacity, forcing the suspension of
cathode production and threatening future deliveries of copper concentrate to

All very unfortunate timing as the group, under chief executive Charles
‘Chip’ Goodyear and chief financial officer Chris Lynch, prepares to announce
its preliminary results next Wednesday.

What’s going to happen?

The threat of strike action has been steadily forcing up the price of copper,
and this is set to continue for as long as the strike continues. There is also
the fear of copycat strikes elsewhere in the South American region, which will
only serve to push prices for the commodity higher. This, of course, will
benefit BHP Billiton, but it would rather resolve the conflict and get the mine
back up to full capacity so as to reap the benefits of the wider boom in
commodity prices in part driven by demand from China.

Analysts are expecting pre-tax profits of around £8bn, and there is no doubt
that the Chilean miners will be digging in to get a slice of the action.

But there are a couple of other points on the agenda. First, the group is
trying to off-load its North Sea Oil and gas operations, with Gaz de France
leading the bidding.

Secondly, Mike Salamon, BHP’s executive president and heir apparent to Chip
Goodyear, has said he will retire after the annual general meeting in October.
So the tipsters are now looking towards CFO Chris Lynch to become the new heir
apparent and future CEO, assuming events become more controllable.


BHP Billiton is not alone in having invoked force majeure clauses in its
contracts this year. In July, Shell declared force majeure in Nigeria on
Bonny Light crude exports after a pipeline leak shut down 180,00 barrels a day
of oil production. In June Grupo Mexico said it had declared force majeure after
failing to end a strike at its Cananea copper mine. And in February Petroecuador
used the clause when protesters in Ecuador’s eastern Amazon shut down the
country’s two main oil pipelines, occupied a couple of pumping stations and
kidnapped dozens of oil workers.

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