CHAPTER 11
Jeremy Kitson Ellis, by now chief executive officer of BHP Minerals, knew he was approaching San Manuel when two huge smokestacks loomed like beacons out of the cactus-strewn Arizona scrub. It was the spring of 1996 and Jerry Ellis was making his first visit to the little copper-mining town since BHP had completed its US$2.4 billion takeover of the Magma Copper Company.
Described by one industry insider as ‘affable, charming, pleasant, polished but not super-smooth, good-humoured’, 1 Ellis travelled the 56 kilometres from Magma Copper’s corporate headquarters on North Oracle Road, Tucson, with Magma’s president and chief executive, the Irishman J. Burgess Winter. Everything looked fine as the little convoy of company cars threaded its way down Highway 77 from the mountain town of Oracle towards the Lower San Pedro Valley.
Indeed, the two men had every reason to celebrate the trans-Pacific deal that had made BHP the largest publicly traded producer of copper in the world. Winter had made a fortune from selling his Magma stock to BHP, and Ellis thought he had landed one of the great mining prizes of all time. Neither man had any inkling of the turbulent times that lay ahead for their companies.
‘Jerry Ellis was instrumental in bringing in the Magma deal – it was the last thing he did as minerals chief executive,’ says Graeme McGregor, who was executive general manager of BHP at that time. ‘The full board was meeting in Melbourne and they had sent me to New York to sign the papers.’ 2
In Arizona, the little convoy approached a crossroads among the grey-and-white-speckled boulders, so different from Ellis’s birthplace, Hardy Country in England’s rural Dorset, but more akin to the country where he had been raised in rural Western Australia. ‘I went to primary school in York in the West Australian wheat belt and secondary school in Northam, also in the wheat belt, so I grew up as a young Australian,’ Ellis says. ‘I’ve lived here pretty much all my life, although I went to Oxford for a few years. I didn’t get an Australian degree. Oxford only give out BAs but my subject matter was engineering and then if you stay on the books long enough you can buy yourself an MA, which I did – it cost me £10 – and my official post nominal is MA Oxon.
‘The first company I worked for was ICI in England and then I moved with ICI to their subsidiary ICI Australia, which has morphed into Orica. So the first five years of my working life were with that company as a process-control engineer.’ He joined BHP in 1967 as an organisation planning officer and worked with a team of American consultants, Cresap, McCormick & Paget, who had been hired by the then administration manager, Fred Rich. ‘I worked with them for a couple of years and it gave me a good insight into the company.’ 3
The left-hand road led to the San Manuel mine, the largest underground copper mine in the United States, visible on the escarpment as a collection of gaunt steel towers and winding gear that hovered over the shafts, in the words of one Australian mining executive, ‘like Don Quixote windmills’. 4 The right-hand turning was South Reddington Road, which went to the town, the mill, the smelter and the electrolytic refinery. The desert sun – still low on the horizon – blazed over man’s despoliation of the biblical wilderness.
San Manuel had been built at an elevation of 1000 metres on the north-eastern flank of the Santa Catalina Mountains. It rarely snowed at this altitude, but when it did the tailings seemed to have been draped with white blankets and the saltbush sprinkled with balls of cotton wool. The township was so close to the smelter that the prevailing winds sometimes enveloped it in clouds of sulphurous smoke that soiled washing and engulfed children in their playgrounds.
It was a huge day in the little town’s history. Since early morning, cars had been pulling into the parking lot outside the conference centre on South McNab Parkway. The centre was packed with Magma employees, each of whom were given a little commemorative copper anode stamped with the words ‘Magma Copper Company: 5 May 1910–18 January 1996. Our history is the springboard to our future. ’
‘Soon after the BHP purchase was announced, Jerry Ellis came to San Manuel and spoke to us,’ says Matt Foraker, an electrical engineer with a master’s degree in mathematics who worked at the smelter. ‘He talked about how wonderful everything was and how it was going to be so great. He had to talk to a lot of concern because the people in that room could already smell that something nasty was coming.’ 5
Magma Copper had been founded in 1910 by William Boyce Thompson, a mining engineer and Wall Street financier. 6 It took its name from the district of Magma in Pinal County, 50 kilometres north of San Manuel, where Thompson also operated copper mines. Exploration of the San Manuel area began in the early 1940s during a steep increase in demand for copper. Test drilling started in 1943 in the Red Hill area of San Manuel and shortly afterwards Magma Copper paid a reputed US$28 million for the claims. In 1952, Magma used a federal loan of US$94 million to build the mine, the plant, the railroad and the company town. Production from the mine began in 1954. 7
‘For a miner like me, it was a wonderful place to work,’ says Onofre ‘Taffy’ Tafoya, one of 4500 people who moved to San Manuel. ‘If you were a good worker, you always got a job there, you got good financial credit anywhere in town. When I hired in there in 1956 at the entry level, which was as a chutetapper, the pay was US$14.35 for eight hours. What made it so damn attractive to me was that I was working as a labourer in a brickyard before that for less than US$1 an hour, so to me it was a promotion.
‘The chutetapper was the man down at the copper face with a double-jack: a 16-pound sledgehammer with a shortened handle. You sit there and break rocks all day long. It was damp down there but the ventilation was pretty good. The mine was so damn big. When we were at our very best, we had over 600 miles of drifts and tunnels and raises down there. The working people used to call the mine Mother Magma, because it was like having a big old titty that you could go suck on all day long. It paid out money all the time – you get what I mean? “Hey – I see you bought a new car.” “Yeah, Mother Magma.”’ 8
In 1995, Magma Copper was producing high-quality copper cathode and copper rod from its operations in San Manuel, Miami and Superior – all mines in Arizona – the Robinson mine at Ely, Nevada, and the Tintaya mine in southern Peru. Magma Metals, a division of Magma Copper run by the stalwart John F. Champagne, operated the smelting and refining complex at San Manuel.
The company had come back from the brink of disaster a few years earlier and was now turning a healthy profit thanks to a revolutionary agreement between unions and management. The turn for the better started in November 1988 when the private-equity firm of Warburg Pincus Capital arranged funds for Magma to buy out its two largest shareholders, Newmont Mining Corporation and Consolidated Gold Fields. Burgess Winter, senior vice president of BP Minerals America, was brought in as chief executive. 9 Years of conflict between management and the United Steel Workers of America, largest of the ten unions at Magma, brought the company to the verge of bankruptcy. Winter embarked on a radical program to improve efficiency and reduce costs. A joint committee was set up to develop a sense of mutual purpose that would change things dramatically from confrontation to cooperation.
‘Burgess was responsible for the turnaround in the company, with two key executives, Brad Mills and Marsh Campbell,’ 10 says Matt Foraker. ‘He hired consultants King, Chapman & Broussard (KCB), who created what was called “The Voice of Magma”, a committee consisting of approximately 150 people throughout the company at all levels: it included forklift drivers, underground miners and members of the board of directors. People were selected because they stood out as influential in the business. Even though a guy was only a forklift driver or a welder, if he was seen as somebody people listened to, and counted on and trusted – one of the good guys, so to speak – he was selected.
‘The Voice of Magma crafted the Magma Charter, a set of principles that was also a statement of accountability. It was a document about what the company was going to be and it introduced a sense of trust and alignment between the unions and management. It was unprecedented.’ 11
Bradford ‘Brad’ Mills was born in Washington DC just after the Korean War, the son of an investment banker who was working temporarily in naval intelligence at the Pentagon. He graduated in geology at Stanford University and took his master’s degree at the Stanford School of Business in mineral economics. After spending ten years in exploration field geology, he became director of corporate development of the gold-and-copper miner Echo Bay, and three years later moved to Magma Copper at Tucson, Arizona.
‘I joined Magma as the vice president business development and over the next five years completely transformed that business,’ he says. ‘We had a wonderful chief executive in Burgess Winter. Through the five years of the copper boom, we were able to grow the company very successfully.’ 12
From 1988 to 1994, productivity increased by 86 per cent, production costs were slashed from more than 80 US cents per pound of copper to less than 60 US cents per pound, and output was cranked up from 400 million pounds to 700 million pounds per year.
Under a 15-year labour contract with a seven-year no-strike clause, there were no layoffs in several years and the unions altered job rules so that workers could pitch in wherever they were needed. ‘A welder who works in the mine will now come and work in the smelter on a busy day there,’ says John Champagne. 13 Magma’s average wage for a miner was US$15 an hour, but US$2.25 of this, or 15 per cent, was a ‘gain-sharing’ bonus paid for greater efficiency. To earn it, each miner had to dig roughly 570 pounds of ore a day, on average, rather than the 350 pounds that was typical in 1988.
On 2 February 1995, Magma announced record net income for 1994 of US$87.4 million, or US$1.38 per share, compared with US$21.9 million, or 40 US cents per share, in 1993. ‘1994 was a monumental year for Magma Copper Company,’ Burgess Winter commented in the company’s annual report. ‘Major accomplishments have dramatically transformed Magma into a competitive international copper producer. These include: the acquisition of the Tintaya mine, purchased from the Peruvian government in November 1994; the start of construction at our Robinson mine near Ely, Nevada; the completion of a major smelter expansion at our San Manuel smelter; net cash operating costs of 58 US cents per pound for the year; and record Magma source production. The combination of our growth and cost-reduction programs has made 1994 the best year in Magma’s history.’
A few months later, Winter was approached by Jerry Ellis, who had been told about the great promise of Magma Copper by two of his United States-based BHP executives, Bob Hickman and Glen Andrews, group general manager of the copper division. ‘Probably right,’ Jerry Ellis says in an interview. ‘Most of my dealing was with Burgess Winter and John Vogelstein [of Warburg Pincus].’ 14
‘Myself and Glen Andrews recommended the acquisition of Magma,’ says Bob Hickman, who became group general manager for business development after returning to San Francisco following the successful opening up of Escondida in 1990. ‘We went to San Manuel, we went to the smelter, we went in the mine, we talked to all the principal people and we had all of our engineers and metallurgists on the property. We knew the property very well. It wasn’t bad for a block-cave operation, but they were running out of ore in the main [mine] – they needed a new development there.
‘Jerry Ellis was my boss and he used to split his time between San Francisco and Melbourne: he had two offices. Between the phone and teleconferencing, we put together a package that we thought was doable and then it was recommended. When it became clear it was something that should have been favourable for the company, the responsibility for it transferred to Melbourne. It was basically done by Jerry himself, along with Melbourne staff. Then Jerry did all the direct negotiations with Magma. It didn’t turn out to be a very successful acquisition; in fact, it was ultimately one of the things that brought down BHP.’ 15
On 12 July 1995, Jerry Ellis met with Burgess Winter, Donald J. Donahue, Magma’s chairman, and Vogelstein, the Warburg Pincus vice chairman who was also a Magma director. There was already a history between the two companies. Magma Copper and BHP Minerals had formed a joint venture two years earlier to bid for the El Abra copper deposit in northern Chile. 16
‘El Abra was a copper-oxide deposit and we didn’t feel confident that we could do it alone,’ Ellis says, ‘but nor did Magma, so we decided to make a joint bid. The Magma fellows and the BHP blokes in San Francisco worked together on putting a bid in for El Abra – that’s how we started working together; that’s when we got an appreciation of their skills in so-called SX/EW winning of copper.’ 17
The El Abra bid was unsuccessful but the companies remained on cordial terms. 18
In October 1995, Brian Loton, John Prescott and Jerry Ellis met with Burgess Winter and John Vogelstein to discuss the price at which BHP would acquire Magma. Later that month, Winter, Vogelstein and Brad Mills flew to Melbourne and on 30 October BHP and Magma entered into a confidentiality agreement to enable BHP to conduct due diligence of the American company’s assets. 19
The takeover deal was announced on 30 November. BHP’s cash tender offer of US$28 a share did not require the approval of BHP’s shareholders, and Magma’s largest shareholder, Warburg Pincus Capital, agreed to tender its 26 per cent stake. 20
The deal gave BHP a fully integrated copper operation that would use Magma’s smelter, described as ‘state of the art’ by the New York Times, to transform mined copper ore into pure metal. The smelter could process more than a million tons of copper concentrate per year, enabling Magma to also process copper from outside sources. There was also a railroad to carry ore the 11 kilometres from the mine to the smelter and transport the finished product to Hayden, 48 kilometres away, for distribution on the wider rail network. It provided BHP with immediate access to the American copper market, essentially giving it global reach.
‘The key focus of this acquisition is growth,’ Graeme McGregor told the New York Times. ‘[It] will create great synergies.’ 21 BHP financed the deal with internal cash resources and existing lines of credit. This would increase the company’s debt initially, but the deal would save US$30 million to $40 million a year over time through redundancies.
Burgess Winter became executive general manager and chief executive officer of a new entity, BHP Copper Group, which would control all of The Big Australian’s copper interests in the United States, plus Escondida in Chile and Ok Tedi in Papua New Guinea. Based in San Francisco with BHP’s other major American acquisition, Utah Mining, BHP Copper would produce roughly ten per cent of the world’s copper.
John Prescott and Burgess Winter declared, ‘The creation of the new BHP Copper Group has the unanimous support of the BHP and Magma boards and is a very positive and exciting development for the industry and each company’s shareholders.’
On the New York Stock Exchange, Magma Copper shares jumped US$6.25 to $27.65 – a rise of more than 29 per cent. ‘I cannot think of two other companies that have as good a fit as these two,’ Anthony P. Rizzuto Jr. of Bear Stearns told the New York Times. ‘This was clearly driven by strategic factors and would not make sense for other companies.’ 22 The Londonbased Mining Journal nodded approvingly that ‘there appears to be very little risk associated with the takeover’. 23
BHP Copper, however, soon found itself immersed in serious problems. Some of these difficulties should have been spotted by the BHP team on the ground. One Australian mining executive says, ‘When I heard about the acquisition, I remember thinking, “Who on earth would buy that?” There was one per cent copper, which is okay – except it’s not okay at a couple of kilometres down. I couldn’t believe Jerry and the boys had forked out $3.2 billion for that.’ 24
Daniel L. Edelstein, copper-commodity specialist with the United States Geological Survey (USGS) in Washington, says, ‘It was a good time, a positive period – copper prices were relatively high and the prognosis was for increasing demand. But the copper price suddenly took a downturn. They were looking at a mine that was at the end of its useful life and needed a significant investment to go deeper. They were exhausting the upper ore body in the San Manuel mine and they were having to put investment work into the lower ore body, known as Kalamazoo or the Lower K.’ 25
Specialists from the United States Environmental Protection Agency (EPA) had inspected the mine in 1992. ‘Mining of the one-billion-ton San Manuel ore body will continue until 1995 when the ore is expected to be depleted,’ says a copy of the EPA report in the authors’ possession. It continues:
Expectations at BHP were nonetheless high. The bullish Daniel Roling, an analyst at Merrill Lynch, believed demand for copper was likely to remain strong in 1996, sustaining the current copper price of around US$1.30 a pound because of rising copper use in the housing, transportation and machine-tools industries. Others were not so optimistic. New mines were due to come on stream in Indonesia and Chile in 1996 and 1997, adding ten per cent or more to the global copper supply. ‘Bringing on that much supply should soften prices,’ said Leanne Baker, a metals analyst at Salomon Brothers. ‘I am negative on copper.’ She added that the BHP share offer ‘is a valuation Magma shareholders should be very happy with’. 27
Indeed, Magma’s shareholders were ecstatic with the price BHP had paid for the American company, which some analysts later calculated as five times higher than its true value. Nobody was talking in those terms yet.
‘I wasn’t actually part of the negotiating team but as soon as we bought Magma I had to visit there and gained a bit of an understanding of what it was all about,’ Peter Laver says. ‘We were taken on a fairly extensive tour of the place. The hosts were Burgess Winter, Brad Mills and the Magma people. John Prescott was there and all the senior minerals people: Jerry Ellis, Dick Carter and the crowd from San Francisco, Tim Winterer and Keith Wallace. We played golf and had dinner at the chief executive’s house, which was an amazing spread sitting in the hills looking down over Tucson. We’ve been prey to a few sweet-talking people occasionally and he was one of them.’ 28
Had the price of copper remained buoyant, things might have turned out very well. But the deal was star-crossed. ‘Well, there’s no doubt it was a shitter,’ Jerry Ellis says, allowing himself a rueful laugh. ‘All these “what ifs” ... it’s a bit like playing golf: “If I’d played better golf yesterday, we’d be the club champions.”’ 29
As the analysts were mulling over Magma’s prospects, the 48-year-old trader Yasuo Hamanaka stayed late at his office on the third floor of the Sumitomo Corporation near the Imperial Palace in Tokyo to deal in copper through third parties on the New York Mercantile Exchange (Nymex). It is immaterial whether he won or lost that day. For ten years, he had crushed the competition with huge buy-and-sell orders that enabled him to dominate the market. He would often stay in his office until 3 am to conduct transactions in the New York and London markets.
While his company accounts showed that his division had created huge paper profits for Sumitomo, a secret ledger recorded losses running into many millions of pounds. Hamanaka’s doubledealing began to unravel in December 1995 – just after BHP had bought Magma – when the United States Commodity Futures Trading Commission and Britain’s Securities and Investments Board, which oversee commodity markets in New York City and London, asked Sumitomo to cooperate in an investigation of suspected price manipulation. Sumitomo then started its own inquiry and in June 1996, only two weeks after the birth of the BHP Copper Group, Sumitomo admitted at a news conference that Hamanaka had racked up more than US$2.6 billion in losses through unauthorised trades conducted off the company’s books. (Hamanaka was sentenced to eight years in prison for fraud and forgery in 1998 and was released in July 2005.)
The revelation drove down copper prices by as much as ten per cent in London and New York, a fall that coincided with the serious downturn among the Tiger economies of Asia, one of the biggest markets for copper and copper-intensive products such as electrical wires, motor vehicles and pipes. ‘The moment copper prices fell to the extent that they did – down to about 60 US cents a pound when we’d effectively done the economics on a dollar a pound – it was always going to be a struggle,’ says Graeme McGregor. ‘There had been a fair bit of manipulation by the Sumitomo trader in Japan who had effectively created a false market. Then there was oversupply – the LME stocks were at record highs; most people for a while kept producing on the basis that they weren’t going to be the one to shut down facilities. Escondida was producing but not nearly to the extent it is now. It was a very high-grade mine – they were talking 2.16 per cent copper for a 50-year mine life and the original grade was very high, so it was in a vastly different situation to Magma, which was .7 or .8.’ 30
Down in Melbourne, John Prescott was having difficulty accepting the sudden shift in BHP’s fortunes. The operating profit after tax to the end of May 1996 was a colossal US$1.293 billion. In BHP’s annual report, the Magma acquisition had been presented as one of the highlights of the year. Suddenly, things looked very gloomy indeed.
‘Magma was something I wasn’t very happy about,’ John Prescott says, speaking for the first time about the debacle that followed. ‘The copper price really carked. It had been between 120 and 140 US cents a pound – probably 120 was a more continuing figure; we in those days regarded a dollar a pound as about the average price you could expect through the cycle but at one stage it dipped to 60 US cents. The problem with the minerals business is that you dig the stuff up and you eventually run out of it.
‘BHP had had the good fortune over the years to have a number of deposits that didn’t run out as quickly as most did in that industry – Broken Hill lasted more than a hundred years and is still going. Escondida is a hundred-year asset. Cannington, the silver mine in Queensland, is a hundred-year asset. The iron-ore mines in Western Australia are probably thousand-year assets. The world wasn’t growing its mineral consumption in the 1990s quite as rapidly as it is today; in fact, there had been stable iron-ore consumption for 20 or 30 years and not a lot in copper, so the challenge in the ’90s was how the hell do you grow a minerals business when there’s not a lot of growth in the consumption of the metals? The thrust was to diversify the minerals we were seeking to produce and to diversify some of the activities, and to some extent to go downstream to create a market for our own minerals. That was entered into with a degree of confidence because we had had seven or eight very successful years and we regarded ourselves as having some pretty good operators.
‘But when the copper price fell out of bed we were pretty badly hurt. We had just made a couple of acquisitions that had looked okay at the time but looked like dogs by ’97 or ’98. We slowed down the development of Escondida because the cash flow wasn’t quite as good as it had been. Then we had a couple of what would have to be regarded as strategic errors, not least of which was the direct iron plant in Western Australia, and then we had some problems in Rhodesia. We had two or three things bank up on us at the same time, so the minerals business went from being boomingly successful to struggling for a while.’ 31
Burgess Winter’s team at BHP Copper included Brad Mills, Marsh Campbell and Craig Steinke, all of whom were well aware of the special relationship that had existed between the Magma management and its workforce. At the time of the acquisition, Mills, a large, athletic bear of a man with a big smile, was the chief operating officer for Magma. ‘They moved me back on to the strategy side of the combined group,’ he says in an interview in the chief executive’s office of Lonmin, the former Lonrho mining empire, overlooking the gardens of Buckingham Palace. ‘The Magma executives had two-year golden handcuffs – it was part of the way that Magma compensation was set up – and it was helpful from a merger perspective because BHP wanted to keep our people. I spent 18 months trying to sort out strategy issues inside BHP, but I became quite disenchanted.
‘I really didn’t like anything to do with BHP. I thought it was amateur hour. Magma was a company that had mediocre assets and was very well run, and BHP was a company that had extraordinary assets mediocrely run. BHP people in charge of the Magma assets were a complete disaster. They managed to destroy a lot of value and in the process destroy some careers – it was ugly.’ 32
Matt Foraker says, ‘Magma had a rule you weren’t allowed to dress too nice because it created an air of “I’m better than you”. So at Magma you weren’t even allowed to wear a tie – but BHP changed all that. We had the best union/management in the world, we had teamwork, we had a voice, and people were wondering, “Is BHP going to destroy this?” Burgess Winter was one of the first resignations: I don’t think he lasted a year. John Champagne and the Magma Metals controller Craig Steinke – the great guy who hired me – all resigned. They saw the writing on the wall.’ 33
John J. O’Connor, an outspoken Dubliner appointed head of BHP Petroleum in 1994, took a particular interest in Burgess Winter’s departure. ‘He made it very clear he wanted out of the subsequent marriage,’ O’Connor says. ‘When John Prescott would have these thousand-man, offsite leadership meetings, Burgess would sit up on the stage with him, reading the newspaper. He was clearly trying to get bought out, which is, I’m sure, what happened.’ 34
‘Burgess Winter created himself a heck of a good deal by selling Magma to BHP,’ says Gary Dillard, editor of Pay Dirt magazine based in Bisbee, Arizona. ‘He had a good chunk of the stock and he also got severance pay as chief executive. When you look at what Magma had as assets, BHP certainly overpaid.’ 35
One additional problem was that Bob Hickman, an American, and Glen Andrews, a Canadian, both competent ex-Utah operatives, were no longer there. ‘Bob left almost immediately after the acquisition and Glen only stayed maybe another year,’ Brad Mills says. ‘When Burgess Winter left, they employed Jim Lewis as the head of the copper group. He brought Australian-steelmaker mentality to copper, which was challenging.’ 36
Lewis, who became executive general manager and chief executive officer of BHP Copper, joined BHP as a research officer in the 1970s and worked in the coal and steel divisions. His strengths were corporate strategy and development. To introduce a more hands-on management, Lewis appointed Bill J. Walls on 31 March 1997 as senior vice president and group general manager for business improvement. Walls was described in a BHP press release as ‘a seasoned financial executive, certified public accountant and graduate of the Harvard Advanced Management Program (AMP), with 24 years of experience in commercial, operational and administrative areas’.
Matt Foraker says Bill Walls’s arrival at San Manuel triggered dissension in the ranks. ‘He came into the Magma operation like he knew everything,’ he says. ‘His work produced massive resignations of Magma managers and administrators. He represented everything Magma Copper had fought to overcome during ’93 to ’96. He was one of the most arrogant and self-important characters I have ever met. The Magma view: “Employees are good. Empower and develop them to become as productive as possible.” The Bill Walls view: “Employees are bad. Eliminate as many as possible and still be able to operate.”’ 37
All the promise and goodwill at the time of the takeover had evaporated in the hot, dry Arizona air. Concern about Magma’s future reached new heights when in late April John Prescott had the dismal task of passing a virtual death sentence on Newcastle’s steel industry with the announcement that BHP would cease making steel there from 1999. If that proud city, where life for generations revolved around the huge plant on the banks of the Hunter River and where most people referred to the company as ‘The BHP’, could be axed, the question had to be asked: was anything sacred?
Since the 1982 slump in steel prices, BHP had spent a colossal $5 billion (US$3.8 billion) upgrading its steel operations. Jobs were shed and productivity more than trebled, but it hadn’t been enough. The Newcastle works still could not compete with cheaper producers abroad and was losing millions.
‘More than anything else, the closure was technology-driven,’ says Lance Hockridge, who was sent to Newcastle by John Prescott to manage the shutdown (and was later unfairly blamed for the closure). ‘Port Kembla evolved into the flat-product steelworks and Newcastle produced the long products,’ he says. ‘There were many proposals in the ’70s and ’80s right through to the early ’90s to reconfigure the Newcastle steelworks, none of which was taken up for various reasons.’ 38 The Newcastle operation dated back to 1912, and steelworks required continuing investment to stay in business. In the 1980s, Smorgon established a long-products business. ‘They competed directly with BHP in the same product range but using the much more efficient technology based on scrap recycling,’ Lance Hockridge says. ‘Labour relations were an issue but the reality is that no amount of tinkering with labour cost would have made any difference to the fundamental issues. That certainly wasn’t the reason why the steelworks was closed.’
There was little consolation in the fact that BHP would continue turning out rod and bar steel products from Newcastle after 1999 – the steel would be shipped in from Whyalla. In Newcastle, 3000 people, many of them middle-aged European migrants who had worked for BHP since their arrival in Australia, would lose their livelihood. One disillusioned citizen scrawled a sign in chalk outside the Church of Christ in Mayfield, a suburb that provided a big percentage of the workforce: ‘Jesus Fixes BHP, Broken Hearted People’. 39
‘Initially, there was an emotional reaction, but it settled down quite quickly as we were able to explain the reasons behind the closure,’ Lance Hockridge says. 40
The question for the BHP board in Melbourne was whether the company could now afford to wait for the copper cycle to take an upswing or whether it would have to cut and run in Arizona as well. Either way, there was going to be blood on the boardroom carpet, and Mother Magma was far from the only problem that the miner was having with its ventures into copper.