CHAPTER 5
Essington Lewis remained chairman for only two years and at 71 stepped aside for the astute and genial Colin Syme, whom he had recruited from Goldsbrough Mort in 1937 after they met on a trout-fishing trip in Victoria’s Howqua Valley. Born in Western Australia in 1903 of Scottish and Northern Irish ancestry, Syme trained as a lawyer but found his true métier around the boardroom table, where he clouded the air with his ever-present pipe. He made a half-hearted attempt to understand the steelmaking processes but confessed he found it ‘baffling’. His great strengths were in conciliating and coordinating the competing demands of the personalities within the organisation.
Lewis stayed on as deputy chairman, assisting Syme and the new managing director, Norman Jones, who had risen through the BHP ranks establishing a solid reputation along the way. He had joined the company in Newcastle at 17 and, encouraged by BHP management, qualified as a chemist after five years of night study while working as a labourer on the furnace floor. In 1938, he went to Melbourne as technical assistant to the general manager and impressed Essington Lewis as a solid performer.
However, the company’s rising star was undoubtedly Ian McLennan, who for the next two decades would take over from Lewis as the guiding hand in the company’s expansion. More than any other, he would be responsible for the development of the soubriquet that would prove more valuable than even he could have imagined: The Big Australian. For decades, it would be used to prise special deals from federal and state governments, and, despite the total transformation of the entity to BHP Billiton, it is still employed by the company’s special pleaders today.
This was not Ian McLennan’s intention, though he may well have approved. Born in Stawell and raised in Mooroopna in the Goulburn Valley of northern Victoria on 30 November 1909, he attended local schools before boarding at Scotch College, where his intelligence and natural athleticism won him high honours. He completed an engineering degree at Melbourne University and joined BHP in 1933 through the system of trainee cadetships – initiated by Delprat but formalised by Lewis – that sought out bright young prospects and developed and guided them through the company hierarchy to the limits of their ability.
In many ways, the system mirrored the Commonwealth Public Service, and much of the formality of the bureaucracy was retained. Executives always used titles when referring to each other and, in a long series of confidential interviews dated 1978–79 obtained by the authors and never previously revealed, Chairman McLennan said of his former colleagues, ‘I still call them Mister, you know. I could never call them Frank Hockey [superintendent of mines and quarries] or Len Grant [Newcastle steelworks manager]. They were always Mister to me.’ 1
He spent his first two years at Whyalla and the nearby Iron Knob mine. ‘[This] oriented me towards raw materials, which had a great fascination for me all the time I worked with BHP,’ he said. ‘It is the heart and soul of BHP.’ 2
After a further year at other company mines in Western Australia and Tasmania, McLennan was posted to head office in Melbourne as assistant to Frank Hockey. He was already on a fast track to high office when he met and married a BHP secretary, Dora Robertson, in 1937. They would have four children, though McLennan, like Lewis and other top BHP executives, would spend an inordinate amount of time away from home. Family life suffered.
His first major executive posting was to Newcastle steelworks in 1940, but when Lewis became director-general of munitions, gaps were created in the organisational structure that assisted McLennan’s rapid rise. By 1944, though nominally assistant manager of the steelworks, he had taken Lewis’s place accompanying chairman Harold Darling in his travels around the country to inspect BHP plants.
After the war, like top company men before him, he made one of many world trips to stay abreast of steel technology and on his return pressed hard and successfully for the expansion of the Port Kembla plant to include a hot-strip mill and tinplate facility. Narrow-gauge steel strip coated with tin was essential for a huge range of white goods and other products, and McLennan convinced Lewis it was the way of the future. When Lewis secured board agreement, he called McLennan into his Collins Street office. ‘Well, what do you think we should do about it, Mac?’ Lewis said.
‘Well, I think either Norman Jones or I had better go up there and spend a bit of time,’ he replied.
‘That’s exactly what I think, and it had better be you.’ 3
There was a second string to the bow. McLennan also took over as general manager of BHP’s recently acquired Australian Iron & Steel, partially located at Port Kembla. ‘I still had my job as assistant general manager in Melbourne,’ he said, ‘but I was general manager of Port Kembla as well, and the intention was that I might do that for a couple of years.
‘But in January 1950, Mr Harold Darling died, so that upset the applecart. Mr Essington Lewis became chairman of the company, Norman Jones became managing director and I became general manager of the whole company. This meant I couldn’t spend the amount of time I had been spending at Port Kembla.’
However, during his period in Wollongong he forged yet another link between BHP and the government when nominated by Prime Minister Chifley to the Immigration Planning Council. The massive immigration scheme initiated at the time would help to solve the major impediment to the company’s – and the nation’s – growth. The first year’s immigration target was 200,000. By the end of 1950, ‘New Australians’ made up 30 per cent of the BHP workforce. Perhaps unsurprisingly, the new Menzies government established three big migrant hostels around Port Kembla to accommodate them. The New South Wales state government followed up with large numbers of housing-commission homes. McLennan would remain the guiding light of the council for the next 17 years.
As the cold war deepened and the government judged international communism a major threat to national security, McLennan crossed another barrier between industry and government. In late 1950, he joined the National Security Resources Board, chaired by Prime Minister Menzies himself. The board had access to top-secret intelligence from home and abroad, and its deliberations were themselves highly secret. Once crossed, the barrier would never be fully re-established, and in the years ahead BHP operatives would boast of their access to intelligence sources within government. The benefits to their international negotiations would be incalculable.
The 1950s was a decade of uninterrupted growth, and in 1955 Prime Minister Menzies officially opened the hot-strip mill, declaring it ‘a great historic event’ that ‘makes possible the success of hundreds of additional industries further down the line’. It was no exaggeration. The new plant increased steel-processing capacity by nearly a million tonnes a year and eventually provided product to roofing, white-goods and automotive industries throughout the country.
Moreover, in 1958 Menzies was joined at the apex of the Liberal/Country Party coalition by John McEwen, leader of the junior partner but minister for the highly influential combined Departments of Trade and Industry. 4 McEwen came from Chiltern, a neighbouring town to McLennan’s home town of Mooroopna, and represented the area from 1934 until his retirement in 1971. A lean, autocratic figure who privately suffered an agonising dermatitis all his adult life, McEwen not only continued Menzies’ close association with BHP, but as deputy prime minister he became the champion of protection for secondary industry.
As BHP expanded its steel output each year, McLennan became increasingly aware of the need to secure new sources of raw materials, particularly iron ore. ‘I had a major amount to do with getting the exploration program going,’ McLennan said. ‘We could see Iron Monarch and [nearby] Iron Baron being worked out. So I put a lot of personal effort into trying to find new deposits.’ 5
The company recruited no fewer than 58 geologists and set them searching across the continent for the most economic ore bodies. After a false start in Queensland’s Constance Range, they turned their attention to the Pilbara in Western Australia. ‘For some strange reason, we in BHP didn’t know as much about the Pilbara deposits as we should have,’ McLennan said. ‘They were known back in the 1880s. It’s a bit of an indictment for most of us and particularly our geologists that they hadn’t read up about these. We had one geologist who walked right past Mt Newman. Walked past it! So that was bad management and bad luck.’ 6
There was also a measure of selective memory in McLennan’s recollections. According to a McLennan protégé, Stan Salamy, BHP’s geological prospectors were ordered to confine their explorations to the coast as transport costs were thought to make inland iron-ore mining uneconomic. ‘They didn’t want to know about the inland,’ he says. 7
However, their luck would soon change in a big way. In 1957, an old prospector, Stan Hilditch, who had been grubstaked by a Kalgoorlie pump-maker, Charles Warman, discovered a massive iron-ore eminence in the eastern Pilbara about five kilometres from Mt Newman – and about 400 kilometres from the coast – which he named Mt Whaleback. He had been roaming the north for about six years in an old Thames truck with his wife Ella on a budget of $32 a week. And when he told Warman of his discovery, his partner was unimpressed.
‘Look, Stan,’ he said, ‘iron ore is a cheap commodity. It’s too far from the coast. I suggest you forget it.’ 8
At the time, Joe Lyons’ 1938 decision to ban all iron exports remained in force, so the discovery was of little value. But in 1960, John McEwen took a submission to Cabinet – backed by BHP – arguing for the ban to be lifted to encourage exploration. Menzies agreed and, unbeknown to anyone in the industry (including BHP), Hilditch and Warman pegged their leases.
According to McLennan, shortly afterwards two executives from the giant American miner AMAX were heading back to the US when their plane was delayed in Sydney. While they were waiting, ‘someone mentioned that there was a fellow called Warman [nearby] who reckons that he’s got an iron-ore deposit. Would you like to meet him?’ 9
The Americans jumped at the chance and, after doing a deal that would turn Warman and Hilditch into multimillionaires, sought out an Australian company for a joint venture. They chose CSR, the big sugar and building-products company, then run by Sir James Vernon. According to McLennan, ‘Jim Vernon knew a good thing when he saw one. He latched on to this. But then between them they couldn’t do it, so Vernon came and saw us. I thought, “Oh gosh, here’s the opportunity.”’
What followed were ‘tremendous negotiations’, from which BHP ended up as the mine manager with 30 per cent, CSR with 30 per cent, AMAX 25 per cent, ten per cent to Mitsui C. Itoh and five per cent to Selection Trust of London.
The Americans then offloaded ten per cent to Mitsui C. Itoh and five per cent to Selection Trust in England. They were concerned that the Vietnam War, which was then raging, would cut the supply chain from Australia to its Japanese market by closing the sea lanes. It was a serious misjudgment. ‘It’s been probably the most successful iron-ore operation in the world,’ McLennan said, 25 years before the China boom. 10 Subsequently, BHP acquired 85 per cent of the total shareholding and today exports 100 million tonnes annually from seven mine sites including Mt Whaleback, which is the biggest single-pit open-cut ore mine in the world.
On 18 April 2008, as the early Qantas flight carrying one of the authors touched down at Newman’s long runway, the pilot slammed on the brakes and the passengers were thrown forward in their seats. As the aircraft taxied towards the neat airport terminal, the pilot came on the intercom. ‘Sorry about that,’ he said. ‘There were a couple of eagles on the tarmac. To save hitting them, we applied some brakes.’
Welcome to the outback of the twenty-first century.
Mt Whaleback is now a vast crater five kilometres long, 1.5 kilometres wide and 430 metres deep. Six other massive BHP Billiton mines are also located in the East Pilbara, an area almost the size of New South Wales. All are connected by rail to Port Hedland, 400 kilometres from Newman. More than 70 locomotives and 4000 open cars carry the ore to the port, which can load 16,000 tons an hour into a steady procession of bulk carriers for the journey to China, Japan, Europe or Australian foundries.
BHP Billiton has reserves of 300 billion tonnes in the area. The company will still be carving out the ore in 50 years’ time. Newman, a neat, nondescript town of 8000, is booming. It is so overcrowded with miners that tourists are waved away. There has been no room at the inn for the last four years. Shire president Lyn Craigie, bluff, blonde and hearty, says, ‘We even tell the grey nomads to park out of town.’
It is a company town. ‘The government does bugger all,’ she says, ‘and we’re the powerhouse of the nation. BHP even built the airport and sold it to the shire for a dollar.’ She loves the place. ‘It’s a great community, a terrific place to live if you can stand the pace.’
It was not always so. Mick Carroll and Fred Stojich have worked at the Mt Whaleback mine since the late 1960s. ‘Used to be a bloody Wild West town,’ Mick says, sipping a drink in the covered verandah of Newman’s Seasons hotel. ‘None of us had mufflers on our cars,’ he grins. ‘Bloody rough place.’
Fred nods. He remembers driving one of the first two mechanical shovels loading ore into the trucks. ‘No air conditioning in the shovels. So you’d open the front window and red dust would pour in on you. You couldn’t see where you were going half the time.’
‘The average worker would last about two weeks,’ Mick says. ‘We were getting 99 cents an hour. We were all at the single men’s quarters – better known as the Sperm Bank – and the place was patrolled by security guards. For fun, we’d roar our cars and motorbikes around the town. More blokes got killed or injured driving home from work than at the mine. Made our own entertainment – drinking beer mostly. They put up a sort of open-air theatre.’
That was 1968, and the movies – beginning with Dr Zhivago – were projected on a bed sheet on a bare spot of ground between the pre-fab houses. Later, it became a drive-in. ‘But you couldn’t close your windows to hear the sound because of the heat,’ Mick says. ‘And when you opened them, the bloody mosquitoes were big as bats!’
As the population rose following the opening of the rail link to Port Hedland in 1969, the company built sporting facilities. In a famous early soccer match between Newman and Watson-Jaxon, the home side was soon plunging towards defeat. The spectators became so aroused at the refereeing decisions that the man in white fled from the field only 30 minutes into the game. According to the local rag, ‘One of the spectators took over.’ Newman lost anyway.
Soon, there were four Australian Rules teams in the town: the Tigers, Centrals, Pioneers and Saints. ‘After the game, we’d all have a barbecue together, have a beer, settle a few scores maybe.’ Mick laughed at the memory. ‘There was a great community feeling. You didn’t have to be invited. Everyone was in it.’
Not quite everyone. According to the official line, ‘BHP Billiton Iron Ore has a long and positive history of working with the Indigenous people in the Pilbara.’ This is untrue. Until recently, the Aboriginal people of the Pilbara were ignored, and even today an afternoon tour of Newman’s dusty outskirts reveals a scatter of them staggering around stashes of booze. However, there are also signs that the company is serious in its ‘aggressive targets’ designed to achieve 14 per cent Indigenous indirect employment – and 40 apprenticeship positions – by 2012. Don Argus says, ‘We have a commitment to the rights of Indigenous people wherever we go.’ 11
There are about 2500 Aboriginal people – including some 30 different language groups – in the East Pilbara, with the biggest group, of around 200, in the ‘dry’ community of Jigalong, 160 kilometres from Newman. Aboriginal contractors are working as drill-hole cappers – seeking out the hundreds of thousands of test drills (a few centimetres across) in the region, capping them with concrete to prevent animals and humans from injuring themselves and mapping them by the satellite-based Global Positioning System (GPS). The man in charge of the program, Craig Hoyer, says, ‘They’re doing up to 50 holes a day. It’s working well.’
And when Prime Minister Kevin Rudd apologised to the stolen generations in parliament on 13 February 2008, the BHP executive team made the three-hour drive to Jigalong to share the event with the community when it was telecast at 6.30 am. As the sun rose on the vast purple plains of the outback, the Aboriginal community and the executives gathered in silence beneath an open-sided tent as the prime minister spoke to the nation: ‘For the pain, suffering and hurt of these stolen generations, their descendants and for their families left behind, we say sorry. To the mothers and the fathers, the brothers and the sisters, for the breaking up of families and communities, we say sorry. And for the indignity and degradation thus inflicted on a proud people and a proud culture, we say sorry.’
Aaron Minchin, the sustainability principal at the mine, said, ‘It was quite moving. We kept it pretty low-key. When it was over, we all shook hands and had a cup of tea. It was good.’
Serious social problems remain, and they are not confined to the Indigenous people. From the beginning of the Newman project, distance and isolation have had a profound effect on the miners and their dependants. According to journalist and author John McIlwraith, writing in 1979, ‘Young women became so shattered by the isolation that they would walk out of their homes and on to a plane to the south, leaving the children in the house and a note on the kitchen table waiting for their husband’s return.’ 12
Gavin Sinclair, a psychologist employed by BHP in the 1970s, criticised the company’s ‘paternalism’, a them-and-us attitude reminiscent of the early days at Broken Hill. ‘Many staff do treat the men “like animals”,’ he wrote, ‘and then feel that an occasional freebie will fix things up. Such attitudes are anachronistic.’ 13
The result was a series of wildcat strikes followed by major disputes that shut down the mine for weeks on end. By 1976, one middle-level manager wrote, ‘This company has lost only five days’ production in the past seven years due to mechanical problems yet over the past 12 months we have had 60 days, at $1 million a day, lost due to strikes – that is, people-problems.’ 14 In some years, the company lost a sixth of its production through strikes in the Pilbara.
The paternalism reflected Ian McLennan’s attitude to personnel management. Stan Salamy, a short, quietly spoken man who joined the company after completing his PhD in 1955 and was regarded as being under McLennan’s personal patronage, found himself the unwilling witness to the chief executive officer’s modus operandi during his regular visits to Whyalla at the time. ‘He was a difficult character,’ he says. ‘Whenever he would come to Whyalla, he would invite all the executives to dinner. You had to be suited and all the rest of it. They were held at the Directors’ Cottage and the dinner was quite formal too.
‘They were so embarrassing. After a while, he would select a topic – shipping, iron ore or steel – and he would hop into the person responsible. On and on he would go with this one poor bloke in the gun. It was very embarrassing.
‘I tried one night to change the subject. He rounded on me. “Stan, keep out of this,” he said. “It’s nothing to do with you.” So we just had to sit there ... on and on he went.’ 15
Jerry Ellis, the future BHP chairman, saw a totally different side of McLennan. ‘He was a wonderful man, a bit misunderstood. He was seen as being hugely authoritarian and a bit frightening to junior people,’ he says. ‘I carried his bag around the world in the mid-’70s and got to know him very well. He taught me a huge amount about self-discipline and how to organise your thoughts and behave in the upper echelons of business.’ 16
One of the reasons for Stan Salamy’s favoured status was his scientific background. McLennan developed a powerful research unit within the company and in 1969 opened the Melbourne Research Laboratories, headed by an outstanding British scientist, Dr Bob Ward. By 1984, research-and-development staff within the group numbered more than 600 and new methods were discovered for galvanising iron, continuous coke-making and rolling head-hardened steel rails at Whyalla for the iron-ore railways.
In 1973, Dr Ward happened to see a young Perth inventor, Ralph Sarich, on the ABC program The Inventors demonstrating a revolutionary ‘orbital’ engine. Ward flew to Perth the next day and formed a new company with Sarich to develop the concept with BHP as a major shareholder. The results were outstanding, and today Sarich’s fortune is estimated at $800 million.
At 85, Dr Ward is gently disillusioned by the company’s approach to research. ‘They have reverted to the “dig it up and sell it” approach,’ he says. The Newcastle laboratories that housed 200 scientists and technicians when he retired in 1988 were now a shadow of their former strength. The Melbourne Research Laboratories had been sold. ‘They went cold on research,’ he continues. One result had been that they were ‘left behind’ in the development of geo-sequestration of CO2 in coal-fired power plants. ‘They could have been ten years ahead if they had started at the right time.’ 17 (See Chapter 25.)
But it was BHP’s exploration for oil and gas that triggered the big headlines of the McLennan era. When he joined the board in 1955 and became senior general manager, he learned that British interests were considering acquiring oil-exploration titles over a big area of the New South Wales coast – known geologically as the Sydney Basin – including BHP’s southern coalfield. He immediately used the company’s inside track to government to secure the leases ahead of the opposition. He then formed a new subsidiary, Haematite Exploration Proprietary Limited (named after the rusty red iron ore, hematite, to conceal the company’s true quarry), 18 to undertake oil exploration within the exploration division. At the same time, he ordered a review of all geological surveys of the Sydney Basin.
The demand for oil and its derivatives – the ‘blood of the earth’, in Clemenceau’s evocative phrase – had exploded in the 1950s, making crude the most prized natural resource on the planet. Its absence was the Achilles heel of the Australian economy. As the oldest continent, this was perhaps to be expected. Oil tends to be found in younger rocks. Nevertheless, minor finds had been made along the southern coastline since 1869. The first oilfield was established at Lake Bunga, near Lakes Entrance in the Gippsland Basin, in 1924, after Lake Bunga-1 was spudded in to drill for water and encountered small amounts of viscous, heavy crude at a depth of 370 metres. This led to the discovery of the Lakes Entrance oil pool.
The 64 wells drilled there between 1930 and 1941 produced a mere 3063 barrels of oil. During the Second World War, the Lakes Entrance Oil Shaft was excavated by the federal government and produced a further 4935 barrels. After the war, Lakes Oil took over the operation and a 1949 geophysical survey around Lakes Entrance indicated the presence of a number of structures with oil-bearing potential within the company’s leases. Dr Nicholas Boutakoff of the Victorian Mines Department strongly suggested that exploration should be undertaken offshore in Bass Strait, where thick tertiary-age sediments included a number of large, relatively simple structures capable of holding oil. 19
But neither Lakes Oil nor anyone else had happened upon the real treasure trove of black gold in the Lakes Entrance area. For the Gippsland Basin was in fact a major offshore petroleum province containing recoverable reserves of the order of four billion barrels of oil and ten trillion cubic feet of gas.
Elsewhere in Australia, small quantities of oil had been discovered at Roma on the Darling Downs (1927) and Rough Range in Exmouth Gulf (1953), but oil companies such as AMPOL were still importing all of their oil and petroleum products, and draining most of the country’s foreign-exchange reserves in the process. 20 And big trouble was looming internationally, which made oil self-sufficiency, if possible, the nation’s top priority.
As early as 1953, Shell analysts, operating with the proficiency of a secret-service organisation, forecast that the Anglo-French Suez Canal might be nationalised by Egypt. The Canal was Britain’s lifeline to her rapidly vanishing Asian empire – and Australia’s highway to Europe for her wool and wheat – but it was also a major tanker route for transporting two-thirds of the oil from the Persian Gulf to Europe’s refineries.
Following the military coup d’état that deposed King Farouk of Egypt in 1952, Shell’s rising star (and later chairman) John Loudon suggested to the French president of the Suez Canal Company that in order to avoid nationalisation of the Canal he turn over its ownership to the Egyptian Government and then lease it back, so that Egypt got substantial revenue while the company retained control of the waterway.
The suggestion fell on deaf ears. Loudon was told that if Egypt seized the Canal illegally, the company would expect France and Britain to reclaim it by military action. In 1956, President Gamal Abdul Nasser nationalised the Canal, as Shell had foreseen, precipitating the Suez Crisis, in which Britain, France and Israel failed in their efforts to seize it through military intervention, forcing British prime minister Anthony Eden to tender his resignation. 21 Indeed, Menzies was himself humiliated when he led a delegation to Egypt only to be snubbed by Nasser.
Australia, of course, was east of Suez and although she imported most of her petroleum products from the United States much of the American crude came from the vast oilfields of the Middle East, which were beginning to look dangerously vulnerable to Arab nationalism. The 1956 crisis made the Menzies government even more anxious that BHP should drill for oil in the Sydney Basin.
Beginning in 1957, BHP’s oil explorers sank a number of wells in the most likely looking prospects, but all came up dry. McLennan was disappointed but not discouraged. By now, he bestrode the organisation, his position unchallengeable, his faith in the company’s future unshakeable. He did what BHP executives had done since the founding of the company: he looked overseas for the best brains available. He gave his general manager of operations, John D. Norgard, the task of discovering ‘the best oilman in America’, and after scouring the universities, oil companies and lists of private consultants, Norgard found just the man for the job.